Category Archives: Superannuation

1 July 2014 Federal Budget Recap

Individuals

  • Temporary Budget Repair Levy. Adds 2% to the tax rate for every dollar of a taxpayer’s annual taxable income over $180,000
  • Increase in the Medicare Levy from 1.5% to 2%
  • Superannuation Guarantee charge increases from 9.25% to 9.5%.
  • Aged care reforms introduce new assets tests for resident’s accommodation and care fees
  • Changes to the way the Private Health Insurance (PHI) rebate is calculated requires extra information from individuals for their 2013/14 tax returns, which should be included on their PHI annual statement. There will be two different rebate periods – one from 1 July 2013 to 31 March 2014 and the other from 1 April to 30 June 2014.

Business

  • New ATO tax tables The ATO is releasing its new 2014/2015 tax rates, updated to reflect the increase inMedicare levy from 1.5 to 2% and the Temporary Budget Repair Levy for employees earning greater than $3,461 per week (i.e. $180,000 per year).
  • No TFN or ABN. If the employee has not provided a TFN or a supplier business has not provided their ABN, the employer should withhold 49% of any payment made.
  • Increase in the Superannuation Guarantee rate. The SG rate will increase from 9.25% to 9.5% from 1 July 2014. The government has announced that it would slow the previously announced increases to 12%, (leaving the 9.5% SG rate in place until 30 June 2018) however no legislation regarding this has been introduced.
  • SuperStream. Employers can opt-in to use SuperStream from 1 July 2014. Large and medium employers must complete their implementation by no later than 30 June 2015. Smaller employers (19 or fewer employees) are not required to start using SuperStream until 1 July 2015, and must complete their implementation by no later than 30 June 2016.
  • Living away from home allowance (LAFHA) transitional period ended on 30 June 2014. Now, the main condition to be satisfied is that the employee must have a normal place of residence in Australia that is maintained for their “personal use and enjoyment” (i.e. still available to them, not rented out) while they are living and working in another location. In most cases, LAFHAs will also be time limited to 12 months. Employees who qualified for the transitional rules will not be entitled to another 12 month period from 1 July 2014 unless there is a change in the job location. However, if the employee is working on a fly-in- fly-out or drive-in drive-out basis the LAFHA concessions are not subject to the 12 month limit.
  • Paper activity statements. From 1 July, once an activity statement is lodged electronically, the ATO will no longer issue paper activity statements.
  • Company loss carry-back repeal. The government has announced that it intends to repeal the carry back tax offset for the 2013/14 and later tax years. Legislation covering this has been reintroduced, but this is not yet law.
  • Simplified depreciation rules. The government also announced that it would repeal the provision allowing small businesses an accelerated initial deduction for motor vehicles. Legislation covering this has been reintroduced, but this is not yet law.

Self-Managed Super Funds

  •  New SMSF trustee penalties. From 1 July 2014 the ATO has greater powers to enforce the superannuation rules by levying financial penalties directly on trustees.
  • Concessional contribution cap changes. From 1 July 2014, the concessional (deductible) contribution cap for taxpayers up to the age of 50 is $30,000.  And for those 50 and above, the cap is $35,000.
  • Non-concessional cap changes. The non-concessional contributions cap from 1 July 2014 is $180,000 or $540,000 over 3 years (up from $150,000 per year).
  • Insurance inside an SMSF. From 1 July 2014, new insurance policies within a SMSF must be consistent with the death, terminal illness, and permanent and temporary incapacity conditions of release in the Superannuation Industry (Supervision) Act.

 

Posted on the 21-07-2014

Employers paying Superannuation Guarantee

Employers can expect a renewed focus from the ATO on superannuation guarantee (SG) payments made to employees.

With the SG rate increasing from 9.25% to 9.5% on 1 July 2014, employers will need to make sure that payments are made on time and that the calculations are accurate.

Just be aware that the increase in SG should not necessarily reduce the take home pay of employees.

In many cases employee contracts are ‘base plus superannuation’. In this case, the employer absorbs the increased SG rate not the employee.

The June 2014 SG must be paid no later than 28 July.

