What Changes On 1 July 2021?

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, 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

 Date Period 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%

 

Reduction In The Corporate Tax Rate For Small & Medium Businesses

The corporate tax that small and medium businesses have to pay will drop to 25 per cent. A business qualifies for this reprieve if they have an annual turnover of less than $50 million.

The reduction has been a few years in the making. Between the 2017-18 to 2019-20 income years, companies had to apply for the tax decrease. Businesses had to pay 27.5 per cent tax when the policy began. By 2020, that number had been brought down to 26 per cent and now it is being brought down again.

Minimum Wage Increase 2021: Wages Rise By 2.5%

The Fair Work Commission has now published its Annual Wage Review 2020-21.

The outcome of the review is that:

·        the National Minimum Wage and modern award minimum wages will increase by 2.5%; and

·        the National Minimum Wage will increase to $772.60 per week (up from $753.80 per week) or $20.33 per hour (up from $19.84 per hour).

What does this mean for employers?

The decision means that employers who pay their employees at the National Minimum Wage (and under certain industrial instruments) will need to increase their employees’ pay in the first pay period on or after 1 July 2021.

Employers who pay minimum wage rates under a modern award (and certain industrial instruments), will be required to increase their employees’ pay in the first pay period on or after 1 July 2021, 1 September 2021 or 1 November 2021 – depending upon which modern award applies.

Employers who pay their employees under an industrial instrument, such as a collective or enterprise agreement, should review the rates under those instruments to ensure that they are equal to or above the applicable minimum wage rates.

Importantly, employers who pay their employees above the minimum wage rates may be able to absorb the increases without making any changes.

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 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).

Legislation enabling this measure is currently before the Senate.

Indexation Increases Contribution Caps & The Transfer Balance Cap

Indexation ensures that the caps on superannuation that limit how much you can transfer into super and how much you hold in a tax-free retirement account, remain 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 & 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 2018-19 or 2019-20, then your 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 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.

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 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.

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.

This document contains general advice only and is prepared without taking into account your particular objectives, financial circumstances and needs. The information provided is not a substitute for legal, tax and financial product advice. Before making any decision based on this information, you should speak to a licensed financial advisor who should assess its relevance to your individual circumstances.  While The Field Group believes the information is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk. The information provided in this bulletin is not considered financial product advice for the purposes of the corporations Act 2001.

About the author

The Field Group is composed of experts in the fields of Xero accounting, personal tax, self-managed superannuation, audit services, business services, bookkeeping, bench marking, business structuring and ATO Compliance. Based in Melbourne, The Field Group are also able to work with clients all over Australia and are the market leader for accounting services in the Ringwood, Croydon, Chirnside Park, Lilydale and general Melbourne eastern suburb region.

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