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Happy New Financial Year: What's changing?

June 2021

Superannuation and STP changes should be on your employer radar to ensure you're up-to-date with new measures starting on 1 July 2021.

The start of the 2021-2022 financial year is set to bring a number of changes to superannuation and single touch payroll. So what should you and your team be planning for?

We explore the changes that will start from 1 July 2021 below.

Super guarantee rate increase to 10%

On 1 July 2021, the Superannuation Guarantee (SG) rate will rise from 9.5% to 10% - the first rise since 2014. It will then steadily increase each year until it reaches 12% on 1 July 2025.

The 0.5% increase does not mean that everyone gets an automatic pay increase, which will depend on employment agreements.

If your employee agreements states that they are paid on a 'total remuneration' basis (base plus SG and any other allowances), then their take home pay might be reduced by 0.5%. That is, a greater percentage of total remuneration will be directed to their superannuation fund.

For those paid a rate plus superannuation, their take home pay will remain the same but their superannuation fund will benefit from the increase. If employees are used to annual increases, the 0.5% increase might simply be absorbed into a remuneration review.

Employers will need to ensure that they pay the correct SG amount in the new financial year to avoid the superannuation guarantee charge. Where employee salaries are paid at a point other than the first day of the month, ensure the calculations are correct across the month (i.e., for staff paid on the 15th of the month they are paid the correct SG rate for June and July in their pay and not just the June rate).

Superannuation salary packaging arrangements will also need to be reviewed – employers should ensure that the calculations are correct and the SG rate increase flows through.

Annual superannuation guarantee rate changes

Period

SG rate

1July 2020 – 30June 2021

9.5%

1July 2021 – 30June 2022

10%

1July 2022 – 30June 2023

10.5%

1July 2023 – 30June 2024

11%

1July 2024 – 30June 2025

11.5%

1July 2025 – 30June 2026

12%

New stapled superannuation employer obligations for new staff

Employers are currently required to provide new employees with a Choice of Fund form to identify where they want their superannuation to be paid to. If the employee does not identify a fund, the employer directs their superannuation into a default fund.

The problem is that if an employee has multiple funds, their balance is often eroded by unnecessary fees and by insurance premiums attached to the fund (if they are in place). And, as at 30 June 2020, there was $13.8 billion of lost and unclaimed superannuation in accounts across Australia.

Under legislation before Parliament, this is set to change. From 1 July 2021, employers will be required to link the employee to an existing super fund if the employee does not identify a fund. This effectively 'staples' an employee's super fund to them and an employer will not be able to simply set up a default fund but instead be required to request that the ATO identify the employee's super fund.

If the ATO confirms no other fund exists for the employee, contributions can be directed to the employer's default fund or a fund specified under a workplace determination or an enterprise agreement (if the determination was made before 1 January 2021).

Legislation enabling this measure is currently before the Senate.

Indexation increases contribution caps and the transfer balance cap

Indexation requires that caps on superannuation that limit how much an individual can transfer into super (and how much they can hold in a tax-free retirement account) remains relevant by making pre-determined increases in line with inflation.

To trigger indexation, the consumer price index (CPI) needed to reach 116.9. Australia reached 117.2 in December 2020 triggering increases to the contribution and transfer balance caps from 1 July 2021.

The next increase will occur when a December quarter CPI reaches 123.75. 

Concessional and non-concessional contribution caps

Superannuation contribution caps will increase from 1 July 2021 to enable individuals to contribute more to their super funds, assuming that they have not already reached their transfer balance cap.

As a reminder about the difference between concessional and non-concessional contributions:

  • Concessional contributions are contributions made into the super fund before tax such as superannuation guarantee or salary packaging. The concessional contribution cap will increase from $25,000 to $27,500.
  • Non-concessional contributions are after tax contributions made into your super fund.  The non-concessional cap will increase from $100,000 to $110,000

The bring forward rule enables those under the age of 65 to contribute three years' worth of non-concessional contributions to your super in one year. 

From 1 July 2021, individuals will be able to contribute up to $330,000 in one year. Total superannuation balance rules will continue to apply.

