Changes to the boost is now a Federal law – from June 2023
On 29 March 2022, as part of the 2022–23 Budget, the then government announced it would support small business through these new measures. The measures became law on 23 June 2023. The technology investment boost and skills and training boost for small businesses are now operational and must be applied.
Time to Boost!
Small business technology investment boost
Small businesses (with an aggregated annual turnover of less than $50 million) can deduct an additional 20% of the expenditure incurred for the purposes of business digital operations or digitising its operations on business expenses and depreciating assets such as portable payment devices, cyber security systems or subscriptions to cloud based services.
This measure applies to expenditure incurred in the period commencing from 7:30 pm AEDT 29 March 2022 until 30 June 2023. An entity can claim the boost for expenditure on a depreciating asset only if the asset is first used, or installed ready for use, by 30 June 2023.
An annual $100,000 cap on expenditure will apply to each qualifying income year. Businesses can continue to deduct expenditure over $100,000 under existing law.
Eligible expenditure may include, but is not limited to, business expenditure on:
digital enabling items – computer and telecommunications hardware and equipment, software, internet costs, systems and services that form and facilitate the use of computer networks
digital media and marketing – audio and visual content that can be created, accessed, stored or viewed on digital devices, including web page design
e-commerce – goods or services supporting digitally ordered or platform-enabled online transactions, portable payment devices, digital inventory management, subscriptions to cloud-based services and advice on digital operations or digitising operations, such as advice about digital tools to support business continuity and growth
expenses that form part of your trading stock costs.
Small business skills and training boost
Small businesses (with an aggregated annual turnover of less than $50 million) will be able to deduct an additional 20% of expenditure that is incurred for the provision of eligible external training courses to their employees by registered providers in Australia. Businesses may continue to deduct expenditure that is ineligible for the bonus deduction in accordance with the existing tax law.
The expenditure must be:
for the provision of training to employees of your business, either in-person in Australia, or online
charged, directly or indirectly, by a registered external training provider that is not you or an associate of yours
already deductible for your business under taxation law
incurred within a specified period (between 7:30 pm AEDT or by legal time in the ACT on 29 March 2022 and 30 June 2024).
The bonus deduction is available for expenditure for the provision of training to one or more employees of your business. The training provider must meet certain registration criteria for the bonus deduction.
You cannot claim the following expenses towards the boost:
training of non-employee business owners such as sole traders, partners in a partnership or independent contractors
costs added on an invoice by an intermediary on top of the cost of training, such as commissions or fees, as they are not charged directly or indirectly by the registered training provider.
If you have any questions regarding these coming changes – de Kretser is here for you.
Need more information? If you need assistance understanding how the comparison information relates to your circumstances, we are here to help, so please contact us for further information.
The State Taxation Acts Amendment Act 2023 received Royal Assent on 27 June 2023. The Act introduces measures announced in the 2023–24 Victorian Budget and makes amendments to various state taxation acts.
2023–24 Budget measures:
Business insurance duties
These will be abolished over 10 years by reducing the rate of duty (currently 10%) by 1 percentage point each year from 1 July 2024. ‘Business insurance’ refers to policies taken out by businesses covering public and product liability, professional indemnity, employers’ liability, fire and industrial special risks, marine and aviation insurance.
Special disability trust (SDT) duty exemption
The Duties Act 2000 has been amended from 1 July 2023 to increase the property value threshold for this duty exemption from $500,000 to $1.5 million where the property will be used and occupied as the principal place of residence of the principal beneficiary of the SDT. If the value exceeds $1.5 million, duty will be assessed on the amount that exceeds the new threshold.
New duty exemption for a transfer of land to a person with a disability
The Duties Act 2000 has been amended from 1 July 2023 to introduce an exemption for a transfer of property from an immediate family member to a person with a disability who would be eligible to be a principal beneficiary of a SDT even if an SDT has not been established. The exemption is available from 1 July 2023 for properties valued up to $1.5 million.
Pensioner and concession cardholder duty exemption and concession
The Duties Act 2000 has been amended from 1 July 2023 to increase the property value thresholds to $600,000 for the exemption and $750,000 for the concession. The benefit applies against the full duty chargeable on the purchase. Additional eligibility criteria including a residence requirement has been introduced.
