contributions

Super concessional contributions: beware of going over the limit

If you are either an employee or a self-employed person and you top up your super by making deductible contributions, you need to be aware of not breaching the annual $25,000 concessional (before-tax) contribution cap. If that happens, your tax bill will increase, not to mention the administrative inconvenience you may face.

As an employee, your employer is obliged to pay you the 9.5% of Superannuation Guarantee Contributions (SGC), which count as concessional contributions. So if you are a high-income earner, especially, with more than one employer (eg, a doctor working for more than one hospital) you could risk going over the limit.

“You could also be in danger of reaching the cap if you, as an employee, have salary sacrifice arrangements already in place from last year when the annual concessional cap was higher ($35,000 or $30,000 depending on your age).”

Given that the annual cap was lowered to $25,000 (regardless of age) from this 2017–2018 year, it is advisable to review your current arrangements and adjust your contribution amounts so you don’t inadvertently contravene the new lower cap.

What exactly are concessional contributions?
Concessional contributions are those made to a super fund out of an individual’s pre-tax income and are taxed at 15%.

Generally, concessional contributions include:

  • Employer’s super guarantee contributions, that is, the compulsory 9.5% of your salary that your employer puts into your super.
  • Salary sacrifice payments made to your super fund by entering into a salary sacrifice agreement with your employer.
  • Personal contributions, for which a deduction has been claimed, typically, if you are self-employed.
  • Insurance premiums and administration fees when your employer paid those costs to your super fund on your behalf, rather than these being deducted direct from your super fund.

What happens if the limit is breached?

If you go over the $25,000 concessional contributions cap, whether deliberately or unintentionally, the ATO will send you an excess concessional contributions determination, which indicates that:

  • The excess contributions will be included in your assessable income and you will be taxed at your marginal tax rate (plus Medicare levy).
  • You will receive a non-refundable tax offset of 15% for your excess concessional contributions. This amount acknowledges the tax already paid by the super fund on those contributions. (Remember: concessional contributions are taxed at 15% when received by the super fund.)

You will need to pay an “excess concessional contributions charge” (ECC charge) at an approximate rate of 4.70% (the rate is updated quarterly). The ECC charge period is calculated from the first day of the income year to which the charge relates, ending on the day before the day on which payment is due under the first notice of assessment.

Making the election

After receiving the excess concessional contributions determination, you can choose to pay the tax bill from your own money, or use a release authority issued by the ATO to pay the debt using you superannuation money.

However, before paying the excess, contact us, or your superannuation fund, to confirm that there was an excess of contributions and that this was not a mistake. There could also be a narrow possibility of challenging the excess based on “special circumstances”, but do speak to us first to evaluate your position.

The release authority allows you to use up to 85% of the excess concessional contributions from the superannuation fund to cover the additional personal tax liability. The election to release must be made in the approved form within 21 days of receiving the excess concessional contributions determination.

Once you send the election form to the ATO, it will issue the nominated super fund with an excess concessional contributions release authority. The super fund will then be required to pay the amount to be released to the ATO within seven days. Due to the short seven-day timeframe, trustees of self-managed super funds (SMSFs) should ensure that they have sufficient cash to make the expected payment on time. Note that administrative penalties apply for failing to make a payment to the ATO.

Talk to us first

There are various practical things you can do to avoid paying additional charges. However, talk to us first before making any decision about your super.

budget2018

Budget 2018: What’s in it for you

It’s May, which means it’s Budget time. In the last full Budget before the next Federal election, the Treasurer delivered an election Budget with enough sweeteners for everyone including businesses, income tax relief for individuals, measures to boost superannuation, and help for older Australians.

The 2018-19 Budget was handed down on 8 May by Treasurer Scott Morrison. In the last full Budget before the next Federal election, ScoMo delivered what was widely perceived to be an election Budget with lots of sweeteners for everyone. So what’s in it for you?

“You could also be in danger of reaching the cap if you, as an employee, have salary sacrifice arrangements already in place from last year when the annual concessional cap was higher ($35,000 or $30,000 depending on your age).”

Businesses

The Government styled themselves as the champions of business with already legislated tax cuts for small and medium Australia businesses as well as unincorporated small businesses. While there were no specific tax cuts for businesses in the Budget, “the Government remains committed to ensuring that Australian businesses remain internationally competitive and will progressively reduce the corporate tax rate for all companies through the 10-year enterprise tax plan.”

