Planning for Superannuation Contributions before 30 June 2023

As the end of the financial year is approaching, we take this opportunity to remind you of the superannuation obligations for each of the following three groups:

1. Self-employed & other taxpayers;
2. Employers with only related-party employees; and
3. Employers with unrelated employees.

Each group will be considered below under three separate headings and we recommend you consider the group most relevant to your circumstances.

1) SELF-EMPLOYED & OTHER TAXPAYERS

Self-employed persons, substantially self-employed persons and other persons aged less than 75, are entitled to a tax deduction for their personal superannuation contributions for the year ending 30 June 2023.

Individuals can claim a tax deduction for their personal contributions (even when they receive income as an employee).

Concessional tax treatment for contributions that are tax deductible to the self-employed person (and/or the employer) is generally limited to $27,500, per person.

Concessional contribution limits

The concessional contribution limits apply to the total concessional contributions from all sources. We note that from 1 July 2022, the general concessional contributions cap remains at $27,500 for all individuals regardless of age. Previously, between 1 July 2017 and 30 June 2021 the concessional cap was $25,000 each year.

In certain circumstances (ie. including where your total super balance as at 30 June of the previous year is less than $500,000), a member may be able to access a carry forward balance of unused contributions from 1 July 2018, for a maximum of five years before the unused cap expires.  Please talk to us first to confirm if you are eligible for this special concession.

From 1 July 2022, we note that where a member is under 75 years 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, members over 67 years (and under 75 years) old must meet the work test to claim the Personal Superannuation Contributions as tax deductions.

If you are 75 years or older your concessional contributions are limited to mandated employer contributions only.

We recommend that care is taken not to exceed the concessional cap without talking to us first.

Excess concessional contributions

Contributions in excess of the concessional limit will still be deductible to the employer, but the member (employee) will be taxed on any excess concessional contributions (ECC) at their actual marginal tax rate. The member (employee) will receive a tax offset equal to 15% of the ECC to account for the contributions tax that has already been paid by the member’s super fund.

Also, the member (employee) may ‘elect’ to withdraw up to 85% of the ECC from their super fund to help pay the additional income tax on the assessed ECC amount.  Any ECC amount not removed from the member’s super fund will count towards their non-concessional contributions cap (and we note that for some members this cap may be $Nil and can result in Excess Non-Concessional Contributions).

We note that it is critical to talk to your usual adviser if you receive any ATO notice in relation to 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

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.

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

Contributions in excess of the non-concessional contribution cap will trigger an excess non-concessional contribution (ENCC) determination for the member, and they will have two options available as to how their ENCCs will be taxed, 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 excess non-concessional contributions tax, a member can elect to withdraw ENCC plus 85% of the associated earnings on the excess contributions. The full amount of the associated earnings is taxed at the member's marginal tax rate, but the member is entitled to a non-refundable tax offset equal to 15% of the associated earnings that are included in their assessable income (given that they already paid superannuation contributions tax).

Excess non-concessional contributions tax is not imposed on ENCCs if they are withdrawn from the superannuation fund.

Again, we note that it is critical to talk to your usual adviser if you receive any ATO notice in relation to excess contributions.

If you have any questions please contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.

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 the total concessional contributions from all sources, including employer contributions (including SG) and salary sacrificed amounts.  Previously between 1 July 2017 and 30 June 2021 the concessional cap was $25,000 each year.

In certain circumstances, a member may be able to access a carry forward balance of unused contributions from 1 July 2018, for a maximum of five years before the unused cap expires. Please talk to us first to confirm if you are eligible for this special concession.

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, members over 67 years (and under 75 years) old must meet the work test to claim the Personal Superannuation Contributions as tax deductions.

If you are 75 years or older your concessional contributions are limited to mandated employer contributions only.

We recommend that care is taken not to exceed the concessional cap without talking to us first.

Excess concessional contributions

Contributions in excess of the concessional limit will still be deductible to the employer, but the member (employee) will be taxed on any excess concessional contributions (ECC) at their actual marginal tax rate.  The member (employee) will receive a tax offset equal to 15% of the ECC to account for the contributions tax that has already been paid by the member’s super fund.

Also, the member (employee) may ‘elect’ to withdraw up to 85% of the ECC from their super fund to help pay the additional income tax on the assessed ECC amount.  Any ECC amount not removed from the member’s super fund will count towards their non-concessional contributions cap (and we note that for some members this cap may be $Nil and can result in Excess Non-Concessional Contributions).

We note that it is critical to talk to your usual adviser if you receive any ATO notice in relation to excess contributions.

Superannuation Guarantee Scheme contributions

To comply with the Superannuation Guarantee (SG) scheme, contributions must be made by 28 July 2023 in respect of the June 2023 quarter. Failure to do so can result in the imposition of significant penalties and interest charges and the requirement to lodge superannuation guarantee shortfall forms with the Australian Taxation Office (ATO) by 28 August 2023.

Under the SG scheme, an employer must make superannuation contributions of at least 10.5% of gross salary earned by each eligible employee (up to a maximum salary of $60,220 per quarter in 2023 and rising to $62,270 per quarter in 2024).  Employees also include working directors.

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

Contributions in excess of the non-concessional contribution cap will trigger an excess non-concessional contribution (ENCC) for the member, and they will have two options available as to how their ENCCs will be taxed, 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 excess non-concessional contributions tax, a member can elect to withdraw ENCC plus 85% of the associated earnings on the excess contributions. The full amount of the associated earnings is taxed at the member's marginal tax rate, but the member is entitled to a non-refundable tax offset equal to 15% of the associated earnings that are included in their assessable income (given that they already paid superannuation contributions tax).

