Superannuation Changes Every Business Owner Needs to Know
With the end of financial year (EOFY) 2022 just around the corner, it’s crucial for business owners to know about soon-to-be-implemented changes in Australian super funds.
Come 1 July, companies need to be prepared to address superannuation guarantee (SG) modifications to ensure they remain compliant.
Beginning 1 July 2022, the superannuation guarantee will increase to 10.5 per cent. It must be noted that since 1 July 2021, the SG was already set at 10 per cent, and under the current timetable of mandated increases, the percentage rate will rise to 11 per cent on 1 July 2023. The superannuation guarantee will continue to rise at a pace of 0.5 per cent per year until 1 July 2025, when it will have reached its final rate of 12 per cent.
Additionally, the $450 monthly earning threshold will be eliminated, allowing all employees to receive the SG contribution regardless of their earnings. This could mean paying the superannuation guarantee to some employees for the first time. These SG changes also apply to self-managed super funds.
Employees who were previously not eligible for super under the $450 threshold are required to provide their employer with a nominated super fund. This super fund account, once activated, will remain attached to all future changes in their employment.
Staff below the age of 18 who work less than 30 hours per week are not eligible for superannuation.
In line with these developments, businesses would need to update their payroll software to compute the superannuation guarantee entitlement accurately.
The penalty for late or wrong super payments can be quite severe, so companies should act now to ensure that their systems are up to date before 1 July.
The end of financial year in Australia also signals the need for businesses to stay on top of and finish bookkeeping tasks, file tax returns, and make plans for the coming year.
A checklist prepared by business.gov.au is available to assist firms in preparing and organising for EOFY. These include:
The clock’s ticking.
Get all crucial tasks done now to avoid unnecessary stress and penalties come 1 July.
If this article has inspired you to think about your own unique situation and, importantly, what you and your family are going through right now, please contact your advice professional.
Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)
Reserve Bank governor Philip Lowe has warned Australians to be prepared for higher interest rates, saying inflation must be brought under control.
In his first public appearance since the RBA raised the cash rate by a larger than expected 50 basis points at last week’s board meeting, Dr Lowe said he is predicting inflation to rise to seven per cent by year end.
That compares with a current rate of inflation of 5.1 per cent.
“That’s a very high number and we need to be able to chart a course back to two to three per cent. I’m confident we can do that but it’s going to take time,” Dr Lowe said in a rare television interview on ABC’s 7.30 on Tuesday.
“With inflation being as high as it is, and with interest rates as low as they are, we thought it was important to take a decisive step to normalise monetary conditions and we did that at the last meeting.”
He said it is reasonable to expect the cash rate will get to 2.5 per cent at some point, but said it will be driven by events.
The cash rate currently stands at 0.85 per cent after the RBA raised it at consecutive board meetings from a record low 0.1 per cent.
It was only last year the RBA had been expecting to keep the cash rate low until 2024, but Dr Lowe said that was never a promise.
“The economy didn’t evolve as we expected. It’s been much more resilient and inflation has been higher. We thought we needed to respond to that,” he said.
He said the economy is in remarkable shape with the unemployment rate at a 50-year low, households having built up financial buffers of around $250 billion and the number of people falling behind on their mortgage repayments actually declining..
His comments came as global share markets are in turmoil fearing the US economy could fall into recession if the Federal Reserve raises interest rates aggressively to combat its own inflation problem.
US inflation is at 8.6 per cent, it highest level in 40 years.
But Dr Lowe is confident the Australian economy will continue to grow pretty strongly over the next six to 12 months.
“There is still a bounce back from all the COVID-19 restrictions, people are spending in a way they weren’t able to do last year,” he said.
Dr Lowe said there is a big backlog of construction work to be undertaken and the number of job vacancies is extraordinarily high.
“So people can be confident the jobs will be there and in that environment people will keep spending,” he said.
Lower tax on your investments can help you reach your financial goals sooner. But don’t choose an investment based on tax benefits alone.
You need to include investment income in your tax return. This includes what you earn in:
You pay tax on investment income at your marginal tax rate.
