Superannuation increase: A snapshot

With less than a month until the end of the 2020/21 financial year, it is vital to business success that employers are proactively managing these changes and the impact they will have on their business.

Effective 1 July 2021, employers will be required to increase the minimum superannuation contribution to employees from 9.5% of ordinary time earnings to 10%. Going forward there will be an annual 0.5% increase until the superannuation guarantee rate reaches 12% in 2025/26.

The way your employment contracts have been written will dictate the action you need to take and whether the employer or the employee is inline to take an immediate financial hit.

Remuneration inclusive of super

Where employment contracts have a remuneration package that is inclusive of superannuation, the superannuation guarantee rate increase may be absorbed into the package without any increase in the total package.

This will mean your employees’ take-home pay will reduce and their superannuation contributions will increase.

Remuneration exclusive of super

Where employment contracts do not cater for the absorbing of the superannuation guarantee increase, then the employer may need to increase the amount they are paying into their employees superannuation without this affecting the employees’ take-home pay.

Potential impact that the superannuation guarantee rate increase could have on your cashflow could include:

• An increase in your superannuation expense
• An increase in your workcover premiums
• An increase to your payroll tax liability.

Warning: Legal considerations and commercial considerations differ greatly. Whilst it may be legal to reduce an employee’s take home pay, it could have a significant impact on the culture of your business, team morale or reward for effort. Further to this if your industry is struggling to recruit and maintain staff, reducing an employee’s take home pay could result in employees leaving. Careful consideration should therefore be made before reducing an employee’s take home pay. Please speak to your PKF adviser if you have concerns.

We recommend that you speak to a Human Resources Consultant or Employment Lawyer to review your employment contracts.

Other important changes to be aware of this financial year:

• Company tax rate changes – From 1 July 2021, the corporate tax rate will reduce to 25% from the current 26%, this will apply to small and medium companies with an aggregated turnover of less than $50 million and 80% or less passive income. Companies which have passive income of more than 80% of their assessable income will be taxed at 30% regardless of their size.
• Concessional (deductible) contribution limits increasing – From 1 July 2021, the concessional (deductible) superannuation contribution limit is increasing from $25,000 to $27,500.
• Non-Concessional (undeductible) contribution limits increasing – The non-concessional contribution limit will increase from $100,000 to $110,000 from 1 July 2021. We will also see a change to the three year bring forward rule which will increase to $330,000 from the current $300,000.
• Superannuation transfer balance cap increasing – The transfer balance cap where you can have a ‘tax-free’ pension in superannuation is increasing from $1.6 million to $1.7 million from 1 July 2021. If you have previously used the whole of the $1.6 million cap, you cannot take advantage of the $100,000 increase.
• Single Touch Payroll Changes – Over several years the government has been slowly transitioning various sized business to use Single Touch Payroll (STP). Effective from 1 July 2021 all employers will be required to report their payroll information through STP, unless they are micro employers with exceptional circumstances.
• Minimum pension relief no longer available – Over the last two years, the minimum amounts required to be withdrawn from allocated pension accounts was halved due to the impact caused by COVID-19. Effective 1 July 2021 the relief will no longer be available, with the minimum drawdown being 4% for those under age 65 increasing to 14% for those aged 95 and over.

As we approach the new financial year, it is important to understand the legislated changes taking place from 1 July 2021. PKF can help you understand the impact these changes will have on your business and help you manage your obligations and make sure you stay compliant.

If you would like to learn more about how we can support you and your business, please get in touch with the team at PKF Australia.