‘COVID debt’ repayment plan – land tax
The Land Tax Act 2005 has been amended to introduce a temporary land tax surcharge from the 2024 land tax year, expiring after 10 years. Properties exempt from land tax will also be exempt from the surcharge.
For taxable landholdings between $50,000 and $100,000, a $500 flat surcharge will apply.
For taxable landholdings between $100,000 and $300,000 (or $250,000 for trusts), a $975 flat surcharge will apply.
For taxable landholdings over $300,000 (or $250,000 for trusts), a $975 flat surcharge will apply plus an increased rate of land tax by 0.10 percentage points.
Absentee owner surcharge (AOS)
The Land Tax Act 2005 has been amended to increase the AOS rate from 2% to 4% and reduce the tax‑free threshold for non-trust absentee owners from $300,000 to $50,000, from the 2024 land tax year.
New land tax exemption for land owned by an immediate family member of a person with a disability
The Land Tax Act 2005 has been amended to introduce an exemption for land owned by an immediate family member of a qualifying person with a disability, where that person would be eligible to be a principal beneficiary of an SDT. The property must be used and occupied as the qualifying person’s principal place of residence for no consideration.
New land tax exemption for land protected by a conservation covenant with Trust for Nature (Victoria).
The Land Tax Act 2005 has been amended to introduce an exemption for land protected by a conservation covenant with Trust for Nature (Victoria), from the 2024 land tax year.
Land tax exemption for construction or renovation of a principal place of residence
The Land Tax Act 2005 has been amended to provide the Commissioner with a discretion to extend the exemption for up to 2 additional years where additional time is required to complete construction due to builder insolvency. This commences from the 2024 land tax year.
Workcover
Businesses will pay an average of 1.8 per cent of remuneration under the scheme from July 1, up from 1.27 per cent. The WorkCover premium is 1.23 per cent in Queensland and 1.48 per cent in NSW.
Eligibility for mental injury claims in Victoria will also be adjusted, with workers suffering stress and burnout no longer able to access weekly WorkCover benefits. They will instead be eligible for provisional payments for 13 weeks to cover medical treatment, along with access to enhanced psychosocial support services.
‘COVID debt’ repayment plan – payroll tax
The Payroll Tax Act 2007introduces a temporary payroll tax surcharge to commence from 1 July 2023, expiring after 10 years. The surcharge applies to employers who pay Australia wide wages of $10 million or more for a financial year and will be payable on Victorian wages above the relevant threshold.
A surcharge of 0.5% will apply to businesses with national payrolls above $10 million.
Businesses with national payrolls above $100 million will pay an additional 0.5%.
Annual payroll tax-free threshold
The Payroll Tax Act 2007 is amended to increase the annual payroll tax-free threshold from $700,000 to $900,000 from 1 July 2024 and from $900,000 to $1 million from 1 July 2025. From 1 July 2024, the allowable deduction will also be phased out for employers with annual wages between $3 million and $5 million, with no allowable deduction once annual wages exceed $5 million.
Payroll tax exemption for high-fee non-government schools
The Payroll Tax Act 2007 is amended from 1 July 2024 to limit the application of the payroll tax exemption to schools that the Minister for Education, in consultation with the Treasurer, declares to be exempt. In determining which schools will be exempt, the Minister for Education will take into account the fees and charges imposed, financial contributions received and any other matter that the Minister for Education considers appropriate.
The Minister for Education’s declaration dated 29 June 2023 is available online.
Other amendments
Corporate collective investment vehicles (CCIV)
The Duties Act 2000, Land Tax Act 2005 and Payroll Tax Act 2007 are amended in response to the introduction of CCIVs under Australian Government reforms.
Each sub-fund of a CCIV will be deemed as equivalent to a separate unit trust scheme for duties and land tax purposes.
Consistent with Federal treatment, regulate and tax a CCIV as if it were a trustee, the property of each sub-fund will be treated as trust property and the members of each sub-fund will be treated as beneficiaries or unit holders of the trust for duties and land tax purposes.
Amounts paid or payable by a CCIV to its corporate director will be excluded as wages for payroll tax purposes.
Fire services property levy – refunds and cancellation of assessments
The Fire Services Property Levy Act 2012 is amended to clarify that the ability of collection agencies to refund or cancel fire services property levy payments for mistakes or errors does not apply if the error, or grounds on which a person believes they have made an overpayment, is covered by a ground of objection under the Valuation of Land Act 1960.