Use our income tax calculator to find out your marginal tax rate.
You’re allowed tax deductions for the cost of buying, managing and selling an investment. But there are rules around what you can and can’t claim as a tax deduction. See the Australian Taxation Office (ATO)’s investment income deductions.
Investing and tax can be complex. See choosing an accountant for where to go for help.
If you sell an investment for more than the cost to acquire it, you make a capital gain. You need to include all capital gains in your tax return in the year you sell the investment. Capital gains are taxed at your marginal rate.
If you’ve held the investment for more than 12 months, you’re only taxed on half of the capital gain. This is known as the capital gains tax (CGT) discount.
The ATO has information to help you work out your capital gains tax on different investments.
If you sell an investment for less than the cost to acquire it, you make a capital loss.
You can use a capital loss to:
Positive gearing is where you borrow money to invest and the income from the investment (for example, rent or dividends) is more than the cost of the investment (interest and other expenses).
If you’re positively geared, you’ll have extra money coming in. But you’ll also have to pay tax on this income at tax time.
Negative gearing is where you borrow to invest and the investment income is less than the cost of the investment.
Investors negatively gear as they can generally claim a tax deduction for the investment loss. The aim is for the capital growth to offset the loss in earlier years.
If you’re making an investment loss, it is still costing you money. You’ll need to have cash from other sources, like your salary, to cover interest and expenses.
A tax-effective investment is one where the tax on your investment income is less than your marginal tax rate.
Choose investments based on your financial goals, risks you’re comfortable with and expected returns. Tax benefits should be a secondary consideration.
Super is a tax-effective investment and one of the best ways to save for retirement. This is because the government provides tax incentives to save through super. These include:
See Tax and super for more information.
Insurance bonds are investments offered by insurance companies. They can be tax effective if you’re planning to invest for 10 years and follow certain rules.
All earnings in an investment bond are taxed at the corporate tax rate of 30%. If no withdrawals are made in the first 10 years, no further tax is payable. They can be tax effective for investors with a marginal tax rate higher than 30%.
Beware tax-driven investments
Tax-driven schemes offer tax deductions now for investing in assets that may provide income in the future. These schemes can be high risk and some are scams. Check the ATO page investigate before you invest for how to spot a dodgy tax scheme. Or get professional advice from an accountant.
Keeping good records will help you at tax time to:
It will also help you calculate any capital gains or losses when you sell an investment.
For all investments such as shares, property and cryptocurrencies you need to keep records to show:
You’ll need to keep records for five years after you included the income and capital gain or loss in your tax return.
Australia has been warned that further aggressive interest rate increases may be needed to contain inflation, potentially leading to negative implications for the economy more generally.
In its latest Economic Outlook, the Organisation for Economic Cooperation and Development says it expects the Reserve Bank of Australia’s cash rate to reach 2.5 per cent by the end of 2023.
The RBA has so far raised the cash rate by 75 basis points at its past two monthly meetings to 0.85 per cent from the record low 0.1 per cent set during the depths of the COVID-19 pandemic,
But the OECD report, finalised prior to the RBA lifting the cash rate by 50 basis points this week, said strong global inflationary pressures and a tight labour market pose further upside risk to inflation in Australia.
“(This) could lead the Reserve Bank of Australia to tighten monetary policy more aggressively, with potential negative implications for consumption, investment and economic growth more generally,” the OECD said.
It believes while skilled migration will rise following the reopening of international borders, it is not expected to be sufficient to materially alleviate the tightness in the labour market.
The inflation rate spiked to 5.1 per cent in the March quarter, the highest level in more than two decades, and the OECD expects it will still be 4.1 per cent in 2023 – well beyond the central bank’s two to three per cent target.
The new Labor government has promised a cost-of-living package in its first first budget in October, after the former government’s support measures – such as the halving of fuel excise, which ends on September 28 – expire.
“Any further cost of living support needed beyond this date should be better targeted to low income households and delivered in a way that does not distort price signals,” the OECD said.