Excess non-concessional contributions tax is not imposed on ENCCs if they are withdrawn from the superannuation fund.

Again, we note that it is critical to talk to your usual adviser if you receive any ATO notice in relation to excess contributions.

Changes for next year 2023-24

From 1 July 2023, employees remain eligible for Super Guarantee (SG) scheme, regardless of how much they earn, as the $450 per month eligibility threshold for when super guarantee is paid has now been removed.

The SG rate will also increase from 10.5% to 11% on 1 July 2023. Employers will need to use the new rate to calculate super on payments made to employees on or after 1 July 2023, even if some or all of the pay period is for work done before 1 July.  The Federal Budget in May 2023 maintained the SG rate as legislated to increase to 12% by 1 July 2025.

On 1 July 2023, the temporary reduction in minimum drawdown rates will end.  This measure was first introduced during 2019-20 as part of the previous Government's response to COVID-19 and meant retirees only needed to withdraw 50 % of age-based minimums, should they choose, to help them through the pandemic.

We also note that a recent announcement was made that employers will be required to pay their employees’ super at the same time as their salary and wages (“payday super”) from 1 July 2026.

If you have any questions please contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.

3) EMPLOYERS WITH UNRELATED EMPLOYEES

Superannuation Guarantee Scheme contributions

Under the Superannuation Guarantee Charge (SGC) scheme, an employer must make superannuation contributions of at least 10.5% of gross salary earned by each eligible employee (up to a maximum salary of $60,220 per quarter in 2023 and rising to $62,270 per quarter in 2024). This means that employers will be required to contribute superannuation for all employees (include working directors), regardless of age.

To comply with the SGC scheme, contributions must be made by 28 July 2023 for the June 2023 quarter. Failure to do so will result in the imposition of penalties and interest charges and the requirement to lodge superannuation guarantee shortfall forms with the Australian Taxation Office (ATO).

Concessional contribution limits

The concessional contribution limits apply to the total concessional contributions from all sources, including employer contributions (including SG) and salary sacrificed amounts. Concessional tax treatment for contributions that are tax deductible to the employer is generally limited to $27,500 per person. Previously between 1 July 2017 and 30 June 2021 the concessional cap was $25,000 each year.

In certain circumstances (ie. including where your total super balance at 30 June of the previous year is less than $500,000), a member may be able to access a carry forward balance of unused contributions from 1 July 2018, for a maximum of five years before the unused cap expires. Please talk to us first to confirm if you are eligible for this special concession.

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, members over 67 years (and under 75 years) old must meet the work test to claim the Personal Superannuation Contributions as tax deductions.

If you are 75 years or older your concessional contributions are limited to mandated employer contributions only.

We recommend that care is taken not to exceed the concessional cap without talking to us first.

Excess concessional contributions

Contributions in excess of the concessional limit will still be deductible to the employer, but the member (employee) will be taxed on any excess concessional contributions (ECC) at their actual marginal tax rate.  The member (employee) will receive a tax offset equal to 15% of the ECC to account for the contributions tax that has already been paid by the member’s super fund.

Also, the member (employee) may ‘elect’ to withdraw up to 85% of the ECC from their super fund to help pay the additional income tax on the assessed ECC amount.  Any ECC amount not removed from the member’s super fund will count towards their non-concessional contributions cap (and we note that for some members this cap may be $Nil and can result in Excess Non-Concessional Contributions).

We note that it is critical to talk to your usual adviser if you receive any ATO notice in relation to excess contributions.

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

Contributions in excess of the non-concessional contribution cap will trigger an excess non-concessional contribution (ENCC) for the member, and they will have two options available as to how their ENCCs will be taxed, 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 excess non-concessional contributions tax, a member can elect to withdraw ENCC plus 85% of the associated earnings on the excess contributions. The full amount of the associated earnings is taxed at the member's marginal tax rate, but the member is entitled to a non-refundable tax offset equal to 15% of the associated earnings that are included in their assessable income (given that they already paid superannuation contributions tax).

Excess non-concessional contributions tax is not imposed on ENCCs if they are withdrawn from the superannuation fund.

Again, we note that it is critical to talk to your usual adviser if you receive any ATO notice in relation to excess contributions.

Changes for next year 2023-24

From 1 July 2023, employees remain eligible for super guarantee, regardless of how much they earn, as the $450 per month eligibility threshold for when super guarantee is paid has now been removed.

The super guarantee rate will also increase from 10.5% to 11% on 1 July 2023.  Employers will need to use the new rate to calculate super on payments made to employees on or after 1 July 2023, even if some or all of the pay period is for work done before 1 July.  The Federal Budget in May 2023 maintained the super guarantee rate is legislated to increase to 12% by 1 July 2025.

From 1 July 2025, the concessional tax rate applied to future earnings for total superannuation balances above $3 million will be 30%, increased up from 15%. This tax is in addition to any tax their superannuation funds pay on earnings in accumulation. We have previously provided a Tax Alert explaining this proposed change – see Tax Alert here.

We also note that a recent announcement was made that employers will be required to pay their employees’ super at the same time as their salary and wages (“payday super”) from 1 July 2026.

If you have any questions please contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.