Payroll tax rates
The Payroll Tax Act 2007 is amended to ensure the payroll tax rates for 2021-22 year continue to apply for future tax years. The amendment will apply retrospectively from 1 July 2022 to confirm the annual payroll tax rates that apply for the 2022-23 financial year.
Growth areas infrastructure contribution (GAIC)
The Planning and Environment Act 1987 and the Subdivision Act 1988 are amended to:
Introduce a new GAIC event for a plan of subdivision that does not require a statement of compliance to be issued.
Exclude a dutiable transaction that arises because of the operation of the economic entitlement provisions under the Duties Act 2000 from being a GAIC event.
Abolish the GAIC Hardship Relief Board.
Update GAIC exemptions to reflect changes to exemptions in the Duties Act 2000.
Prevent GAIC from being apportioned from a parent lot to any child lot wholly outside the contribution area, where the parent lot is partly inside and outside the contribution area.
Windfall gains tax (WGT) and valuation objections
The Taxation Administration Act 1997 and Valuation of Land Act 1960 are amended to clarify the scope of objections lodged to valuations of land used in an assessment of WGT.
The amendments require a taxpayer to object to both valuations of land used to calculate value uplift for the purposes of windfall gains tax, even if the grounds for the objection relate to only one of those valuations and provide councils discretion to adopt an amended valuation that results from a windfall gains tax objection.
Statute law revisions
Various statute law revisions are made to the Duties Act 2000, Land Tax Act 2005 and Payroll Tax Act 2007.
If you have any questions regarding these coming changes – de Kretser is here for you.
Need more information? If you need assistance understanding how the comparison information relates to your circumstances, we are here to help, so please contact us for further information.
From 1 July 2023, trustees and directors of SMSFs must report certain events that affect their members transfer balance account quarterly.
These events must be reported by lodging a ‘transfer balance account report’ (TBAR) no later than 28 days after the end of the quarter in which they occur. The purpose of this change is to streamline the reporting process and bring all SMSFs under a single reporting framework. This means there will no longer be an ‘annual reporter’ option.
What is a transfer balance account and a TBAR event?
The introduction of a transfer balance cap (TBC) from July 2017 introduced a limit on how much an individual could transfer from their superannuation accumulation account into a retirement phase pension. In order to track an individual’s use of their TBC, a ‘transfer balance account’ (TBA) is created to record necessary transactions from the time an individual first commences a retirement phase pension.
Importantly, a TBAR is only required when a member has an event which affects their TBA. The most common reporting events include:
■Commencement of a pension
■Lump sum withdrawals from a pension account
■Commencement of a death benefit pension.
For many SMSFs, the members will have only one or two TBAR events in their lifetime. Other events that do not affect a member’s TBA and therefore do not need to be reported include:
■Pension payments
■Investment earnings or losses
■When an income stream ceases because the capital has been depleted
■Death of a member.
Changes from 1 July 2023 From 2023/24 onwards
■A member’s total superannuation balance will no longer be relevant in determining whether an SMSF reports on a quarterly or annual basis, and
■All SMSFs must lodge a TBAR within 28 days after the end of the quarter in which the TBC event has occurred (ie, by 28 January, 28 April, 28 July, and 28 October).
This means that SMSFs that have previously been permitted to lodge a TBAR on an annual basis will no longer be permitted to do so from 1 July 2023.
However, the obligation for SMSFs to report earlier will remain in cases where a fund must respond to a pension excess transfer balance determination or a commutation authority from the ATO.
Action items for SMSF trustees
For those SMSFs that already report on a quarterly basis, there will be no change to the reporting frequency for TBAR events. The changes impact SMSFs that are annual reporters only.
Note – if you’re currently lodging your TBAR annually at the same time as your SMSF annual return, you will need to report all events that occurred in the 2023 financial year by 28 October 2023. Should you have any questions on your TBAR reporting obligations, please contact us today as we can help you prepare for these upcoming changes.
If you have any questions regarding these coming changes – de Kretser is here for you.
Need more information? If you need help comparing your superannuation fund or need assistance understanding how the comparison information relates to your circumstances, we are here to help, so please contact us for further information.
Are you an employer who needs to make superannuation guarantee (SG) contributions for your employees? If so, it may be worthwhile bringing forward these SG contributions to before 1 July to benefit from a tax deduction this financial year. However the timing of when SG contributions are deductible to an employer can be tricky if employers pay SG contributions for their employees via a superannuation clearing house (SCH).
