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Practice Update
June 2024
🔶 END OF FINANCIAL YEAR OBLIGATIONS FOR EMPLOYERS 🔶
As the end of the financial year approaches, the ATO reminds employers to stay on top of their payroll governance. Key responsibilities include:
- Recording payment amounts accurately using tax and super software
- Withholding the correct amount of tax
- Properly calculating the superannuation guarantee (SG)
With June 30th drawing near, employers should review their reporting obligations and upcoming key dates:
PAYG Withholding: Starting July 1st, changes to individual income tax rate thresholds and tax tables will affect PAYG withholding for the 2025 tax year.
SG Rate Change: From July 1st, the SG rate will increase to 11.5%. Employers must ensure SG contributions are fully paid to the correct fund by July 28th.
Single Touch Payroll (STP) Reporting: Employers should complete STP finalization declarations by July 14th for all employees paid during the financial year and verify that employees’ year-to-date amounts are accurate.
🔶 UNDERSTANDING DIVISION 7A - MINIMUM YEARLY REPAYMENTS 🔶
Avoid unexpected tax liabilities by knowing the repayment requirements for a Division 7A loan.
Borrowing from a private company may seem straightforward, but it's essential to understand Division 7A rules to prevent unforeseen tax consequences.
To prevent an unfranked dividend under Division 7A, loans from a private company to its shareholders or their associates must be either fully repaid or placed under a Division 7A compliant loan agreement before the company’s lodgment day.
Under these loan agreements, minimum yearly repayments (MYRs) comprising both interest and principal must be made each year, beginning from the income year after the loan is initiated.
Preparation is key. Ensure you can meet the required MYRs on complying loans. Failing to meet the MYR or underpaying in any income year results in a shortfall, which can be assessed as an unfranked dividend to the borrower.
Borrowing additional amounts from the same company to make repayments on complying loans might result in those repayments not being considered when determining if the MYR has been met. This could also lead to a shortfall and an unfranked dividend assessment for the borrower.
When making MYRs, borrowers should:
- Begin repayments in the income year following the initiation of the complying loan.
- Use the correct benchmark interest rate to calculate the MYR for the current year.
- Ensure all required payments are made by the due date—typically the end of the income year (June 30).
Remember, the benchmark interest rate for calculating the MYR changes annually. For the income year ending June 30, 2024, the rate is 8.27%.
🔶 CRYPTO ASSET DATA-MATCHING PROGRAM 🔶
The ATO is launching a data-matching program that will acquire account identification and transaction data from crypto service providers for the financial years 2023-24 through 2025-26. This includes client identification details, transaction quantities, and coin types.
This data will be integrated with ATO systems to identify taxpayers who did not report crypto asset disposals in their income tax returns. The ATO expects to obtain records for approximately 700,000 to 1.2 million individuals and entities each year.
🔶 ENSURING ACCURATE TRUST DISTRIBUTIONS 🔶
As the year-end approaches, trustees should take the following steps to ensure accurate trust distributions:
1. Review the Trust Deed: Confirm that all decisions align with the terms outlined in the trust deed.
2. Identify Beneficiaries: Determine who the intended beneficiaries are and understand their entitlement to income and capital as per the trust deed.
3. Notify Beneficiaries: Inform beneficiaries of their entitlements so they can accurately report distributions in their tax returns.
4. Consider Capital Gains and Franked Distributions: Decide if any capital gains or franked distributions should be allocated to specific beneficiaries.
5. Adhere to Trustee Resolution Requirements: Ensure compliance with any trust deed requirements regarding the making of trustee resolutions, such as the necessity for resolutions to be in writing.
Remember that all resolutions related to distributions must be finalized by the end of the income year.
Do you need assistance with your trust distributions? The Lynden Group is ready to help.
🔶 CONCESSIONAL CONTRIBUTIONS CAP:
STAY INFORMED TO AVOID EXTRA TAX 🔶
Understanding the Concessional Contributions Cap
The concessional contributions cap is the annual limit on before-tax contributions to your superannuation without incurring additional tax.
Period | Cap |
July 1, 2017 to June 30, 2021 | $25,000 per year |
July 1, 2021 to June 30, 2024 | $27,500 per year |
Starting July 1, 2024 | $30,000 per year |
The cap increases in increments of $2,500, based on the average weekly ordinary time earnings (AWOTE).
You can carry forward unused cap amounts from previous years to increase your future contribution caps.
What Happens if You Exceed the Cap
Exceeding the concessional contributions cap means the excess amount (ECC) is added to your assessable income and taxed at your marginal tax rate, minus a 15% offset for the tax already paid by your super fund.
Including ECC in your assessable income can lead to:
- Entering the pay as you go (PAYG) instalment system.
- Changes to existing PAYG instalments.
- Potential impacts on Medicare levy, Centrelink benefits, and child support obligations.
Any ECC not withdrawn from your super fund counts towards your non-concessional contributions cap, potentially leading to a tax rate of up to 94%.
For Division 293 tax purposes, concessional contributions are counted, but ECC are not.
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