Refer to the ATO website for your options when you are late paying your quarterly SG liability.

Posted on the 13-07-2014

Are your contractors really employees?

The ATO continues to enjoy a high success rate challenging the treatment of contractors under the superannuation guarantee (SG) legislation. Despite recent comments made by the Government that the ATO should ‘relax’ its approach to contractors, the ATO has no reason to simply walk away from such a potentially lucrative revenue stream – why would they when the law is on their side?

As there is no real time limit on the recovery of outstanding SG obligations, business owners need to take a proactive approach to reviewing arrangements and ensure that the business is not exposed to material liabilities – the start of the new financial year is a great time to do this.

The underlying issue is often that employers take the contractor relationship at face value – that is, what the piece of paper describing the relationship actually says. The reality is quite different as the law is based on the character of the relationship not what is stated in writing. So, if your business has contractors (or are a contractor) performing the same role as an employee, then it’s possible the ATO will classify them as an employee for SG purposes.

A genuine independent contractor who is providing personal services will typically be:

  • Autonomous rather than subservient in their decision-making;
  • Financially self-reliant rather than economically dependent upon the business of another; and,
  • Chasing profit (that is a return on risk) rather than simply a payment for the time, skill and effort provided.

There are a number of tests that can apply to help determine the status of a contractor – such as control, whether the worker has been hired to produce a result, the ability for them to freely delegate work to someone else, risk exposure, ownership of tools and equipment, and the treatment of business expenses, etc.

Employers cannot contract out SG responsibilities by adding fail safe clauses in contracts. And, there is no certainty that a contractor using an interposed entity (for example setting up their own company and operating through the company) is fool proof.

Posted on the

Directors personally liable for employee’s super

Directors are now personally liable for unpaid superannuation guarantee charge (SGC) payments to staff. While initially designed to prevent phoenix company activity, the new laws that applied from 1 July 2012, extend well beyond phoenix company activity (whereby the assets of a struggling company are transferred to a new business, leaving behind debts, tax bills and unpaid employee entitlements).
 
The new law extends the director penalty and estimates regime beyond PAYG withholding to the super guarantee charge.  That means that if a company fails to remit SG to the employee’s funds on time, the Directors can be personally liable for the payment.
 
A director penalty is triggered when a company’s liability for PAYG withholding or Superannuation Guarantee remains unpaid and unreported 3 months after the due date. The Tax Commissioner will then issue a Director penalty notice to either the Director or their tax agent. The director penalty applies even if the company is placed into administration.
 
In particular, directors should be aware that they can no longer avoid personal liability under the Director Penalty Regime (DPR) by placing their company into administration or liquidation, even if prior to a Director Penalty Notice (DPN) being issued.  As a result of recent changes, the ability of a director to avoid personal liability in this way has been removed in circumstances where the company’s PAYG withholding and/or Super Guarantee charge remains unpaid and unreported 3 months after the relevant due date. The ‘due date’ is the 28th of the month following the end of the relevant quarter.
 
This area of law is currently on the ATO Hit List.  Specifically, the ATO has begun making use of its recently expanded powers under the DPR and are cracking down on the directors of non-complying companies.  In fact, over the past few months, the ATO have been sending warning letters to directors of companies with unpaid SGC obligations.    If a director receives a ‘warning letter’, they must take immediate action to avoid personal liability under the DPR. 
 
Be careful if you use contractors
If your company uses contractors, ensuring that your contractors meet the definition of an ‘independent contractor’ is more important than ever.  Remember that where a contract is principally for labour, that person might be treated as an employee and in those circumstances, superannuation guarantee will be payable regardless of what your agreements call the relationship.   The director penalty regime will extend to SGC payments for employees misclassified as contractors.  The only out is if it was reasonably arguable that the company took reasonable care in applying the law – however, naivety is not an excuse under the law.
 
For more details on the ATO approach to the Director Penalty Regime, click this link
https://www.ato.gov.au/General/Managing-your-tax-debt/In-detail/Debt-fact-sheets-and-FAQs/Our-approach-to-the-director-penalty-regime/

Posted on the 25-06-2014