RECAP – WHAT IS A SCH?
The ATO’s free Small Business Superannuation Clearing House (SBSCH) is the only ‘approved’ clearing house – none of the many commercial clearing houses have this status. The SBSCH is a free service that small businesses with 19 or fewer employees, or an annual aggregated turnover of less than $10 million, may use to make superannuation contributions to employees.The SBSCH aims to reduce compliance costs for small business employers by simplifying and streamlining the process of making employee superannuation contributions, by allowing employers to make a single lump payment of their contributions to the SBSCH each quarter. That lump sum payment is broken into individual payments by the SBSCH, and then contributed to each employee’s respective super fund or RSA superannuation account.
TAX DEDUCTION AVAILABLE FOR EMPLOYERS
Employers can claim income tax deductions for SG contributions made to a superannuation fund on behalf of their employees, subject to certain conditions being met. As the income tax deduction is available in the financial year the contribution is made, some employers may wish to improve their current year tax position by bringing forward the June quarter SG contributions to before 1 July, even though these SG contributions are not due until 28 July 2023.
TAKE CARE IF YOU USE A SCH
As mentioned above, SG contributions are tax deductible in the year in which they are made. That said, a contribution is not made until it is received by the fund, and when that happens depends on the way in which the contribution is made. This is clear cut where an employer pays SG contributions directly to an employee’s nominated superannuation fund. That is, the contribution will be made when it is received by the fund.
However, the timing of the tax deduction and when the contribution counts towards the employee’s contribution cap is not as straightforward where SG contributions are made to a SCH for all employees. Here, the SCH electronically transfers SG contributions to employees’ funds on the employer’s behalf. In this situation, the contribution is not made at the time the clearing house is credited with the funds from the employer. Rather, the contribution is made and therefore deductible when the funds are credited to the respective employee’s superannuation fund (following an electronic transfer of money from the clearing house) and then allocated to the employee.
BEWARE OF TIMING DELAYS
The ATO is aware that there may be a period of time between an employer’s payment to the SBSCH and superannuation fund receiving the contribution. Further, the SBSCH may be unavailable over a weekend close to the end of the financial year for scheduled system maintenance. This means that payments made towards the end of a financial year may not be received by an employee’s superannuation fund in the same financial year. This may therefore impact when an employer is entitled to an income tax deduction for the SG contributions
ACTION ITEMS FOR EMPLOYERS
For those employers who do not use the SBSCH but instead use commercial clearing houses, for the contributions to be deductible in 2022/23, it is recommended that it be made up to 21 days before the end of the financial year.
For employers who make contributions directly to their employees’ superannuation funds, the contributions should be made a few days before the end of the financial year to ensure they are received before 1 July and therefore deductible in the current financial year.
If you have any questions regarding these coming changes – de Kretser is here for you.
Need more information? Please contact us quickly so that we can help you ensure all entitlements are finalised – and you do not miss out.
Temporary Full Expensing (TFE) encourages and supports businesses by allowing an immediate deduction for the business portion of the cost of a depreciating asset.
There is no cost threshold – the whole cost of the asset can be written off in the relevant year. However, cars can only be depreciated up to the car limit which is currently $64,741. The car limit does not, however, apply to vehicles fitted out for use by people with a disability. For background, a ‘car’ is defined as a motor vehicle designed to carry a load of less than one tonne and fewer than nine passengers (excluding motorcycles and similar). Therefore, for those vehicles, the car limit has no application, and full depreciation is available.
Benefits
The principal benefit of TFE is cashflow. TFE enables businesses to bring forward their depreciation claims, and therefore their deductions upfront, into a single year rather than having them spread out over multiple future years. Ultimately, this assists cashflow which itself is one of the main challenges faced by businesses.
Eligibility
The vast majority of businesses including sole traders, will be eligible for TFE as their aggregated, annual turnover will be less than $5 billion. Until 30 June, 2023, under TFE, businesses can claim both new and second-hand depreciating assets where those assets are used or installed ready for use for a taxable purpose.
From a timing standpoint, this means you will not be eligible for TFE in this financial year if you merely order or pay for an eligible asset before 1 July, 2023 – rather, the asset must be used or installed ready for use in your business before this date.