Small businesses will benefit from the Government extending the $20,000 instant asset write-off for a further 12 months to 30 June 2019. According to the Government, these small businesses will now have additional opportunities to reinvest in their business and replace or upgrade their assets.

Income tax relief

“The Government has promised to deliver targeted tax relief of up to $530 to middle and lower income earners through a new tax offset for the 2018-19, 2019-20, 2020-21 and 2021-22 income years. This offset will be in addition to the current low-income tax offset and is expected to provide over 10 million Australians with tax relief.”

In addition to this relief, the Government will increase the top threshold of the 32.5% tax bracket to $90,000 from 1 July 2018. In a feat of forward planning, from 2022-23 the top threshold of the 19% tax bracket will be increased to $41,000 with the low-income tax offset to be increased to $645. According to the Government, these changes together will mean that taxpayers permanently receive tax relief.

Superannuation

In the Budget, the Government announced measures to ensure that Australians keep more of their super, including:

  • giving the ATO capacity to actively reunite Australians with their lost and inactive superannuation;
  • capping certain superannuation fees at 3% for accounts with balances of less than $6,000;
  • banning superannuation exit fees to make it easier for Australians to consolidate their superannuation; and
  • tailoring insurance arrangements to ensure that they are opt-in rather than opt-out.

Older Australians

The Government has tried to please both pensioners and self-funded retirees with the following measures announced in the Budget:

  • expansion of the pension loans scheme to those on the full pension and self-funded retirees to give them the option to boost their retirement income. Full pensioners will be able to increase their income by up to 50% of the Age Pension.
  • expansion of the pension work bonus which will allow age pensioners to earn up to $300 per fortnight (up from $250) without reducing their pension payments. The bonus will also be extended to self-employed individuals who will be able to earn up to $7,800 per year.
  • exemption from the superannuation work test for those aged 65-74 with superannuation balances below $300,000.
  • standards of living in retirement will be boosted and retirees will have greater choice in how they receive their superannuation through the Government’s retirement income framework.

Want to find out more?

Do you want to find out more about how this Budget affects you and your future? We will help you find the answers and plan for your future.

Accountant

Are you signed up to the new small business super clearing house?

The small business superannuation clearing house (SBSCH) is a convenient service that allows a small business to make superannuation contributions for its employees in one single payment. It’s important to know that access to the service has recently changed significantly. In this article we explain the steps you need to take to ensure your business can continue using the service.

Although the SBSCH itself hasn’t changed, the service has been migrated to the ATO’s Business Portal. This means your old login details will no longer work and you need to arrange access to the new system as soon as possible (if you haven’t done so already).

“Despite this minor inconvenience, the change benefits small businesses because they can now access a number of the ATO’s tax and superannuation services using one set of login details.”

The way you access the SBSCH depends on your business type.

  • Small businesses with an ABN can now access the service through the Business Portal. If you’re already using this portal, you can access the SBSCH from the “Manage Employees” menu. If you need to arrange access to the portal, you will first need to set up an approved authentication credential. You can choose from either AUSkey (which can only be used on the particular device it is installed on) or Manage ABN Connections (which allows access from any browser or mobile device).
  • Sole traders, individuals who employ others (such as carers or nannies) or businesses without an ABN can access the service through their myGov account (linked to ATO services).

Your accountant or tax professional can also manage your contributions through the SBSCH on your behalf.

Never used the SBSCH?

The SBSCH is a free service that makes it easier for small businesses to comply with their superannuation obligations. The service is available to any business with 19 or fewer employees or an annual aggregated turnover of less than $10 million.

After joining and updating the system with your employees’ details, you only need to make a single electronic payment to the service and it will distribute the separate contributions to each employee’s fund. Your contributions are “paid” on the date the SBSCH accepts them.

The SBSCH also allows you to nominate staff who are authorised to use the service on behalf of your business.

Need some assistance?

Has your business done everything it can to make superannuation compliance as easy as possible? If you need to set up access to the new SBSCH, or if you’ve never used the service and would like to sign up, contact our office for assistance.

home-super-saver

First Home Super Saver Scheme update: building on the foundations

We start the new year with headlines of “falling house prices”, but even if prices are set to come down and you keep a close eye on your finances, saving a deposit to buy your first home can be difficult. The First Home Super Saver Scheme (FHSSS) – now passed by Parliament – means that you can use superannuation to build your home deposit, and not only if you are buying a first home. Here is an update on FHSSS and other exemptions from which you could benefit.