However, if the individual has utilised the bring forward rule in 2018-19 or 2019-20, then their contribution cap will not increase until the three year period has passed. 

1 July 2017 – 30 June 2021

After 1 July 2021

Total Superannuation Balance (TSB)

Contribution and bring forward available

Total Superannuation Balance (TSB)

Contribution and bring forward available

Less than $1.4m

$300,000

Less than $1.48m

$330,000

$1.4M -$1.5m

$200,000

$1.48M - $1.59m

$220,000

$1.5M - $1.6m

$100,000

$1.59M - $1.7m

$110,000

Above $1.6m

Nil

Above $1.7m

Nil

Transfer balance cap – why personal contribution caps exist

The transfer balance cap (TBC) limits how much money that an individual can transfer into a tax-free retirement account. From1 July 2021, this will increase from $1.6m to $1.7m – but not for everyone. Instead, each individual will have their own personal TBC of between $1.6 and $1.7 million, depending on their circumstances. The total super balance caps to utilise the spouse contribution offset and the government co-contribution will also be lifted to $1.7m in line with indexation. r

Accumulation Phase

If an individual's superannuation is in accumulation phase before 1 July 2021 – that is, has not started taking an income stream (pension), then the cap will be the fully indexed amount of $1.7m.

Transitioning to Retirement

If an individual has started taking an income stream due to retirement or transitioning to retirement, then the indexed TBC will be calculated proportionately based on the highest ever balance of the account between 1 July 2017 and 30 June 2021.

The closer the account is to the $1.6m cap, the less impact indexation will have. For anyone who reached the $1.6m cap at any time between 1 July 2017 and 30 June 2021, indexation will not apply and the cap will continue to be $1.6m.

For example, if an individual is transitioning to retirement and drawing a pension, and the highest ever balance in the retirement account was $1.2m, then indexation only applies to $400,000 (the $1.6m cap less the highest balance).

In this case, the new personal TBC will be $1,625,000 after indexation.

My super is…

TBC to 30 June 2021

TBC from 1 July 2021

In accumulation phase

$1.6m

$1.7m

In retirement phase and I reached the $1.6m cap limit between 1 July 2017 and 30 June 2021

$1.6m

$1.6m

In retirement phase and I have never reached the $1.6m cap limit at any time between 1 July 2017 and 30 June 2021

$1.6m

$1.6m plus indexation on the amount between your highest ever balance and the $1.6m cap.


The Australian Taxation Office (ATO) will calculate the personal TBC based on the information lodged with them

If the individual's superannuation is in retirement phase, then it will be very important to ensure that any transfer balance account obligations are up to date. Members of Self-Managed Super Funds will need to ensure that they speak to their accountant to make sure any changes – such as a member retiring – has been documented so that any impacts on transfer balance accounts can be properly managed.

Minimum superannuation drawdown rates

The Government has announced an extension of the temporary reduction in superannuation minimum drawdown rates for a further year until 30 June 2022.

Age

Default minimum drawdown rates

2019-20, 2020-21 &
2021-22 reduced rates

Under 65

4%

2%

65-74

5%

2.5%

75-79

6%

3%

80-84

7%

3.5%

85-89

9%

4.5%

90-94

11%

5.5%

95 or more

14%

7%

Single touch payroll reporting

Single touch payroll will apply to most businesses from 1 July 2021, this will include small businesses (those with 19 or fewer staff) and businesses with closely held employees (e.g., directors of family companies, salary and wages for family employees of businesses). No further extensions will be granted.

For employers with closely held employees, there are some concessions on how reporting is managed with the option to report one of three ways: reporting actual payments in real time, reporting actual payments quarterly or reporting a reasonable estimate quarterly. These concessions allow a level of flexibility in relation to determining and making payments to closely-held payees.

However, if your business is impacted, it will be important to plan throughout the year to prevent problems occurring at year end. We strongly recommend engaging with your accountant for assistance with STP.

Speak to your accountant

Superannuation and single touch payroll are complex and we suggest reaching out to your accountant on 02 9957 4033 if any of these measures are likely to impact your super or business.

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Disclaimer

This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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