Eligible assets
Computers, laptops and tablets, printers
Wireless routers and Wi-Fi mesh and extenders
Tools and equipment
Cash registers/POS systems
Machinery
Security Systems
Office Furniture (free standing) and business equipment
There are however some ineligible assets as follows:
■ buildings and other capital works for which a deduction can be claimed under the capital works provisions in division 43 of the Income Tax Assessment Act 1997
■ trading stock
■ CGT assets
■ assets not used or located in Australia
■ where a balancing adjustment event occurs to the asset in the year of purchase (e.g. the asset is sold, lost or destroyed)
■ assets not used for the principal purpose of carrying on a business
■ assets that sit within a low-value pool or software development pool, and
■ certain primary production assets under the primary production depreciation rules (including facilities used to conserve or convey water, fencing assets, fodder storage assets, and horticultural plants (including grapevines)).
Business plan
Because under TFE you cannot claim any extra depreciation deductions than under the standard depreciation rules, you should stick to your business plan and only continue to buy assets that align with that plan and that you were contemplating buying anyway…and then enjoy the cashflow benefits of TFE.
If you have any questions about TFE – especially around asset eligibility and timing leading up to 30 June please call us immediately – and we will help you to obtain your maximum amounts.
de Kretser is here for you – your time is precious, we will make it count.
The Australian Taxation Office (ATO) has announced new updates on how one can claim expenses for working from home. From 1 July 2022 onwards, you can choose either to use the ‘actual cost’ method or a new ‘fixed rate’ method (67 cents per hour) based on what best matches your scenario. No matter what method you choose, you have to collect and maintain certain records to access the claim.
The ABS Characteristics of Employment provides information on whether people usually work from home. The concept of working from home stems from pre-pandemic times and includes people who did so: to catch up on work; as part of a flexible work arrangement; to reduce overheads/have a home office; or as part of their employment conditions. The proportion of people who usually work from home has increased from 30% in 2015 to 41% in 2021. It is expected that some of the recent increase could be explained by the COVID-19 pandemic. However, the estimates were generally trending upwards before this time.
Data is released every two years and can be analysed by industry, based on a person’s main job (most hours worked per week). In August 2021, the five industries with the largest proportions of people who usually worked from home were:
Financial and Insurance Services (77%)
Professional, Scientific and Technical Services (70%)
Information Media and Telecommunications (65%)
Education and Training (61%)
Rental, Hiring and Real Estate Services (61%).
The first issue for claiming expenses is that there needs to be a link between the expenses you incurred – and the method you make money. If an incurred expense doesn’t match your work or only half relates to your work, you won’t be able to claim the full expense as a deduction.
On the other hand, the second issue is that you have to incur expenses related to working from home.
The New ‘Fixed Rate’ Method
Previously, there were two fixed-rate methods for the 2021-22 income year:
A cover-all 80 cents per hour rate for costs incurred when you work from home (it was valid from 1 March 2020). This Covid-19-related rate was likely to cover all additional overhead costs linked to working from home, or
If you had space for work but you were not running your business from home, you could access 52 cents per hour while you worked from home to cover the running expenses of your home. However, this rate doesn’t cover certain items, including depreciation of electronic devices that can be claimed separately.
From the 2022-23 financial year onwards, the Australian Taxation Office has merged these two fixed-rate methods to come up with one revised method that can be accessed by anyone working from home, irrespective of whether they are working at the kitchen table or have a dedicated space.
67 cents per hour is the newly announced rate and it covers your energy expenses (gas and electricity), phone usage (home and mobile), stationery, internet, and computer consumables. You are allowed to separately claim deductions of the expense of the decline in assets’ value such as computers, maintenance, and repairs for these assets, and on the other hand, if you have a dedicated home office, it will include the cost of cleaning the office. If more than one person is working from the same home, each person can claim using the fixed rate method if they meet eligibility criteria.
What proof does the ATO need that you are working from home?
The ATO requires A record of hours for the income year – this can be in any form, provided it is kept contemporaneously. For example, records may be kept in one of the following forms:
timesheets
rosters
logs of time the taxpayer spent accessing employer systems or online business systems
time-tracking apps
a diary or similar document kept contemporaneously.
Furthermore, you also need to maintain a copy of at least one document for every expense you incurred during the year that is covered by the fixed rate method.
It could include bills, invoices, or credit card statements.
Keeping records of running expenses
The taxpayer must also keep evidence for each of the additional running expenses that they incurred.
