As we’re starting a new financial year, this is the perfect time to ensure you know everything you need to prepare for this current financial year.
We want to touch on a few important factors you should consider for the new financial year as a business owner.
- Superannuation Guarantee
- Single Touch Payroll – Phase 2
- Changes to Company Tax and Tax Rates
- Trusts and the Impact of Division 100A
Superannuation Guarantee in the current financial year
The first thing you need to know is…What is the Super Guarantee?
As you know, Superannuation is the money you must pay eligible workers to provide for their retirement. The Super Guarantee is the minimum amount you must pay to avoid a super guarantee charge.
And what is the Super Guarantee Charge?
Employers who don’t pay the Super Guarantee by the quarterly due date may have to pay a Superannuation Guarantee Charge to the ATO.
The Super Guarantee Charge includes all the super guarantee amounts owing to their employees, plus interest and an administration fee.
Refer to the section on the Australian Tax Office website to determine how to set up the super for your business. Further information is also available to help you understand how to pay super, and due dates and your super obligations.
Profit Generator Tip: The best way to manage your Super contributions is with Xero (or your financial accounting software package). Making sure all your employee information inside Xero is up to date is a must, including all their superannuation fund information.
Super Guarantee changes this financial year
Some changes have been made to the Super Guarantee as of 1st July 2022.
The first major change for every business is that the amount required to pay for the Super Guarantee is increasing. It has risen from 10% to 10.5% contribution to your employees.
The first quarter impacted is the September Quarter for this financial year, and that is due on 28th of October 2022. Of course, it is imperative that you have your super guarantee processes in place as soon as possible so that you’re not caught out when it falls due. Otherwise, a Super Guarantee Charge may be payable to the ATO.
Tax Fact – Superannuation Guarantee that is paid late is not tax deductible.
Tax legislation clearly defines that the superannuation guarantee should be in the employee’s superannuation fund by the due date to be eligible for the superannuation liability to be tax deductible.
Profit Generator Tip: You don’t need to wait until the end of the quarter to pay the super. In fact, super payments can be made every time you process your payroll or anytime during the quarter.
Remember, it’s the same as not paying their wages on time if you don’t pay your employees’ superannuation guarantee. It’s like you’re robbing them of legally entitled money!
As an employer, the other change as of 1st July 2022 is who is eligible to receive super from you.
Before, employees were required to earn a minimum of $450 per month to be eligible. This requirement is no longer in place. That means all your employees, no matter how much they earn, will be required to have superannuation paid.
For employers that have staff under the age of 18, you will continue only to need to pay them super if they work more than 30 hours in a week.
Part 1 - Super Guarantee Changes
Single Touch Payroll – Phase 2 – 2022/23 financial year
The second thing that employers need to know is the Single Touch Payroll – Phase 2.
What the hell is STP?
The ATO says it’s “an Australian Government initiative to reduce employers’ reporting burdens to government agencies”.
But, in simple terms, and in my own words, with every payroll run as an employer, you will be reporting to the ATO what your employee is earning each pay run.
The ATO will then share that information with other government departments to help make important decisions that impact your employee.
In this way, the ATO is trying to make this as easy as possible for all employers. In the 2019/2020 federal budget, the government announced that STP would include additional information.
To clarify, this decision was made to reduce the reporting burden for employers who must report information about their employees to multiple government agencies.
STP2 benefits for employers
To sum up, these are the benefits for employers:
- You no longer have to send your employees’ tax file number declarations to the ATO.
- If you make a Lump Sum E payment, you won’t need to provide letters to your employees. You will only have to include the amount and the relevant period.
- You can advise the ATO in your STP report if you change accounting software or your employee’s payroll ID. This method will help fix issues with duplicate income statements for employees in ATO online services through myGov.
- You may no longer be required to provide separation certificates.
The ATO will also share payroll information with you in near real-time through Services Australia. It will streamline requests for you to provide or confirm employment and payroll information about your employees.
Of course, there are great benefits for your employees too.
- Making it easier for employees at tax time to have better visibility of their income types pre-filled on their individual income tax returns.
- Also, providing employers with information on any changes to employees’ taxation situation, including notifying you if they have a study and training support loan.
More information about these changes and benefits for you and your employees is available on the ATO website.
Part 2 - Single Touch Payroll – Phase 2
2022/23 FY changes to company tax and tax rates
The third thing businesses should be aware of for the new financial year is the changes made to the Company Tax and Tax Rates.
For the current 2022/2023 financial year, the company tax rate is 25% for all base rate entities. This rate represents a 5% discount on tax compared to non-base rate entities who need to pay a 30% tax rate.
