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Planning for: Superannuation Contributions before June 30, 2023
We would like to take this opportunity to remind you of your superannuation obligations for each of the following three groups as the end of the financial year draws near:
1. Self-employed & other taxpayers
2. Employers with only related-party employees
3. Employers with unrelated employees.
Each category will be discussed below under three different titles, and we advise you to focus on the one that most closely relates to your circumstances.
1. Self-employed & Other taxpayers
Self-employed individuals, substantially self-employed individuals, and other individuals under the age of 75 are eligible for a tax deduction on their personal superannuation contributions for the year ending on 30 June 2023.
Our company acknowledges that these individuals, even if they earn income as employees,
have the opportunity to claim a tax deduction for their personal contributions.
It is important to note that the concessional tax treatment for contributions that qualify for a tax deduction is typically applicable to self-employed individuals and/or their employers in most cases.
🟠 Concessional contribution limits
The total concessional contributions from all sources are subject to the concessional contribution limits. The general concessional contributions cap will continue at $27,500 starting on July 1, 2022, for all people, regardless of age. Previously, the concessional cap was $25,000 per year from 1 July 2017 to 30 June 2021.
If your total super balance at the end of the previous fiscal year was less than $500,000, for example, you might be able to access your carryover balance of unused contributions starting on July 1 of this year for up to five years until the unused cap expires. Please get in touch with us to find out if you qualify for this unique discount.
From 1 July 2022, we highlight that some types of donations will no longer need members to meet a work test (i.e., be gainfully employed at least part-time) if they are under 75 years old when making the contribution. We do highlight, however, that in order to deduct personal superannuation contributions from taxes, members over 67 (but under 75) must meet the work requirement.
Your concessional contributions are restricted to required employer payments only if you are 75 years old or older.
We advise that care be made to not go over the concessional cap without first speaking to us.
🟠 Excess concessional contributions
Contributions exceeding the concessional limit will remain tax-deductible for the employer, but the employee will be subject to taxation on the excess concessional contributions (ECC) based on their actual marginal tax rate. To compensate for the contributions tax already paid by the member's super fund, the employee will receive a tax offset equivalent to 15% of the ECC.
Additionally, the employee has the option to withdraw up to 85% of the ECC from their super fund to assist in covering the additional income tax incurred from the assessed ECC amount. Any ECC amount that remains in the member's super fund will contribute to their non-concessional contributions cap. It is important to note that certain members may have a non-concessional contributions cap of $Nil, resulting in Excess Non-Concessional Contributions.
We emphasize the significance of consulting with your regular advisor if you receive any notice from the Australian Taxation Office (ATO) concerning excess contributions.
🟠 Income tax deductions
Self-employed persons can claim a full tax deduction for concessional contributions, subject to notifying their fund accordingly and receiving an acknowledgement letter from the fund.
In order to obtain a tax deduction for the year ending 30 June 2023, please ensure that contributions are paid into the fund to allow time for them to be cleared by 30 June 2023.
🟠 Non-concessional contribution caps
The non-concessional contributions ceiling for members up to 75 years old will continue at $110,000 as of 1 July 2022. Subject to their personal contribution cap limit, members who are under 75 years old at any point in the income year may be allowed to contribute up to three times the annual non-concessional contribution ceiling in a single year.
Additionally, we point out that a member's non-concessional cap may be $nil if they have already utilized the bring-forward concession or if their total superannuation balance (TSB) is greater than their general transfer balance cap (i.e. $1.7 million from 2021-22).
For certain types of contributions made after 1 July 2022, members who are under 75 years old at the time of the donation are no longer required to meet the work test (i.e., be gainfully employed at least part-time).
For the year ending June 30, 2023, if you are thinking about making non-concessional contributions, please contact us to learn more about your eligibility and exact cap limit.
🟠 Excess non-concessional contributions
When contributions surpass the non-concessional contribution cap, it will result in the issuance of an excess non-concessional contribution (ENCC) determination for the member. In such a scenario, the member will have two options to consider regarding the taxation of their ENCCs, as outlined below:
the member can elect to withdraw ENCC plus 85% of the associated earnings on the ENCC, and tax is payable on the associated earnings; or
the member is liable to pay excess contributions tax on the ENCC.
In order to avoid paying the excess non-concessional contributions tax, a member has the option to choose a withdrawal of the excess contributions, along with 85% of the associated earnings. The total amount of the associated earnings is subject to taxation at the member's marginal tax rate. However, the member is eligible for a non-refundable tax offset equal to 15% of the associated earnings included in their assessable income, taking into account the superannuation contributions tax already paid.