For energy, mobile and home phone and internet expenses, the taxpayer must keep one monthly or quarterly bill. If the bill is not in the taxpayer’s name, they will also have to keep additional evidence showing they incurred the expenses, e.g. a joint credit card statement showing payment or a lease agreement showing they share the property, and therefore the expenses, with others.
For stationery and computer consumables, which are occasional expenses, the taxpayer must keep one receipt for an item purchased.
Each household member who contributes to the payment of an expense that is listed on a bill in the name of one person but the cost is split will be considered to have incurred it. You need to maintain these records so you can prove your claim. If you don’t have this proof at that time, you will not be able to claim deductions.
According to the ATO, you will no longer be able to give estimates or a sample diary over four weeks to claim work-from-home deductions. From 1 March 2023, you will have to show the actual hours you worked from home.
Keeping records for decline in value
As the decline in value of depreciating assets is not covered by the revised fixed-rate per hour, to claim a deduction for decline in value the taxpayer must keep the written evidence required by Div 900 or the ITAA 1997
An employee must keep, for each depreciating asset, a document which shows:
the name or business name of the supplier
the cost of the asset
the nature of the asset
the day the asset was acquired
the day the record was made out.
The taxpayer must also keep records which demonstrate their work-related use of the depreciating asset. This can be evidenced by records of a representative four-week period that show personal and income-producing use of the depreciating assets.
For depreciating assets used in carrying on a business, they must keep records that record and explain all transactions.
If you have any questions regarding these changes – de Kretser is here for you.
Need more information? If you need help with consolidating your information to achieve maximum return – please contact us.
Studies suggest that the failure to plan cash flow is one of the leading causes of small business failure.
To this end, a cash flow forecast is a crucial cash management tool for operating your business effectively.
Specifically, a cash flow forecast tracks the sources and amounts of cash coming into and out of your business over a given period. It enables you to foresee peaks and troughs of cash amounts held by your business, and therefore whether you have sufficient cash on hand to fund your debts at a particular time.
Keep in mind that sales figures can change all the time depending on:
your customer base and how quickly they pay you
changes in the economy such as interest rates and unemployment rates
what your competitors are doing
Moreover, it alerts you to when you may need to take action – by discounting stock or getting an overdraft, for example – to ensure your business has sufficient cash to meets its needs. On the other hand, it also allows you to see when you have large cash surpluses, which may indicate that you have borrowed too much, or you have money that ought to be invested.In practical terms, a cash flow forecast can also:
■make your business less vulnerable to external events in the economy, such as interest rate or super rises
■reduce your reliance on external funding
■improve your credit rating
■assist in the planning and re-allocation of resources, and
■help you to recognise the factors that have a major impact on your profitability.
At this point, a distinction should be drawn between budgets and cash flow forecasts. While budgets are designed to predict how viable a business will be over a given period, unlike cashflow forecasts, they include non-cash items, such as depreciation and outstanding creditors.
By contrast, cash flow forecast focus on the cash position of a business at a given period. Non-cash items do not feature. In short, while budgets will give you the profit position, cash flow forecasts will give you the cash position. Cash flow forecasting can be used by, and be of great assistance to, the following entities:
■business owners
■start-up business
■financiers
■creditors
A cash flow forecast is usually prepared for either the coming quarter or the coming year. Whether you choose to divide the forecast up into weekly or monthly segments will generally depend on when most of your fixed costs arise (such as salaries, for example).
When forecasting overheads, usually a forecast will list:
■receipts
■payments
■excess receipts over payments (with negative figures displayed in brackets)
■opening balance
■closing bank balance.
When you are making forecasts, it is important to use realistic estimates. This will usually involve looking at last year’s results and combining them with economic growth, and other factors unique to your line of business.
If you have any questions regarding your cash flow forecast – de Kretser is here for you.
Need more information? If you need help creating an overview of your cashflow and how it will greatly benefit your overall business approach, we are here to help, so please contact us for further information.
What is the proposed new tax on $3m+ Super balances?
Individuals with large superannuation balances may soon be subject to an extra 15% tax on earnings if their balance exceeds $3m at the end of a financial year.
What has been proposed?
Recently, the government announced it will introduce an additional tax of 15% on earnings for individuals whose total superannuation balance (TSB) exceeds $3m at the end of a financial year. Those affected would continue to pay 15% tax on any earnings below the $3m threshold but will also pay an extra 15% on earnings for balances over $3m.
