contributions

Super concessional contributions: beware of going over the limit

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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

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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.

tax-refund

Single Touch Payroll

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Overview

Single Touch Payroll (STP) is a change to how businesses will report employee information to the ATO. Payments such as salaries & wages, pay as you go (PAYG) withholding and superannuation will be reported directly to the ATO each time your employees are paid. This will be done via your payroll software. At present, salary & wage and PAYG withholding information is provided to the ATO via your Business Activity Statements, while superannuation information is provided to superannuation funds only when the contributions are made.

Who does Single Touch Payroll apply to?

STP will be phased in for all employers. For businesses with 20 or more employees, STP will come into effect from 1 July 2018. It is proposed to be extended to businesses with less than 20 employees from 1 July 2019. Employers are required to do a head count of their employees as of 1st April 2018 to determine if they are required to start reporting from 1 July 2018. Full-time, part-time and casual employees are all included in the count while independent contractors do not.

The benefits of Single Touch Payroll reporting

The main drawback for the transition to single touch payroll is having to become familiar with the new process. Some employers may also have to purchase new software to meet the STP requirements.

Despite this, there will be numerous benefits from the change:

For employers

  • As payroll reporting will be combined with the pay run process, some end of year reporting (such as providing payment summaries) will be eliminated
  • The withholding fields on Activity Statements will be automatically generated based on the payroll information eliminating potential errors
  • Super choice forms and TFN declarations can be completed online saving time when taking on new employees

For employees

  • Real time access to employment income and superannuation information via MyGov
  • Payroll information will prefill into tax returns

How to report

education-expense

When it comes to meeting the STP reporting obligations employers will have three options:

  1. Report through your current payroll software such as your bookkeeping, accounting or payroll software

Most payroll software providers (like Xero, MYOB and QuickBooks) have been working to make their software STP enabled. The provider may offer:

  • An end-to-end solution where their software allows the reporting and sending of the file to the ATO, or
  • A partial solution where the software only allows for STP reporting. In this case the file will need to be sent separately through a third party.

If you haven’t been advised of your payroll software provider of their STP status you can either contact them or refer to Australian Business Software Industry Association (ABSIA) website. Most payroll software providers will have extensive information available on their website as well.

2. Report from a new STP ready payroll solution

You will need to choose a new STP ready payroll software where you are currently reporting payroll information to the ATO using paper forms or where your current payroll software will not offer STP reporting. You can check the ABSIA website for STP ready solutions.

3. Utilise the services of a third party who can report through STP on your behalf.

Getting ready for Single Touch Payroll

Once you determine you will be required to start STP reporting you should first contact your payroll software provider to find out:

  • If they will be STP enabled,
  • How they will offer STP reporting (eg through an update or a standalone product),
  • When they will be ready. Some software providers will have a deferred start date as they won’t be ready by July 1, and
  • What support they will offer you with the transition

If you won’t be ready for STP reporting by 1 July or your payroll providers deferred start date, you will need to apply for a deferral. The deferral request is available via the ATO website.

The ATO has announced the first 12 months of reporting will be a transition period. As a result, unless they contact you saying otherwise, no administrative penalties will apply for lodging late or making errors in your reporting.

Where to get more information

The ATO website has detailed information on the introduction and requirements of STP.

Payroll software providers also have details of their STP solutions and how they will be implemented.

Xero

MYOB

QuickBooks

For more information on this topic, or for assistance with understanding or implementing STP, contact our team at Private Wealth Accountants.

Conclusion

I have shared with you the Top 4 Tax Deductions that Most People Miss. I hope that this article can help you better understand what you can claim to increase your tax refund.

If you have any question, free feel to email us at admin@privatewealthaccounts.com.au or call us at (03) 9973 5905. We are here to help.