Significant tax savings can be achieved via salary sacrificing additional superannuation contributions or by including fringe benefits within your salary package.
Importantly, salary sacrificing arrangements must be put in place priorto the period of service to be effective from a taxation point of view.
With the availability of “transition to retirement pensions” (also known as “working pensions”), taxpayers who have reached their preservation age but wish to stay in the workforce can access their superannuation as a non-commutable income stream without permanently retiring. In certain circumstances it can be tax effective to salary sacrifice employment income into superannuation and use the working pension to pay living expenses. Please contact our office if you would like to discuss this strategy further.
If you are renegotiating your salary package for the next financial year you may wish to contact us to discuss these and other options available to you as there are a number of requirements to commence transition to retirement pensions. You should also take into account the new concessional contribution caps when working out the amount of any salary sacrifice superannuation contributions for the 2019/20 tax year.
The amount that can be provided to employees of not for profit entities for salary sacrificed meal entertainment benefits has been limited to a grossed up cap of $5,000 with effect from 1 April 2016. This may reduce the tax and other benefits available to such employees from their salary sacrifice arrangements.
Employees of small businesses (turnover under $10m from the 2016/17 financial year) may be provided with more than one work related portable electronic device, even where the functions are similar, without imposition of FBT, from 1 April 2016.
Employer Termination Payments
From 1 July 2012 two different ETP caps apply:
The ETP cap applies to all ETPs and limits the amount of all ETPs that can receive concessional tax treatment and the ETP tax offset. For 2019/20 that cap is $210,000 and $215,000 for 2020/21. If the ETP exceeds this amount the balance is taxed at the top marginal rate.
The whole of income cap of $180,000 also applies to some ETPs (golden handshakes, gratuities, unused sick leave payments etc.). Under this cap, the ETP tax offset only applies to that proportion of the ETP that, together with other taxable income, does not exceed $180,000. The excess will be taxed at marginal rates.
Superannuation Payments by Employers
When an employer pays superannuation it can be in the form of an in specie transfer of specific assets (e.g. shares or business real property) without incurring fringe benefits tax.
Employers receive a tax deduction for all superannuation contributions made on behalf of employees. Please note however, that tax penalties at the individual’s marginal tax rate plus an interest charge apply to concessional (pre-tax) contributions (from all sources) in excess of the following limits:
Employers with 20 or more employees have been required to comply with the new SuperStream rules since 31 October 2015. These rules require employers to make all super contributions and associated contribution data electronically. Employers will need certain information from each employee’s superannuation fund for this purpose as well as payroll software that conforms to SuperStream. Information required includes the details of the fund’s ABN and bank account as well as an electronic service address. Employees with SMSFs may need to apply for this. Smaller employers needed to comply with these rules by 28 October 2016.
From 1 July 2018 employers with 20 or more employees are required to report to the Commissioner through Single Touch Payroll-enabled software. The following information must be reported on or before the day you withhold from a payment (the pay day):
payment information, including salary or wages, allowances, deductions, etc.
superannuation liability information or ordinary times earnings (OTE).
Employers who fully report all the information required through Single Touch Payroll will not have to comply with a number of other reporting obligations under the existing law. This includes providing certain payment summaries and the corresponding payment summary annual report. They will need to provide a finalisation declaration.
STP becomes mandatory from 1 July 2018 for employers with 20 or more employees. You can choose to report through Single Touch Payroll if your software is ready. Once you are setup, the option to report a payment to the ATO will be presented for each pay run and your payroll information will be filed with the tax office. Please contact us to discuss this further if you have any questions.
The new reporting rules essentially require, from 1 July 2018, ‘real time’ reporting of salary and wages, PAYG withholding and superannuation information to the ATO by ‘substantial employers’ (i.e., those with 20 or more employees) directly from their payroll software, giving the ATO almost instant access to key tax-related information.
By aligning payroll functions with the regular reporting of taxation and superannuation obligations, it is anticipated that the new rules will reduce the compliance burden (and costs) for employers, and also facilitate early intervention by the ATO as part of its compliance focus.
Under the proposed legislation, from 1 July 2019, STP will be broadened to include all employers (i.e., including employers with 19 or less employees).
However, the Commissioner has a discretion to defer the start date for an employer who may not be ready to commence reporting under STP, or to exempt an employer on a ‘class’ or ‘individual’ basis.
If you have less than five employees there are further exemptions and additional support from the ATO. Please contact us to discuss further.
Superannuation for the Self-Employed
From 1 July 2017, individuals earningmore than $250,000 have their concessional superannuation contributions taxed at 30% rather than 15%. Despite this increased rate, concessional superannuation contributions can still be a tax effective strategy for higher income earners.
A tax deduction for superannuation contributions was available to self-employed, or substantially self-employed, persons. Deductibility has been expanded to all taxpayers under age 75 from 1 July 2017.
From 1 July 2017, the 10% rule for tax deductibility of member contributions is removed and it may not be necessary for employees to maintain salary sacrifice arrangements (but check availability for public sector funds and some corporate defined benefit funds).
Superannuation is only deductible when paid. Contributions for the June 2020 quarter must be received by the relevant Fund by 30 June 2020 for a deduction to be claimed in 2019/20.
Contributions for the self-employed are tax deductible. Please note unfortunately that tax penalties apply if you exceed the contribution caps so be sure to confirm with us if you are unsure (currently $25,000 for all irrespective of age from 1/7/2017).
For this purpose earnings includes taxable income, concessional superannuation contributions, adjusted fringe benefits, total net investment losses, target foreign income, tax free government pensions and benefits, less child support.
Contact us prior to 30 June if you believe the above contribution limits have been exceeded.Taxpayers aged 18 years to 64 years do not need to pass a work test in order to be able to make superannuation contributions.
Taxpayers aged 65 years to 74 years will need to have worked in gainful employment for at least 40 hours in a consecutive 30 day period in that same financial year prior to making deductible contributions. Taxpayers aged 75 years or older are unable to make personal superannuation contributions.
Some workplace legislation, awards or agreements may require that you report on employees’ payslips the amount of super contributions for that pay period. Proposals to make such reporting mandatory, under the SIS Act, have been abolished.
Living Away from Home Allowance (LAFHA) Changes
Changes have been made to the LAFHA rules that, with the exception of “fly in fly out” arrangements:
Limit LAFHA availability to employees who maintain a home available for their own use in Australia, which they are required to live away from for their work;
Limit LAFHA availability to a maximum of 12 months
The changes apply from 1 July 2012 for new arrangements and from 1 July 2014 for arrangements entered into prior to budget night 8 May 2012.
It has been clarified that the usual place of residence cannot be rented or sublet during the employee’s absence.
Employee Share Plan Changes
The following changes took effect from 1 July 2015, effectively repealing some of the more onerous 2009 provisions in relation to stock rights/options.
Share rights will now be subject to tax at the earliest of:
When the employee ceases the employment in respect of which the right was acquired;
Fifteen years after acquisition;
When there are no longer any genuine restrictions on disposal of the right (i.e. the right can be sold) or real risk of forfeiture of the right; and
When the right is exercised and shares acquired which are not subject to restrictions.
These changes mean that rights schemes, which contain a real risk of forfeiture, can access tax deferred treatment to the time of exercise of the right where the scheme rules state that tax deferred treatment applies and the scheme genuinely restricts an employee from disposing of the right.
Certain small start-up unlisted companies may be eligible for the start-up concession which provides that an employee does not include a discount on ESS interest in assessable income at grant and that any gain is taxed under the CGT provisions on disposal.