Super in 2014 written by Australian Taxation Reporter

 

DEFAULT FUNDS

As we flagged in an Email Alert to subscribers late last year, from 1 January 2014, employer superannuation default funds must by MySuper compliant.
 
Default funds are funds that employers nominate & pay superannuation contributions into, in the event that an employee does not nominate a fund of their own.  All superannuation guarantee contributions now need to be paid to a fund with a MySuper product or an employee chosen fund (it is not necessary that the employee chosen fund offers a MySuper product).  MySuper accounts are a no-frills account with a simple set of product features including low fees, and a single diversified investment option.
 
Employers should check that the default fund they are currently using provides a MySuper product.  The Australian Prudential Regulation Authority (APRA) publish on their website a list of all funds authorised to offer a MySuper product http://www.apra.gov.au/RSE/Pages/default.aspx.  If your current default fund does not offer a MySuper product, you will need to choose a new default fund (which does offer a MySuper product).  Having selected your new default fund, you will need to provide an updated Choice of Fund form to employees in the old default fund.
 

STREAMLINED SUPER

Employers will soon to required to use the Data and Payment Standard when making superannuation contributions for their employees.  
 
This will take effect from the following dates:
1 July 2014, for employers with 20 or more employees
1 July 2015, for employers with 19 or fewer employees
 
The aim of the Standard is to improve the efficiency of the superannuation guarantee system, providing employers with a simpler, more consistent method of making contributions.  The Standard requires payment & data to be sent electronically (no longer will employers be permitted to send cheques or manually pay superannuation funds when making superannuation contributions for their employees).  All told, the Standard will require employers to:
  • Send all data electronically (such as the employee's details & the amount of the superannuation contribution) in a standard message format
  • Make contribution payments electronically
  • Link data & money with a unique payment reference number
  • Ensure data & payments are sent on the same day, and
  • Respond to fund requests for complete information within 10 business days.
 
The Tax Office advises that complying with the Standard may involve an employer doing any or a combination of the following:
  • Upgrading your payroll software
  • Engaging a service provider to take care of this for you e.g. tax agent, bookkeeper, etc
  • Using a Clearing House*
  • Working with your superannuation fund which may have an online solution.
*A Clearing House is a central port into which you can pay all your employee superannuation contributions rather than paying the contributions into every single employee chosen fund.  The Clearing House will then deposit these amounts into each employee's nominated fund - saving you time & administration.  The Tax Office's free Superannuation Clearing House is only available to employers with 19 or fewer employees.  If you are a larger employer, there are a number of commercial Clearing Houses available, but not free of charge.
 
The Tax Office recommends that in preparing for this change (operative 1 July 2014 for larger employers) that you consider how you currently make contributions, and then speak to your default fund or tax agent/bookkeeper to find out what solutions they may have to help you meet this Standard.
 

SUPER ON PAYSLIPS

We're still receiving enquiries into our free email Helpline Service as to the superannaution information that is required to be reported on payslips in light of changes that were proposed by the former Government last year, and in light of the election of a new Government later in that year.
 
To recap, in 2012 legislation passed Parliament to change the way superannuation contributions were to be reported on employee payslips from 1 July 2013.  Under the new legislation, from 1 July 2013 employers were required to report on payslips contributions that they had actually made during the pay period in accordance with the Regulations.  The Regulations were likely to require employers to report contributions of $0.00 in pay periods where they do not actually make a contribution & to report an aggregated figure for contributions in the pay period when they do make the contribution.  This was to apply to all employers who make voluntary or compulsory (superannuation guarantee) contributions for their employees.  Even though the legislation has passed parliament, neither the former Government nor the current Government has provided the Regulations for employers to administer this new change.  As a result, the new reporting rules have been put on hold, and the current rules remain in place.
 
These current rules require employers who are required to make superannuation guarantee contributions for their employees, to include on an employee's payslip either entitlements to superannuation accrued during the pay period or actual contributions made by the employer in that pay period.  These current rules, however, do not apply to employers not covered by the Fair Work Act which are Public sector employers in New South Wales, Queensland, Western Australia, Tasmania & South Australia, and Unincorporated private sector employers in Western Australia.
 