The FHSSS allows you to make voluntary superannuation contributions, from 1 July 2017, and later withdraw them, starting from 1 July 2018, to use for a first home deposit

For many people, the FHSSS effectively operates to provide a 15% tax saving on money channelled via superannuation for a first home purchase. While the potential tax savings of the scheme will only make a small dent in the major funding required for a home purchase, the potential assistance on offer should not be ignored.

A person with assessable income above $52,000 who has the capacity to salary sacrifice the yearly maximum of $15,000 as a FHSSS contribution can achieve a respectable tax benefit, because they will save 17.5% in tax (plus Medicare levy) on the way into super, and only pay 2.5% (plus Medicare levy) on the FHSSS released amount. However, given that people with taxable incomes below $37,000 have a marginal tax rate of 19% (plus Medicare levy), the tax savings of the FHSSS are diminished for these low-income earners. So, the greatest tax benefit of the scheme will be for people earning between $52,000 and $102,000 who can salary sacrifice $15,000 and stay on the 32.5% marginal tax rate (income between $37,000 and $87,000).

Those with an income above $102,000 can achieve a 22% savings in tax (plus Medicare levy) on the way into super, but will pay 7% (plus Medicare levy) on the FHSS released amount.

Extension to those who are suffering “financial hardship”

When the scheme was first proposed it was limited to apply only to first home buyers.

“There is now a proposal to extend the scheme to home buyers who the ATO determines are suffering “financial hardship”

The Government is yet to release regulations that define what constitutes “financial hardship” and we will keep you updated on this.

What’s included?

Individuals are able to contribute up to $15,000 per year (and $30,000 in total) to their super for the purpose of a first home deposit. Employees can use salary sacrifice arrangements to make pre-tax contributions, but you should keep in mind that any FHSSS amounts you contribute will still count towards your yearly concessional contributions cap. The cap from 1 July 2017 is $25,000 – that is, your pre-tax contributions of up to $25,000 (including the mandatory super guarantee and any you make under the FHSSS) will be taxed at a “concessional” rate of 15%. Higher tax rates will apply if you exceed the cap.

Importantly, the scheme doesn’t allow you to withdraw money that you already had in super before 1 July 2017, and any FHSSS amounts you contribute will only be available for release from 1 July 2018.

Who’s eligible?

To be eligible to use the FHSSS you will need to:

  • be at least 18 years old;
  • have not used the scheme before and have never owned real property in Australia; or
  • qualify as someone who has suffered a “financial hardship” (determined by the ATO), as specified by regulations.

If you’re eligible to use the FHSSS, you won’t be disqualified if you are buying a home with someone else (such as your spouse) who isn’t a first home buyer.

How does it work?

When ready to withdraw an FHSSS amount from your super, you will need to apply to the ATO, giving a declaration of your eligibility to buy or build a residence. The ATO will issue a determination and release authority specifying the maximum amount to be withdrawn, then estimate and withhold an amount of tax and release your deposit to you. The maximum withdrawal amount will be 85% of your pre-tax (concessional) contributions. Concessional contribution amounts and associated earnings withdrawn from your super under the FHSSS will count as part of your taxable income, although a 30% tax offset will apply. Amounts released from super under the FHSSS will be excluded from the social security means tests and co-contribution income test.

After the release of your FHSSS amount, you will have 12 months to sign a contract to buy or build residential premises, and 28 days after the contract signing to notify the ATO. Your purchase can include buying vacant land to build on and occupy as your residence. You will need to occupy the residence as soon as is practicable, and for at least six months of the first year after it becomes practicable to do so. For example, if you buy a house-and-land package, you will need to occupy the house for at least six months in the first 12 months after it is built.

Important considerations

If you’re saving for your first home and think the FHSSS might be for you, there are a range of factors to consider.

A super account isn’t a capital-guaranteed bank account, so it’s important to look closely at your fund’s investment strategy and be aware of the risks involved with adding the money for your home purchase to your superannuation.

It is crucial to plan ahead, as any salary sacrificing to your super will need to be prospective. The various potential taxing points in the scheme also mean that your personal finances and circumstances may affect whether using it to save your deposit would give you a useful tax saving.