It is important to note that if the excess non-concessional contributions are withdrawn from the superannuation fund, they are not subject to the excess non-concessional contributions tax.
Once again, we strongly recommend consulting with your regular advisor if you receive any notice from the Australian Taxation Office (ATO) regarding excess contributions.
2. Employers with only RELATED-PARTY EMPLOYEES
Concessional tax treatment for contributions that are tax deductible to the employer is generally limited to$27,500, per person.
🟠 Concessional contribution limits
The concessional contribution limits apply to all types of contributions that receive favorable tax treatment, including employer contributions and amounts sacrificed from your salary. From July 1, 2017, to June 30, 2021, the annual cap for these contributions was set at $25,000.
In some cases, you may be able to carry forward any unused contributions from July 1, 2018, for up to five years before they expire. To find out if you qualify for this special rule, please reach out to us for confirmation.
Starting from July 1, 2022, if you are under 75 years old when making contributions, you no longer need to meet the work test (being employed on at least a part-time basis) for certain types of contributions. However, please note that if you are between 67 and 75 years old, you still need to meet the work test to claim tax deductions for Personal Superannuation Contributions.
If you are 75 years or older, you can only make concessional contributions through mandated employer contributions.
It is important to be cautious and consult with us before exceeding the concessional contribution limits.
🟠 Excess concessional contributions
If you contribute more than the allowed limit to your superannuation (concessional contributions), your employer can still claim a tax deduction for the excess amount. However, as the employee, you will be taxed at your regular tax rate on those excess contributions. To account for the contributions tax already paid by your super fund, you will receive a tax offset equal to 15% of the excess contributions.
Furthermore, you have the option to choose to withdraw up to 85% of the excess contributions from your super fund. This can help you cover the additional income tax that you will owe on the assessed excess amount. It's important to note that any excess contributions remaining in your super fund will count towards your non-concessional contributions cap. For some individuals, this cap may be zero, which can result in exceeding the allowed non-concessional contributions.
If you receive any notices from the Australian Taxation Office (ATO) regarding excess contributions, it is crucial to consult with your usual adviser for guidance and assistance.
🟠 Superannuation Guarantee Scheme contributions
To fulfill the requirements of the Superannuation Guarantee (SG) scheme, it is necessary to make contributions by 28 July 2023 for the June 2023 quarter. Failing to meet this deadline can lead to significant penalties, interest charges, and the obligation to submit superannuation guarantee shortfall forms to the Australian Taxation Office (ATO) by 28 August 2023.
Under the SG scheme, employers must contribute at least 10.5% of their eligible employees' gross salary. This applies to all eligible employees, including working directors. The maximum salary considered for the calculation is $60,220 per quarter in 2023, and it will increase to $62,270 per quarter in 2024.
🟠 Income tax deductions
To qualify for a tax deduction by the time the year ends on June 30, 2023, make sure you pay your contributions into the fund early enough for them to be processed and cleared before that date.
🟠 Single Touch Payroll reporting
Employers need to include information about the expected amount and date of employees' superannuation contributions on their payslips. If you don't currently report these contributions through Single Touch Payroll (STP), you must include this information on a payment summary provided to the employee. Additionally, you need to submit a payment summary annual report to the Australian Taxation Office (ATO), excluding the amounts reported through STP to avoid duplication.
Please note that the exemption for small employers (with 19 or fewer employees) from reporting amounts paid to closely held payees through STP ended on June 30, 2021. For the 2023 year, amounts paid to closely held payees should be reported through STP on or before each payday. Alternatively, you have the option to report this information quarterly.
🟠 Paying contributions electronically
It is compulsory for all employers to pay contributions to superannuation funds (including SMSFs) electronically. There is an exception to the rule where contributions are made to funds for ‘related parties’ of the employer.
Under these rules, superannuation funds are required to receive contributions using an e-commerce standard so that contributions can be received by direct credit or BPay and the contribution data message is received electronically via a nominated Electronic Service Address.
🟠 Non-concessional contribution caps
Starting from July 1, 2022, the maximum amount of non-concessional contributions remained at $110,000 for members who are up to 75 years old. If you are under 75 during the income year, you may have the opportunity to make non-concessional contributions up to three times the annual cap in a single year, depending on your personal contribution limit.
It's important to note that your non-concessional cap can be reduced to zero if you have previously used the bring-forward concession in prior years or if your Total Superannuation Balance (TSB) exceeds the general transfer balance cap (which was $1.7 million starting from 2021-22).