It expects the economy to grow by 4.2 per cent in 2022, a fraction faster than the 4.1 per cent predicted in December, but sees growth of 2.5 per cent in 2023 rather than three per cent.
The OECD said while the direct impact of the war in Ukraine on the Australian economy has been limited, it has – along with stringent COVID-19 lockdowns in China – exacerbated the supply-chain issues.
“However, higher commodity prices have boosted Australia’s terms of trade, and strong global demand for grains will support exports following the war-related disruptions to output in Ukraine,” it said.
It said the federal budget also received large revenue windfalls due to a stronger than anticipated economic recovery and high commodity prices.
It also said that given the risks to energy security, which have been highlighted by the Ukrainian war, the transition towards renewable energy generation should be further encouraged.
This should be accompanied with further investments in the transmission network.
The Paris-based institution again called for the government to undertake tax reform to reduce Australia’s heavy reliance on taxation of personal incomes, which adds to the vulnerability of public finances in an ageing population.
OECD’S LATEST KEY ECONOMIC FORECASTS FOR AUSTRALIA
(versus December forecasts)
2022 – 4.2 per cent (4.1 per cent)
2023 – 2.5 per cent (3.0 per cent)
2022 – 5.2 per cent (2.7 per cent)
2023 – 4.1 per cent (2.1 per cent)
2022 – 4.4 per cent (2.4 per cent)
2023 – 4.0 per cent (2.1 per cent)
2022 – 4.1 per cent (4.7 per cent)
2023 – 4.0 per cent (4.3 per cent)
(Australian Associated Press)
Australia is in for a period of banking sector turbulence as households deal with rising inflation and mortgage payments, the industry regulator says.
“The next few years will be far from plain sailing,” Australian Prudential Regulation Authority chair Wayne Byres told a conference on Tuesday.
APRA has highlighted the rising risk from heavily indebted borrowers in the housing market, as inflation and interest rates accelerate more quickly than anticipated.
“Housing loans have been, as they say, as safe as houses. That may not be the pattern in the future,” Mr Byres told the Australian Financial Review Banking Summit in Sydney.
As Australia enters a very different economic environment, higher inflation and costlier mortgages will have a significant impact on many borrowers with pockets of stress likely to emerge, particularly if housing prices fall “as expected”.
Some may face a sizeable “repayment shock, possibly compounded by negative equity” when they try to refinance in the next year or two, Mr Byres added.
APRA has opted to tackle any sector concerns on a bank-by-bank basis, rather than impose market-wide rules.
In response, Mr Byres expects lending policy changes, coupled with rising interest rates, will mean risky borrowing will “moderate in the period ahead”.
Meanwhile, a $3.5 trillion pool of national superannuation savings will provide a very healthy flow of new savings that will need to be invested, which would “only be beneficial” for the Australian economy.
But APRA remains concerned with the banking sector’s response to climate change risk, after discovering only around half of the banks it surveyed were assessing emissions linked to their lending exposures.
“If Australia is to invest in the transition to a low carbon economy, consistent with our 2050 net zero emissions target, the banking system will play an important role financing that investment,” he said.
But banks needed to properly understand how borrowers would be impacted by the transition.
“And second, it makes it difficult for banks to satisfy the increasing demands from investors, standard-setters and peer regulators for greater climate risk disclosure,” Mr Byres said.
Insurance affordability and availability also “warrants serious attention” by policymakers and the industry, as the issue grows in urgency.
“A range of factors – poor product design, rising claim costs, increasing litigation, and a changing climate – mean that insurance is increasingly more expensive and, in some sections of the market, harder to find,” Mr Byres warned.
Innovation and digitisation, including the rapid growth in crypto-assets, are also on APRA’s agenda.
“There is no doubt the Australian regulatory framework will need to adjust to new forms of money, payments and finance,” he said.
APRA is also wary of new business models, such as aggregator apps and banking-as-a-service.
These developments “test regulatory boundaries and can make it difficult for consumers to understand exactly who they are entrusting their money to,” he said.