Want to know more? Contact us to discuss the latest super changes and your home deposit savings plan.

foundation

First Home Super Saver Scheme: lay foundations and plan to benefit

Even if you avoid café brunches and keep a close eye on your everyday spending, saving a deposit to buy your first home can be a challenge. The First Home Super Saver Scheme, announced in the 2017–2018 Federal Budget, proposes using the superannuation system to help Australians build their home deposits. The government has now released draft legislation to lay the scheme’s foundations – let’s take a look at the assistance on offer and how it would work if this draft becomes law.

The proposed First Home Super Saver Scheme (FHSSS) will allow people to make voluntary superannuation contributions from 1 July 2017 and later withdraw them, starting from 1 July 2018, to use for a first home deposit.

For many people, the FHSSS will effectively operate to provide a 15% tax saving on money channelled via superannuation for a first home purchase. While the potential tax savings of the scheme will only make a small dent in the major funding required for a home purchase, the assistance on offer should not be ignored by those who can benefit.

A person with assessable income above $52,000 who has the capacity to salary sacrifice the yearly maximum of $15,000 as a FHSSS contribution can achieve a respectable tax benefit, because they will save 17.5% in tax (plus Medicare levy) on the way into super, and only pay 2.5% (plus Medicare levy) on the FHSSS released amount. On the other hand, given that people with taxable incomes below $37,000 have a marginal tax rate of 19% (plus Medicare levy), the tax savings of the FHSSS are diminished for these low-income earners.

So, the greatest tax benefit of the scheme will be for people earning between $52,000 and $102,000 who can salary sacrifice $15,000 and stay on the 32.5% marginal tax rate (income between $37,000 and $87,000). Those with an income above $102,000 can achieve a 22% savings in tax (plus Medicare levy) on the way into super, but will pay 7% (plus Medicare levy) on the FHSS released amount.

What’s included?

Individuals would be able to contribute up to $15,000 per year (and $30,000 in total) to their super for the purpose of a first home deposit. Employees may use salary sacrifice arrangements to make pre-tax contributions, but you should keep in mind that any FHSSS amounts you contribute would still count towards your yearly concessional contributions cap. The cap from 1 July 2017 is $25,000 – that is, your pre-tax contributions of up to $25,000 (including the mandatory super guarantee and any you make under the FHSSS) are taxed at a “concessional” rate of 15%. Higher tax rates apply if you exceed the cap.

Importantly, the scheme won’t allow you to withdraw money that you already had in super before 1 July 2017, and any FHSSS amounts you contribute would only be available for release from 1 July 2018.

Who’s eligible?

To be eligible to use the FHSSS you would need to be at least 18 years old, have not used the scheme before and have never owned real property in Australia.

If you’re eligible to use the FHSSS, you wouldn’t be disqualified just because you were buying a home with someone else (such as your spouse) who wasn’t a first home buyer.

How would it work?

When ready to withdraw an FHSSS amount from your super, you would need to apply to the ATO, giving a declaration of your eligibility to buy or build a residence. The ATO would issue a determination and release authority specifying the maximum amount to be withdrawn, then estimate and withhold an amount of tax and release your deposit to you.

The maximum withdrawal amount would be 85% of your pre-tax (concessional) contributions.

Concessional contribution amounts and associated earnings withdrawn from your super under the FHSSS would count as part of your taxable income, although a 30% tax offset would apply.

Amounts released from super under the FHSSS would be excluded from the social security means tests and co-contribution income test.

After the release of your FHSSS amount, you would have 12 months to sign a contract to buy or build residential premises, and 28 days after the contract signing to notify the ATO. Your purchase could include buying vacant land to build on and occupy as your residence.

You would then need to occupy the residence as soon as practicable, and for at least six months of the first year after it becomes practicable to do so. For example, if you bought a house-and-land package, you would need to occupy the house for at least six months in the first 12 months after it is built.

Important considerations

“If you’re saving for your first home and think the FHSSS might be for you, there are a range of factors to consider.”

A super account isn’t a capital-guaranteed bank account, so it’s important to look closely at your fund’s investment strategy and be aware of the risks involved with adding the money for your home purchase to your superannuation.

While the legislation is yet to be finalised, it is important to start planning now, as any salary sacrificing to your super will need to be prospective. The various potential taxing points in the scheme also mean that your personal finances and circumstances may affect whether using it to save your deposit would give you a useful tax saving.

Want to know more? Contact us to discuss the latest super changes and your home deposit savings plan.

Money Saving

Super guarantee: are you ready for ATO crack down?