Starting from July 1, 2022, if you are under 75 when making a contribution, you are no longer required to meet the work test (meaning you don't need to be employed on a part-time basis) for certain types of contributions. However, please be aware that you still need to meet the work test if you want to claim Personal Superannuation Contributions as tax deductions.
If you are considering making non-concessional contributions for the year ending on June 30, 2023, please consult with us first to determine your specific cap limit and eligibility.
🟠 Excess non-concessional contributions
If you contribute more than the allowed limit for non-concessional contributions, it will result in an excess non-concessional contribution (ENCC) for you. In such a case, you have two options for how your ENCCs will be taxed. These options are as follows:
· the member can elect to withdraw ENCC plus 85% of the associated earnings on the ENCC, and tax is payable on the associated earnings; or
· the member is liable to pay excess contributions tax on the ENCC.
To avoid paying additional tax on excess non-concessional contributions, a member can choose to withdraw the excess contributions along with 85% of the earnings generated from those contributions. The total earnings are taxed at the member's regular tax rate, but the member is eligible for a non-refundable tax offset equal to 15% of the earnings included in their taxable income (assuming they have already paid tax on superannuation contributions).
If the excess non-concessional contributions are withdrawn from the superannuation fund, there won't be any additional tax imposed on them.
Once again, it is crucial to consult with your regular advisor if you receive any notice from the Australian Taxation Office (ATO) regarding excess contributions.
🟠 Changes for next year 2023-24
Starting from July 1, 2023, employees are eligible for the Super Guarantee (SG) scheme regardless of their earnings. The previous requirement of earning at least $450 per month to receive super guarantee payments has been removed.
Furthermore, the SG rate will increase from 10.5% to 11% on July 1, 2023. Employers must use this new rate to calculate super contributions for payments made to employees on or after that date, even if the work was performed before July 1.
According to the Federal Budget in May 2023, the SG rate is set to further increase to 12% by July 1, 2025, as per the legislation.
On July 1, 2023, the temporary reduction in minimum drawdown rates for retirees will come to an end. This reduction was initially introduced during the 2019-20 period as a response to the COVID-19 pandemic, allowing retirees to withdraw only 50% of the minimum amounts based on their age, if they chose to do so, to assist them during the pandemic.
It's also important to note that a recent announcement states that from July 1, 2026, employers will be required to pay their employees' superannuation contributions at the same time as their salary and wages, commonly referred to as "payday super."
3. Employees with Unrelated Employees
🟠 Superannuation Guarantee Scheme contributions
Under the Superannuation Guarantee Charge (SGC) scheme, employers must contribute a minimum of 10.5% of their eligible employees' gross salary towards superannuation. This requirement applies to all employees, including working directors, regardless of their age. The maximum salary amount used for calculating contributions will be $60,220 per quarter in 2023, increasing to $62,270 per quarter in 2024.
To meet the SGC scheme's requirements, employers need to make these contributions by July 28, 2023, for the June 2023 quarter. Failure to do so will lead to penalties, interest charges, and the need to submit superannuation guarantee shortfall forms to the Australian Taxation Office (ATO).
🟠 Concessional contribution limits
The concessional contribution limits apply to all types of contributions that receive special tax treatment, including employer contributions (such as Super Guarantee) and amounts sacrificed from your salary. Generally, the maximum amount eligible for tax deductions for employers is $27,500 per person. Previously, from July 1, 2017, to June 30, 2021, the limit was $25,000 each year.
In specific situations, such as when your total super balance at the end of the previous year is less than $500,000, you may have the option to carry forward any unused contribution amounts starting from July 1, 2018, for up to five years before the unused cap expires. To confirm if you qualify for this special provision, please consult with us.
Starting from July 1, 2022, if you are under 75 years old when making a contribution, you no longer need to meet the work test (which required being gainfully employed on at least a part-time basis) for certain types of contributions. However, members who are over 67 years old (but under 75 years) must still fulfill the work test in order to claim Personal Superannuation Contributions as tax deductions.
If you are 75 years or older, your concessional contributions are limited to the mandatory employer contributions only.
It is advisable to consult with us before exceeding the concessional cap to ensure careful management of your contributions.
🟠 Excess concessional contributions
If contributions exceed the limit set for concessional contributions, the employer can still claim a tax deduction for those excess contributions. However, the employee (member) will be taxed on the excess concessional contributions (ECC) based on their actual marginal tax rate. To account for the contributions tax already paid by the member's super fund, the member will receive a tax offset equal to 15% of the ECC.