The proposal will not impose a limit on superannuation account balances in the accumulation phase, rather it is about how generous the tax concessions are on higher balances. The government has confirmed the changes will not be applied retrospectively and will apply to future earnings, coming into effect from 1 July 2025.
This means your balance in superannuation at 30 June 2026 is what matters initially.
What counts towards the $3m threshold?
The $3m threshold is based on your total superannuation balance (TSB) and includes all of your superannuation accounts. This includes your accumulation and pension accounts and all superannuation funds you may have (such as your SMSF and any APRA-regulated superannuation funds you have). Further, the $3m threshold is per member, not per superannuation fund. This means a couple could have just under $6m in superannuation/pension phase before being impacted by the proposals.
How will earnings be calculated?
Put simply, the extra 15% tax is unrelated to the actual taxable income generated by your superannuation fund. Rather, it is a tax on earnings or increases in account balances over $3m (including unrealised gains and losses). This means any growth in balances will include anything that causes your account balance to group – such as interest, dividends, rent, and capital gains on assets that have been sold, including any notional or unrealised gains on assets that increase in value, even if your fund hasn’t sold them.
Apart from the extra 15% tax, the taxation of unrealised gains is what has caused a stir, as currently individuals do not pay tax on income or capital gains on assets that have not been sold. When looking at how to capture growth in a person’s TSB over a financial year, earnings will be calculated based on the difference in TSB at the start and end of the financial year, and will be adjusted for withdrawals and contributions. It is also worth noting that negative earnings can be carried forward and offset against this tax in future years’ tax liabilities.
How is the extra 15% tax calculated?
Superannuation funds, including SMSFs, will not be required to calculate the earnings attributable to a member’s balance above $3m. Rather, the ATO will use a three-step formula to calculate the proportion of total earnings which will be subject to the additional 15% tax.
How will the extra tax be paid?
Individuals will be notified of their liability to pay the extra tax by the ATO. This means the ATO, not their superannuation fund, will issue members with a tax assessment. Individuals will have the choice of either paying the tax themselves or from their superannuation fund(s) (if they have multiple funds). The tax will be separate to the individual’s personal income tax liabilities.
Don’t fret just yet! The measure is due to start from 1 July 2025, so superannuation funds and members still have time to consider their options.
Remember, this measure is still a proposal and must be passed into legislation by Parliament to become law. So don’t rush to remove benefits below the $3m limit just yet as once amounts have been withdrawn from superannuation, it’s hard to get them back in.
If you have any questions regarding your Super obligations – de Kretser is here for you.
Need more information? If you need help comparing your superannuation fund or need assistance understanding how the comparison information relates to your circumstances, we are here to help, so please contact us for further information.
Do you run a business and have or are thinking about hiring workers? If so, it’s important to understand the difference between contractors and employees, as you have different tax and superannuation responsibilities depending on the status of the worker.
What’s the difference between contractors and employees?
Generally speaking, an employee works in your business and is part of your business. A contractor is a person who is typically running their own business and anyone who engages their services has little direction or control in respect of how that service is supplied unless a written agreement is provided.
The table below provides six key factors that determine whether a worker is an employee or contractor for tax and superannuation purposes.
Factor
If worker is an employee
If worker is a contractor
Ability to subcontract/delegate
The worker can’t subcontract /delegate the work – they can’t pay someone else to do the work. They must do the work themselves.
The worker can subcontract/ delegate the work – they can pay someone else to do the work.
Basis of payment
The worker is paid either:For the time worked or a price per item or activity and or, commission.
The worker is paid for a result achieved based on the quote they provided. A quote can be calculated using hourly rates or price per item to work out the total cost of the work.
Equipment, tools and other assets
Your business provides all or most of the equipment, tools and other assets required to complete the work, or the worker provides all or most of the equipment, tools and other assets required to complete the work, but your business provides them with an allowance or reimburses them for the cost of the equipment, tools and other assets.
The worker provides all or most of the equipment, tools and other assets required to complete the workThe worker does not receive an allowance or reimbursement for the cost of this equipment, tools and other assets.
Commercial risks
The worker takes no commercial risks. Your business is legally responsible for the work done by the worker and liable for the cost of rectifying any defect in the work.