The ATO is increasing its efforts to crack down on employers who fail to make quarterly superannuation guarantee (SG) contributions of 9.5% on behalf of their employees. If you are an employer, regardless of whether you run a small or large business, now might be a good time to review your SG obligations before the ATO comes knocking. If a shortfall is discovered, simply rushing to make extra super contributions will not always be the best course of action. In fact, it can result in a double liability, so careful planning is required for dealing with any identified problems.

It is estimated that the shortfall – or gap – in SG payments could be around 5.2%, equivalent to $2.85 billion in missing super contributions (based on estimated figures for 2014–15). This gap is the difference between the theoretical amount due by employers to be fully compliant with their SG obligations and the actual contributions received by super funds. The Minister for Revenue said the failure of some employers to meet their SG obligations to employees has been a problem ever since SG was introduced in 1992.

ATO Deputy Commissioner, James O’Halloran reported recently: “While this analysis shows that 95% of the estimated superannuation guarantee is paid to employees, the gap exists because some employers appear not to be meeting their super guarantee obligations either by not paying enough or not paying it at all”. This follows recent pressure from a Senate Committee calling for the ATO to adopt stronger compliance activities, rather than its previous reactive approach.

In addition to following up all reports of unpaid SG, the ATO says it is increasing its proactive SG case work by a third this financial year. Mr O’Halloran added:

“We have improved our analysis of data to detect patterns in non-payment, and are working more closely with other government agencies to exchange information”

Package of reforms

As if the Commissioner doesn’t have enough powers already, the Government has announced a package of reforms to give the ATO real-time visibility over SG compliance by employers. One of these involves additional ATO funding for a Superannuation Guarantee Taskforce to crack down on non-compliant employers.

Other key recommendations include the following:

Monthly contribution reporting

Superannuation funds will be required to report to the ATO on contributions received more frequently, at least monthly. The Government says this will enable the ATO to identify non-compliance and take prompt action. It has been noted that this move to more regular SG reporting will place a greater cost burden on super funds, especially smaller ones.

Single Touch Payroll (STP) roll out

Employers with 20 or more employees will transition to STP from 1 July 2018, while smaller employers (ie, those with 19 or less employees) will move to STP from 1 July 2019. Rather than being a check on businesses, this new system is designed to reduce the regulatory burden and transform compliance.

Director penalty notices

The issue of director penalty notices and the use of security bonds for high-risk employers are measures set to improve the effectiveness of the ATO’s recovery powers, to ensure that unpaid superannuation is collected and paid to employees’ super accounts.

Penalties by court order

The ATO will have the ability to seek court-ordered penalties in the most serious cases of non-payment, including those employers who are repeatedly caught but still fail to pay SG liabilities.

 Super contribution due dates

Quarter ending          Employer contribution           Late contributions,

                                               due date                         SGC statement and

                                                                                         payment due date

           30 September                   28 October                            28 November

           31 December                    28 January                             28 February

           31 March                           28 April                                  28 May

           30 June                               28 July                                    28 August

Employers are required to make quarterly super contributions of at least 9.5% of an employee’s ordinary time earnings. If the super fund receives the SG contributions by the quarterly due dates (see table) the contribution is tax-deductible for the employer, whereas a late payment is not tax-deductible.

Where an employer does not make sufficient quarterly super contributions by the due date, the employer becomes liable for the superannuation guarantee charge (SGC). The SGC is payable to the ATO and automatically arises as soon as the contributions are not made by the due date. This means that if an employer discovers a shortfall in SG contributions after the due date, making a contribution to the employee’s super fund to cover the shortfall isn’t always the best course of action as it may not reduce the SGC liability. Generally, an employer can only use late contributions to offset a portion of the SGC that relates to the relevant employee. However, a late contribution cannot be used to offset the SGC in respect of a person who is no longer an employee.

Fixing a SG problem

If you are expecting leniency from the ATO for a first offence, think again. The Commissioner does not have any discretion at law to remit the SGC itself. The best a non-compliant employer can hope for is that the ATO may remit the 200% additional SGC penalty that applies for the late lodgment of a SGC statement.

Employers can also request the ATO to defer the due date for lodgment of a SGC statement. However, a deferral of time to lodge the statement does not defer the time for payment. The ATO will generally only extend the due date for payment where there are circumstances beyond the employer’s control (eg, a natural disaster or illness) and the payment can be made in full at a later time (or by instalments).

Do you think you could have a problem with your SG obligations? Speak to us about your options before the ATO is on your doorstep.