Tax Time 2021

The 0.5% increase does not mean that everyone gets an automatic pay increase, this will depend on your employment agreement. If your employment agreement states you are paid on a ‘total remuneration’ basis (base plus SG and any other allowances), then your take home pay might be reduced by 0.5%. That is, a greater percentage of your total remuneration will be directed to your superannuation fund. For those paid a rate plus superannuation, then your take home pay will remain the same, but your superannuation fund will benefit from the increase. If you are used to annual increases, the 0.5% increase might simply be absorbed into your 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           SG rate

1 July 2020 – 30 June 2021                                                   9.5%

1 July 2021 – 30 June 2022                                                   10%

1 July 2022 – 30 June 2023                                                   10.5%

1 July 2023 – 30 June 2024                                                   11%

1 July 2024 – 30 June 2025                                                   11.5%

1 July 2025 – 30 June 2026                                                   12%

NEW STAPLED SUPERANNUATION EMPLOYER OBLIGATIONS FOR NEW STAFF

Currently, when an employer hires a new staff member, the employee is provided with a Choice of Fund form to identify where they want their superannuation to be directed. If the employee does not identify a fund, the employer directs their superannuation into a default fund.

When someone has multiple funds, it often erodes their balance through unnecessary fees and often insurance. And, as at 30 June 2020, there was $13.8 billion of lost and unclaimed superannuation in accounts across Australia.

From 1 July 2021, where an employee does not identify a fund, legislation before Parliament will require the employer to link the employee to an existing superannuation fund. That is, an employee’s superannuation fund will become ‘stapled’ to them. An employer will not simply be able to set up a default fund, but instead will be required to request that the Australian Taxation Office (ATO) identify the employee’s stapled 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).

CONCESSIONAL AND NON-CONCESSIONAL CONTRIBUTION CAPS

From 1 July 2021, the superannuation contribution caps will increase enabling you to contribute more to your superannuation fund (assuming you have not already reached your transfer balance cap).

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

The non-concessional cap will increase from $100,000 to $110,000. Non-concessional contributions are after tax contributions made into your super fund. 

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, you will be able to contribute up to $330,000 in one year. Total superannuation balance rules will continue to apply. However, if you have utilised the bring forward rule in 2018-2019 or 2019-2020, then your contribution cap will not increase until the three-year period has passed.

Total super balance - contribution and bring forward available

TRANSFER BALANCE CAP – WHY YOU WILL HAVE A PERSONAL CAP

The transfer balance cap (TBC), as the name suggests, limits how much money you can transfer into a tax-free retirement account. From 1 July 2021, the general TBC will increase from $1.6m to $1.7m but not everyone will benefit from the increase.

From 1 July 2021, there will not be a single cap that applies to everyone. Instead, every individual will have their own personal TBC of between $1.6 and $1.7 million, depending on their circumstances.

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

However, if you have started taking an income stream - you have retired or are transitioning to retirement - then your indexed TBC will be calculated proportionately based on the highest ever balance of your account between 1 July 2017 and 30 June 2021. The closer your 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 your cap will continue to be $1.6m. For example, if you are transitioning to retirement and drawing a pension, and your highest ever balance in your retirement account was $1.2m, then indexation only applies to $400,000 (the $1.6m cap less your highest very balance). In this case, your new personal TBC will be $1,625,000 after indexation. 

The Australian Taxation Office (ATO) will calculate your personal TBC based on the information lodged with them (this will be available from your myGov account linked to the ATO). If your superannuation is in retirement phase, it will be very important to ensure that your Transfer Balance Account compliance obligations are up to date. For Self-Managed Superannuation Funds (SMSFs), it is essential that you let us know about any changes that impact on your transfer balance account, for example if a member of your fund retires.

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.

PERSONAL INCOME TAX PLAN

The government brought forward stage 2 of the Personal income tax plan from 1 July 2022 to 1 July 2020 as part of the 2020–2021 federal Budget.

Tax cuts in stage 2 of the Personal income tax plan apply from 1 July 2021 as follows:

• the upper limit of the 19% personal income tax bracket was raised from $37,000 to $45,000
• the upper limit of the 32.5% personal income tax bracket was raised from $90,000 to $120,000.

LOW INCOME TAX OFFSET INCREASED

The low income tax offset (LITO) increased from $445 to $700 from 1 July 2020.

EXTENDING THE LOW AND MIDDLE INCOME TAX OFFSET (LMITO)

The government announced in the 2021–2022 federal Budget that the low and middle income tax offset will continue to be available for the 2021–2022 income year. There are no changes to the amount of LMITO or the eligibility thresholds.

CHANGE IN TAX RATE FOR BASE RATE ENTITIES

The corporate tax rate for base rate entities for 2020–2021 has reduced to 26%.

TAX INCENTIVES FOR INVESTMENT IN AFFORDABLE HOUSING

Australian resident individuals who provide affordable rental housing to people earning low to moderate income can claim an additional affordable housing capital gains discount of up to 10%. To qualify for this additional discount, they must have provided qualifying affordable rental housing through a registered community housing provider:

• on or after 1 January 2018 for a period, or periods, totalling in aggregate at least three years (1,095 days), and
• either directly or through an interposed entity from a trust or managed investment trust. The interposed entity or trust may be a trust or partnership, other than a public unit trust or super fund.

BUSINESS PORTAL

The Business Portal has been replaced by Online services for Business for all your tax and super needs when interacting with the Australian Taxation Office (ATO). The Business Portal will retire at the end of July 2021. You must switch to Online Services for Business now. To access Online services for Business you will need to sign in using myGovID. This is the same myGovID you used to log into the Business Portal.

If you are new to the ATO’s online services, you will have to first set up your myGovID and then link it to your business in Relationship Authorisation Manager (RAM).

STP REPORTING OF CLOSELY HELD PAYEES

An exemption that relieved small employers (those with 19 or fewer employees) from having to report payments made to closely held payees through Single Touch Payroll (STP) expires on 30 June 2021. This means that, from 1 July 2021, small employers will need to start reporting their closely held payees through STP.

They can choose to report these payees each pay day, monthly, or quarterly, and do not need to tell the Australian Taxation Office (ATO) which option they are using.