New super tax for balances over $3 million

Proposed New Tax for Superannuation Balances over $3 million

 

On 3 October 2023, the Federal Government released draft legislation proposing a 15% additional tax on earnings for individual superannuation balances that exceed $3 million.  The new measure is set to commence on 1 July 2025.

This proposed new tax will impact on individuals that have a total balance in super or more than $3 million (this is across all superannuation accounts held).

The 15% tax will be levied on the member’s account “earnings” which will be calculated as the movement between the member’s opening and closing balance for the year (after adjusting for withdrawals, contributions and other specific exclusions).  It will only apply to the proportion of an individual’s account balance that is above $3 million (so if your balance is only just over the $3 million threshold, only a small proportion of the earnings will be subject to the new tax).

This means that for individuals who have a total superannuation balance in excess of $3 million, a proportion of unrealised gains of the fund will be taxed at 15%.  This may cause a cash flow concern for the member as they will have to pay tax on gains that have not been realised (and may be held within illiquid assets).

Where there have been negative earnings, the loss can be carried forward to offset future “earnings”.  However, there is no provision in the draft legislation for the losses to be carried back to reduce prior year unrealised gains. 

As yet, there is also no provision for the $3 million threshold to be indexed.

The tax will be levied directly to the individual member (and not the superfund).  The ATO will issue an assessment to the member personally and they can elect to pay the liability personally or withdraw funds from their superfund balance to pay the liability.

We will keep you up to date on the progress of the draft legislation.  Please do not hesitate to contact us if you would like to discuss the impact of the proposals on your superannuation fund.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

Increased Penalty Units: Implications for Taxpayers

Increased Penalty Units: Implications for Taxpayers


Under tax laws, the ATO can impose administrative penalties if you fail to meet your tax obligations.

From 1 July 2023, the base penalty unit has increased by almost 14% to $313. 

When the ATO imposes penalties, they can calculate the penalty using either:

  • a statutory formula, based on the taxpayers behaviour and the amount of tax avoided; or
  • multiples of the base penalty unit.
Examples of Tax Penalties

These are some of the examples of penalties that the ATO may impose:

  • Failing to retaining records as required (maximum 20 penalty units = $6,260)
  • Failing to register (or cancel) GST registration when required (maximum 20 penalty units = $6,260)
  • Failure to lodge a return or statement for a small entity (1 penalty unit for each 28 days late, up to 5 penalty units = $313 to $1,565)

Superannuation funds

The increase in penalty units can impact significantly on superannuation funds.  For superannuation funds, the penalty units are imposed per trustee.  Where a fund has a corporate trustee, the penalty will be imposed solely on the corporate trustee.  However, where a fund has individual trustees, the penalty will be imposed on each trustee.  Effectively doubling the penalty where the fund has two individual trustees.

This is another reason that we recommend that a superannuation fund should have a corporate trustee.

It is possible to change the trustee of your superfund to a corporate trustee.  Please contact us if you would like to discuss this further.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

Unravelling the Super Liability for Contractors

Unravelling the Super Liability for Contractors

Do you engage contractors for your business?  It is important that you are aware of your obligations regarding contractors.  There are two factors you need to think about:

(1) Whether the worker is actually an employees for your business (and not a contractor) – which means your business will be liable to withhold tax and pay super for the worker;

(2) If they are legally a contractor, whether your business still has a super obligation.

We have looked at each of these below.

1. Contractors or employees?

The first issue you need to consider is whether the workers you pay as “contractors” are actually employees?

If they are actually employees, then your business will be liable to withhold tax from their payments and also pay their super.

The ATO have a table on their website (extracted below) which outline the factors to consider when determining whether your workers are contractors or employees.  No single factor is definitive.  Rather, you need to consider the whole of the relationship.

Factor 1 – Control

  • Employee: Your business has the right to control how, where and when the worker does their work.
  • Contractor: The worker can choose how, where and when their work is done, subject to reasonable direction by you.

Factor 2 – Integration

  • Employee: The worker serves in your business.  They are contractually required to perform work as a representative of your business.
  • Contractor: The worker provides services to your business.  The worker performs work to further their own business.  They may choose to present themselves as part of your business.

Factor 3 – Method of Payment

  • Employee: The worker is paid for either time worked, a price per item or activity, a commission.
  • Contractor: The worker is contracted to achieve a specific result, and is paid when they have completed that result, often for a fixed fee.

Factor 4 – Ability to Subcontract or Delegate

  • Employee: The worker must perform the work themselves and cannot pay someone else to do the work for them.
  • Contractor: The worker is free to delegate to others who the worker will pay to complete the work on their behalf.

