For business
Superannuation guarantee increase to 10.5%
From July 1 2022, to July 1 2025, the Superannuation Guarantee (SG) rate will increase from 10% to 10.5%. After that, it will increase each year by 0.5% until it reaches 12%.
Depending on the contract you have with your employees, this may mean different things for you. A ‘total remuneration’ agreement (base plus SG and any other allowances) might reduce an employee’s take-home pay by 0.5%. An employee’s superannuation fund will receive a larger share of their total pay. Take-home pay will remain the same for employees paid a rate plus superannuation, and SG payments will be increased by 0.5%.
$450 super guarantee threshold removed
A superannuation guarantee will be a legal requirement for all employees aged 18 or over from July 1 2022, regardless of income. In order to avoid inadvertently underpaying superannuation, ensure that your payroll system accommodates this change.
The super guarantee is only paid to employees under 18 who work more than 30 hours a week.
Profits of professional services firms
Several professional services firms – including lawyers, accountants, architects, medical practices, engineers, architects, etc. – operate through trusts, companies, partnerships and discretionary trusts. The Australian Taxation Office is concerned about the taxation of these practices.
With effect from July 1 2022, ATO guidance regulates structures designed to divert income and reduce taxable income for principal practitioners. The professional may be subject to Part IVA if these structures divert income to create a tax benefit for them. By removing any tax benefit received by a taxpayer who entered into an arrangement contrived to take advantage of a tax benefit, Part IVA acts as an integrity rule. Part IVA triggers significant penalties as well.
Professional services firms will be required to assess the risk associated with their profits in order to determine how those profits flow to their related parties beginning on July 1, 2022. In order to understand their risk rating, professional firms must assess their structures and, if necessary, either reduce their risk level or establish appropriate documentation to justify their position.
Lowering tax instalments for small business – PAYG
Business and investment tax amounts are estimated based on the business’s most recent lodged tax return, and it’s paid as regular PAYG instalments throughout the year. When the tax return is filed at the end of the income year, the actual amount owing is reconciled.
Gross domestic product (GDP) is usually used as a basis for adjusting GST and PAYG instalment amounts. A 2% uplift factor is being applied for the 2022-23 income year instead of 10%. SMEs eligible for the relevant instalment methods will receive the 2% uplift rate for instalments for the 2022-23 income year if they have:
- GST instalment aggregate turnover of up to $10 million, and
- PAYG instalment turnover of $50 million annually
By using this PAYG instalment method, small businesses will have more cash to spend throughout the year. Although you will have to contribute more in the coming year, the amount of taxes you owe on the tax return will stay the same.
Trust distributions to companies
Recent tax determinations from the ATO specifically deal with unpaid distributions owed to corporations by trusts. Based on the wording of the resolution to pay the distribution, the ATO guidance discusses when an unpaid entitlement to trust income will be treated as a loan. Where a complying loan agreement has been entered into, any unpaid amount can be treated as deemed unfranked dividends for tax purposes and subject to the taxpayer’s marginal tax rate.