The worker takes commercial risks, with the worker being legally responsible for their work and liable for the cost of rectifying any defect in their work.
Control over the work
Your business has the right to direct the way in which the worker does their work.
The worker has freedom in the way the work is done, subject to the specific terms in any contract or agreement.
Independence
The worker is not operating independently of your business. They work within and are considered part of your business.
The worker is operating their own business independently of your business. The worker performs services as specified in their contract or agreement and is free to accept or refuse additional work.
Your tax and super obligations
Your tax, superannuation and other obligations will vary depending on whether your worker is an employee or contractor. The table below summarises the key considerations.
Tax/Obligation
If worker is an employee
If worker is a contractor
Income
You’ll need to withhold tax (PAYG withholding) from their wages and report and pay the withheld amounts to the ATO.
Contractors generally look after their own tax obligations, so you don’t have to withhold payments to them unless they don’t provide their ABN to you, or you have a voluntary agreement with them to withhold tax from their payments.
You’ll need to report and pay FBT if you provide your employee with fringe benefits.
You don’t have FBT obligations.
The High Court’s new employee/contractor test
The High Court has delivered several decisions which confirm that when determining whether a person is an employee or contractor, it is necessary to look to the legal rights and obligations agreed under the relevant contract, rather than what happened in the working relationship as it unfolded.
This is in contrast to the previous practice adopted by courts and tribunals whereby the actual circumstances of how the arrangement played out in real life (on the facts, not the contract terms) was decisive. In other words, the written agreement (the contract) will determine the nature of the relationship, rather than examining the subjective circumstances. This is unless the contract is a sham and does not reflect the circumstances of the arrangement.
Review your contracts with your workers
It is important that business owners understand the difference between employees and contractors. Businesses should absolutely review their written contracts with employees and contractors to ensure that the contracts correctly give effect to the arrangement the parties understood was being entered into when the contract was formed.
If you have any questions regarding your obligations in this space – de Kretser is here for you.
Need more information? Please do not hesitate to get in touch – we look forward to hearing from you.
A MySuper fund is a low-cost superannuation product and is usually the default account for people who don’t choose their own superannuation fund when they start a new job.
Many large Australian Prudential Regulation Authority (APRA) regulated superannuation funds (ie, retail, industry and corporate funds) can all offer MySuper accounts to members in accumulation (ie, non-retirement) phase. MySuper funds are simple accounts that generally have the following basic features:
■Simple investment strategy options – depending on the fund, you will be put into either a single diversified investment option or a lifecycle investment option based on your age.
■Lower fees – you don’t pay for unnecessary features that you don’t need.
■Default insurance options – you can easily opt out of the insurance arrangements if you wish.
■Easy to compare – you can easily compare MySuper funds based on investment performance, cost and insurance.
YourSuper comparison tool
You can find out about and compare MySuper products by using:
■Your superannuation fund’s product disclosure statement (PDS) for the MySuper product, or
■The ATO’s YourSuper comparison tool. If you can’t find your current account type within the MySuper products list, your account may not be a MySuper product. The best way to confirm whether your account is a MySuper product is by contacting your superannuation fund directly.
What does the YourSuper comparison tool do?
The YourSuper comparison tool can compare MySuper products based on only a few key differences.In particular, the YourSuper comparison tool:
■Allows you to select and compare in more detail up to four MySuper products at a time.
■Links you to a superannuation fund’s website when you select a MySuper product from the table.
■Can show your current superannuation accounts alongside other MySuper products (if you access the personalised version through myGov)
■Provides links to help you consolidate your superannuation accounts.
APRA assesses the annual performance of each MySuper product. As such, the investment performance column will provide one of the following results for each fund:
■Performing – the product has met or exceeded the performance test benchmark
■Underperforming – the product has not met the performance test benchmark
■Not assessed – the product had less than 5 years of performance history and has not been rated by APRA.
Using the YourSuper comparison tool
To access a personalised version of the tool which allows you to view and compare your existing MySuper products:
You can also access a non-personalised version of theYourSuper comparison tool without logging into myGov by:
■Visiting ato.gov.au and search for “Your Super comparison tool”
■Start searching for your own MySuper product name.
If you have any questions regarding your Super obligations – de Kretser is here for you.
Need more information? If you need help comparing your superannuation fund or need assistance understanding how the comparison information relates to your circumstances, we are here to help, so please contact us for further information.