Factor 5 – Provision of Tools an Equipment

  • Employee: Your business provides all or most of the equipment, tools and other assets required to complete the work or the worker provides the tools but your business provides them with an allowance.
  • Contractor: The worker provides all or most of the equipment, tools and other assets required to complete the work, and you do not give them an allowance.
Factor 6 – Risk
  • Employee: The worker bears little or no risk. Your business bears the commercial risk for any costs arising out of injury or defect in their work.
  • Contractor: The worker bears the commercial risk for any costs arising out of injury or defect in their work.

Factor 7 – Goodwill

  • Employee: Your business benefits from any goodwill arising from the work of the worker.
  • Contractor: The worker’s business benefits from any goodwill generated from their work, not your business.

Source: Australian Taxation Office – https://www.ato.gov.au/Business/Employee-or-contractor/Difference-between-employees-and-contractors/#Employeeorcontractor

2. Super for contractors

Even if the person engaged is a contractor, you may still have a liability to pay super on their behalf.   If you pay your contractor predominantly for their labour, they will be regarded as “employees” for superannuation purposes and you will need to pay super for them.

When will a contractor be an “employee” for superannuation purposes?

A contractor will be an employee for superannuation purposes if:

  • They are engaged mainly for their labour (more than half of the dollar value of their contract is for their labour);
  • Their payment isn’t dependent on them achieving a specific result (ie. they are paid for their labour regardless of the result);
  • They cannot delegate the work to someone else.

If you enter into a contract with a company, trust or partnership, this entity will never be regarded as an employee for superannuation purposes.

What are the penalties for not paying superannuation for your contractors?

The penalties for not paying super for your contractors are the same as not paying super for employees.

If you do not pay super when required, there can be penalties of up to 200% of the liability (which means you have to pay the original liability plus another 2 x the liability as a penalty – and none of these payments will be deductible).  Further, the unpaid superannuation liability may become a personal liability of the directors of your company if it remains unreported and unpaid.

What should I do now?

We recommend that you:

  1. Download a list of the payments you are currently making to your contractor
  2. Summarise the payments and group all payments to the same contractor together.
  3. Review each contractor to determine whether they will be an employee for superannuation purposes (the ATO have developed a specialised decision tool that you can use to determine whether your business is required to pay super for contractors – see here.)

If you determine that your contractors are eligible for super, you will need to comply with the standard employer obligations for super (see here).

Please do not hesitate to contact us if you would like to discuss your obligation to pay super for contractors.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

Maximising Downsizer: A Strategy to Boost your Retirement Savings

Maximising Downsizer:

A Strategy to Boost your Retirement Savings

The Downsizer Contribution enables individuals to contribute additional money into super after selling their family home.

Eligibility

You are eligible to make a downsizer contribution if you meet the following conditions:

  1. You have reached the eligible age:
    • From 1 January 2023 – 55 years or older
    • From 1 July 2022 – 60 years or older
    • From 1 July 2018 – 65 years or older
  2. Your home was owned by you or your spouse for 10 years or more prior to sale (generally calculated from settlement of purchase to settlement of sale);
  3. Your home is in Australia (and is not a caravan, houseboat or other mobile home);
  4. The capital gain/loss on sale would be exempt (or partially exempt) under the CGT main residence exemption;
  5. You have not previously made a downsizer contribution.

How do I make the contribution?

If you meet the above conditions and can make a downsizer contribution, to make the contribution, you must:

  1. Provide your superfund with a Downsizer contribution into super form before or at the time of making the contribution (if you make multiple contributions, you must provide a form for each contribution – up to the maximum contribution limit of $300,000);
  2. Make the contribution within 90 days of receiving the proceeds of the sale (this is generally the settlement date).

How much can I contribute as a downsizer contribution?

You can make a downsizer contribution up to a maximum of $300,000 (each spouse) but the contribution can’t be greater than the total proceeds from the sale of your home.

How does a downsizer contribution differ to other types of super contributions?

The contribution doesn’t count towards any of the contribution caps (so these caps will still be available to you). 

The downsizer contributions will count towards your transfer balance cap.  This cap will be considered when determining eligibility for the age pension.

If I’m eligibility, should I make a contribution to super as a downsizer contribution?

This is a good question, and one that we are often asked as accountants.  Unfortunately, the question of should you make this contribution is one that a financial planner needs to answer for you.  As an accountant, we can give you the facts about whether or not you are eligible and the limits on what you are able to contribute.  However, we cannot advise whether you should do so.  We work closely with several financial planners and we can put you in touch with these planners.  They can provide you with holistic advice for your financial position and whether or not a downsizer contribution is right for you.

What should I do next?

If you are over the relevant age to make the downsizer contribution and you are thinking of selling your home, give us a call or book in a meeting to talk about your eligibility.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.