From 1 July 2022 there is a series of reforms and changes being implemented. Here is what is coming up and how it may affect you.
For Businesses –
Superannuation guarantee will increase to 10.5%
The super guarantee (SG) rate will rise from 10% to 10.5% from 1 July 2022. It will continue to rise by 0.5% each year until it reaches 12% on 1 July 2025.
How does this affect my employees?
It depends on your employment agreements. If the agreement states the employee is paid on a ‘total renumeration basis’ (base salary plus SG and allowances) there take home pay amount might reduce by 0.5%. That is, a greater percentage of their total remuneration will be directed to their superannuation fund.
For employees who are paid a rate plus superannuation, then their take home pay will remain the same. The 0.5% increase will be added to their SG payments.
$450 super guarantee threshold removed
From 1 July 2022 the $450 threshold will be removed. All employees over 18 will need to be paid superannuation guarantee regardless of how much they earn. Please ensure your payroll system supports this change so you don’t accidentally underpay super.
(For employees under 18, super is only paid if they work more than 30 hours per week).
Professional service firm profits
The ATO are concerned about how some professional services firms are structured. They are concerned where these firms operate through trusts, companies, partnerships and discretionary trusts and how the profits from these practices are being taxed.
Specifically, professional practices such as;
- Medical practices;
- Architects etc.
The ATO have bought in a new guidance from 1 July 2022 that takes a strong stance on structures that are designed to divert income. This income divert may result in principal practitioners receiving small incomes personally for their work, thus reducing their taxable incomes.
Where these structures appear to be in place to divert income to create a tax benefit, Part IVA may apply.
What is Part IVA?
Part IVA is an integrity rule which allows the Tax Commissioner to remove any tax benefit received by a taxpayer where they entered into an arrangement in a contrived manner in order to obtain a tax benefit. Significant penalties can also apply when Part IVA is triggered.
A new method of assessing the level of risk associated with profits generated by a professional services firm and how they flow through to individual practitioners and their related parties, will come into effect from 1 July 2022. Professional firms will need to assess their structures to understand their risk rating, and if necessary, either make changes to reduce their risks level or ensure appropriate documentation is in place to justify their position.
If you are unsure about your current structure and if this may affect you, please contact our office on 02 6362 8255 to discuss.
Lowering tax instalments for small business (PAYG)
PAYG instalments are regular prepayments made during the year on business and investment income. The actual amount owing is then reconciled at the end of the income year when the tax return is lodged.
Normally, GST and PAYG instalment amounts are adjusted using a GDP adjustment or uplift. For the 2022-23 income year, the Government has set this uplift factor at 2% instead of the 10% that would have applied. The 2% uplift rate will apply to small to medium enterprises eligible to use the relevant instalment methods for instalments for the 2022-23 income year:
- Up to $10 million annual aggregated turnover for GST instalments, and
- $50 million annual aggregated turnover for PAYG instalments
The effect of the change is that small businesses using the PAYG instalment method will have more cash during the year to utilise. However, the actual amount of tax owing on the tax return will not change, just the amount you need to contribute during the year.
Trust distributions to companies
The ATO recently released a draft tax determination dealing specifically with unpaid distributions owed by trusts to corporate beneficiaries. If the amount owed by the trust is deemed to be a loan then it can potentially fall within the scope of the integrity provisions in Division 7A. If certain steps are not taken, such as placing the unpaid amount under a complying loan agreement, these amounts can be treated as deemed unfranked dividends for tax purposes and taxable at the taxpayer’s marginal tax rate.
The ATO guidance deals specifically with, and potentially changes, when an unpaid entitlement to trust income will start being treated as a loan depending on the wording of the resolution to pay a distribution. The new guidance applies to trust entitlements arising on or after 1 July 2022.
Changes for you…
Home loan guarantee scheme extended
The Home Guarantee Scheme guarantees part of an eligible buyer’s home loan, enabling people to buy a home with a smaller deposit without the need for lenders mortgage insurance. An additional 25,000 guarantees will be available for eligible first home owners (35,000 per year), and 2,500 additional single parent family home guarantees (5,000 per year).
Work-test repeal – enabling those under 75 to contribute to super
Currently, a work test applies to superannuation contributions made by people aged 67 or over. This work test requires you are gainfully employed for at least 40 hours over a 30 day period in the financial year.
This is changing on 1 July 2022. The work-test has been scrapped and individuals aged younger than 75 years will be able to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps.
The work test will still apply to personal deductible contributions.
This change will also see those aged under 75 be able to access the ‘bring forward rule’ if your total superannuation balance allows. The bring forward rule enables you to contribute up to three years’ worth of non-concessional contributions to your super in one year.
Downsizer contributions from age 60
From 1 July 2022, eligible individuals aged 60 years or older can choose to make a ‘downsizer contribution’ into their superannuation of up to $300,000 per person ($600,000 per couple) from the proceeds of selling their home. (Currently, you need to be 65 years or older to utilise downsizer contributions).
Downsizer contributions can be made from the sale of your principal residence that you have owned for the past ten years or more. These contributions are excluded from the age test, work test and your total superannuation balance (but not exempt from your transfer balance cap).
First home saver scheme – using super to save for a first home
The First Home Super Saver Scheme enables first home buyers to withdraw voluntary contributions they have made to superannuation , to put toward the cost of a first home. At present, the maximum amount of voluntary contributions you can make and withdraw is $30,000. From 1 July 2022, the maximum amount will increase to $50,000. The benefit of this scheme is the concessional tax treatment of superannuation.
If you would like anymore information relating to the above, please contact our office on 02 6362 8255.