CONCESSIONAL CONTRIBUTIONS - TAX PLANNING OPPORTUNITY

Increases to the concessional contributions cap for 2014 will allow older taxpayers a greater ability to provide for their retirement by contributing more to superannuation.  To recap, concessional contributions include:
Employer contributions (including the compulsory 9.25% superannuation guarantee & salary sacrifice), and Personal contributions claimed as a tax deduction (you may qualify if less than 10% of your assessable income, your reportable fringe benefits & your reportable employer contributions for the year is from being an employee.  Business owners, contractors who receive little or no superannuation support, investors who are not employees, retirees, etc, may all be eligible).
 
The concessional contributions cap is $25,000.  However, last year legislation was passed by the Parliament increasing this cap to $35,000 for older taxpayers as follows:
2013/2014 financial year onwards if you are aged 59 years or over on 30 June 2013; and
2014/2015 financial year onwards if you are aged 49 years or over on 30 June 2014.
 

WHAT THIS MEANS

If you were 59 years or over on 30 June 2013 you are now able to contribute $35,000 into superannuation (up by $10,000 on last financial year).  Leading up to 30 June this year, a tax planning opportunity therefore exists to contribute additional money into superannuation, and obtain the benefits that come with doing so, as outlined in the following example:
 

EXAMPLE

George is a 61 year old retiree, who lives off interest in his bank savings & the rental income from two properties he owns.  Leading up to 30 June 2014, having been made aware of the increase to the concessional cap for 60's & over, George decides to contribute an extra $10,000 to superannuation in additional to the $25,000 contribution that he made earlier in the year.  By doing so, the tax benefits for George are:
 
LESS TAX ON HIS EARNINGS - instead of the interest earned on the $10,000 being taxed at George's marginal tax rate each year it is outside superannuation, any interest or other income earned on the $10,000 inside superannuation is taxed at a maximum rate of 15% (and is tax-free if George is drawing a superannuation pension).  Over multiple years inside superannuation, this saving can be significant.
 
TAX DEDUCTION - Because less than 10% of his earnings are from being an employee, George can claim a tax deduction of $10,000 plus the $25,000 he contributed earlier in the financial year (provided he notifies his superannuation fund in the approved form) & therefore improve his 2013/2014 overall tax position.
 
When George eventually decides to withdraw this money from his superannuation account, the withdrawal will be tax-free.
 
Following on from the above example, assume instead that George was an employee who earned more than 10% of his income from his employment activities & therefore did not qualify for a deduction for his $10,000 contribution.  If George wishes to contribute the $10,000 to superannation in the most tax-effective manner, he should consider approaching his employer to enter into a salary sacrifice arrangement (or alter his existing salary sacrifice arrangement if he has one) and sacrifice the extra $10,000.  By employing this strategy, despite not being eligible for a personal tax deduction, George will:
 
Pay Less Tax - George will not pay an income tax on the $10,000 which is being sacrified.  He will only pay 15% contributions tax.  By contrast, if this $10,000 was not sacrificed, he would be taxed on it at his marginal tax rate.
 
Less Tax on His Earnings (see earlier).
Leading up to 30 June, however, George must act quickly if he wishes to obtain these benefits in the current financial year, as the salary sacrifice agreement must be in place before the salary which is being sacrificed is earned.
 
If you are aged between 49 and 59 (although you are not eligible for the increased cap until 1 July 2014) you may wish to start considering how you too can take advantage of this increase to the concessional cap once the time arrives.  Will you approach your employer & increase the amount you are currently sacrificing to superannuation?  Or are you in a position to claim a larger $35,000 deduction next year?  Your advisor can help you formulate a strategy that works for you.
 

SUPERANNUATION GUARANTEE RATE

Under the current law which was passed by the former Labor Government last year, the current 9.25% superannuation guarantee rate is to increase to 9.5% from 1 July 2014.  However, the current Government has stated that it will delay this increase until 1 July 2016.  To do so, it must repeal the current law.  At this point, no repeal legislation has been passed.  Because this repeal is linked to the repeal of the Mining Tax, it may face opposition in the Senate at least until 1 July when new Senators are sworn in.  We will keep you updated on how this unfolds leading up to & beyond 1 July & whether (and when) the 9.25% rate will change.
 
Posted By David Orth Real Wealth