A base rate entity is a business that has 80% or more of its revenue that comes from business transactions, so not revenue from passive income.
Passive income examples could include dividends, interest, trust distributions, royalties, capital gains and rental income.
But what company tax applies to me this financial year?
The 25% company tax rate applies to your company if:
- One – in the 2022 tax year, the company’s aggregated turnover for that income year is less than $25 million, and
- Two – if it has 20% or less of the assessable income in the income year as passive income, i.e. you need to be a base rate entity as described in my tax fact.
Part 3 - Changes to Company tax and tax rates
Trusts and the impact of Division 100A
The last thing I would like to go through is changes to Trusts.
If you have a trust, whether it is the structure that operates your business or holds family investments, it’s essential to understand some recent changes.
When you initially set up your trust, you should have received a lengthy document that, for most people, could cure insomnia! This document is also known as a Trust Deed.
The Trust Deed sets out the rules for establishing and operating your trust. So, it’s an important document that accountants and lawyers will often refer to when guiding trustees making decisions in many circumstances.
A trust deed can shape trustees’ decisions (i.e. the trust’s decision makers). It’s therefore important to update or alter the rules of the trust, particularly when applying recent amendments to tax laws.
Updating a Trust Deed
Updating your Trust Deed ensures:
- that you not only take advantage of the legislative changes that benefit your trust, but
- also, comply with legislation that could benefit the trust and its beneficiaries.
To change the trust deed itself, you must execute a deed of variation. This is a document that updates the relevant section of the original trust deed. The deed of variation forms part of the documentation of your trust and details how the trust deed has been changed over time. This is of course something NGR Accounting can assist you with.
Anyone with a family trust, also called a discretionary trust, will want to note what I need to say here.
Historically, many trustees have appointed trust distributions. An income to a beneficiary on a low tax bracket typically won’t actually have a real benefit from the distribution.
The regulators designed Division 100A to put a stop to this.
Division 100A is a section within Income Tax Act 1936 designed to put a stop to income appointed to a beneficiary who is not having a direct benefit from that distribution.
IN BASIC TERMS, the ultimate benefit of that distribution needs to be received by the person the trust has named as the beneficiary.
OR, the sum of the distribution relates to expenses that the beneficiary would have incurred (i.e. the trust paid for expenses on behalf of the beneficiary).
The key thing to highlight here is whether the beneficiary received the benefit.
We also need to question if the distributed amounts related to expenses the beneficiary would have paid personally or if a direct cash distribution went out, that this amount went to the beneficiary.
Should the ATO find that the rules regarding distributions have been ignored, Division 100A will apply.
This approach means that the amounts distributed would be disregarded in broad terms. Instead, tax would be imposed on the trustee at the top marginal tax rate of 47% plus a Medicare levy of 2%.
What should you do this financial year?
All this is still pretty new, even at the ATO level. As a result, many accountants out there are still working through how to apply Division 100A.
Profit Generator Tip: For any distributions being made, especially to young adult beneficiaries, is that you keep and maintain records of amounts that the trust has paid on behalf of them.
As an example:
- receipts of university expenses,
- a record of rent paid,
- invoices for amounts re-imbursed, or
- bank statements showing cash distributions paid.
Some good news is that Division 100A does not apply if you distribute to a person with a legal disability, typically a minor under 18 years old.
Some key takeaways
Division 100A is not saying you cannot distribute to a young adult or even a bucket company. It is not about whether you can appoint or allocate income to a beneficiary; its all about whether they receive the benefit or not.
So, allocating income to a bucket company is not necessarily a problem. Still, there might be division 7a issues to deal with but making sure that the actual benefit passes to the company.
Same with allocating income to a young adult beneficiary as a second example, it’s making sure they too get the actual benefit of the distribution.
Part 4 - Trusts and the impact of Division 100A
Of course, I know this can get confusing and complicated. We recommend that if you want to discuss this further, make an appointment to have a genuine conversation with us here at NGR Accounting.
For more information about the topics addressed in this blog, we encourage you to head over to our website and get in touch with us. Please feel free to email us, and we’d be happy to see how we can help you and your business needs.
About the Author
Nathan Rigney has been in the accounting and taxation industry for over 20 years. He is the founder of NGR Accounting, established in 2014. NGR Accounting is the leading Accounting firm in Southern Sydney, creating MASSIVE financial and personal Growth for Businesses and Individuals while having a shared mindset with their clients.
They do this by partnering with their business community and having focused relationships with clients, which enables their clients to become industry leaders. The type of services provided is tax compliance, preparation of financial statements, advice and our core programs to assist clients with establishing a business, becoming a profitable business and strategies to exit your business (and sell it for a lot of money).