Furthermore, the member has the option to withdraw up to 85% of the ECC from their super fund. This can help them cover the additional income tax associated with the assessed ECC amount. Any ECC amount that remains in the member's super fund will count towards their non-concessional contributions cap. It's important to note that for some members, their non-concessional contributions cap may be reduced to zero, resulting in Excess Non-Concessional Contributions.
If you receive any notices from the Australian Taxation Office (ATO) regarding excess contributions, it is crucial to consult with your regular advisor.
🟠 Income tax deductions
In order to obtain a tax deduction for the year ending 30 June 2023, please ensure that contributions are paid into the fund to allow time for them to be cleared by 30 June 2023.
🟠 Single Touch Payroll reporting
Employers are required to report on their employees' payslips, the amount of and the date on which, the employer expects to make the employees' superannuation contributions.
If you do not currently report employer superannuation contributions through Single Touch Payroll (STP), you must provide this information to the employee on a payment summary. Furthermore, you must provide the ATO with a payment summary annual report which must not include amounts reported through STP (to avoid double counting).
We note that the exemption has now ended for small employers (with 19 or fewer payees) who were exempt from reporting amounts paid to closely held payees through STP until 30 June 2021. For the 2023 year, amounts paid to closely held payees needed to be reported through STP on or before each payday or you can choose to report this information quarterly.
🟠 Paying contributions electronically
It is compulsory for all employers to pay contributions to superannuation funds (including SMSFs) electronically. There is an exception to the rule where contributions are made to funds for ‘related parties’ of the employer.
Under these rules, superannuation funds are required to receive contributions using an e-commerce standard so that contributions can be received by direct credit or BPay and the contribution data message is received electronically via a nominated Electronic Service Address.
🟠 Non-concessional contribution caps
From 1 July 2022, the non-concessional contributions cap remained at $110,000 for members up to 75 years old. Members under 75 years of age at any time during the income year may be able to make non-concessional contributions of up to three times the annual non-concessional contributions cap in a single year, subject to their personal contribution cap limit.
We also note that a member’s non-concessional cap can be $nil after they have used the bring-forward concession in prior years or if their Total Superannuation Balance (TSB) exceeds their general transfer balance cap (ie. $1.7 million from 2021-22).
From 1 July 2022, where a member is under 75 years at the time when they make a contribution, they no longer need to satisfy a work test (ie. gainfully employed on at least a part-time basis) for certain types of contributions. We note, however, that you must still meet the work test if you wish to claim the Personal Superannuation Contributions as tax deductions.
If you are considering making non-concessional contributions for the year ending 30 June 2023, please talk to us first about your specific cap limit and eligibility.
🟠 Excess non-concessional contributions
When contributions exceed the non-concessional contribution cap, it will result in an excess non-concessional contribution (ENCC) for the member. In such a situation, the member has two options for how their ENCCs will be taxed. These options are as follows:
the member can elect to withdraw ENCC plus 85% of the associated earnings on the ENCC, and tax is payable on the associated earnings; or
the member is liable to pay excess contributions tax on the ENCC.
To avoid paying the tax on excess non-concessional contributions, a member can choose to withdraw the excess amount along with 85% of the earnings associated with those contributions. The total earnings will be taxed at the member's regular tax rate, but they are eligible for a non-refundable tax offset equal to 15% of the earnings included in their taxable income, considering they have already paid tax on their superannuation contributions.
If the excess non-concessional contributions are withdrawn from the superannuation fund, there won't be any additional tax imposed on them.
Once again, it is crucial to consult with your regular advisor if you receive any notice from the Australian Taxation Office (ATO) regarding excess contributions.
🟠 Changes for next year 2023-24
Starting from July 1, 2023, employees are still eligible for super guarantee, regardless of their earnings, as the previous threshold of $450 per month has been removed.
Additionally, the super guarantee rate will increase from 10.5% to 11% on July 1, 2023. Employers will need to use this new rate to calculate the super contributions for payments made to employees on or after July 1, 2023, even if the work was done before that date. It's important to note that the super guarantee rate is scheduled to further increase to 12% by July 1, 2025, as per the Federal Budget in May 2023.
Furthermore, starting from July 1, 2025, there will be a higher concessional tax rate of 30% applied to future earnings for total superannuation balances exceeding $3 million. This is in addition to any tax already paid by superannuation funds on earnings in the accumulation phase. Please refer to our previous Tax Alert for more information on this proposed change.
A recent announcement has also been made that employers will be required to pay their employees' super contributions at the same time as their salary and wages, known as "payday super," starting from July 1, 2026.
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