The superannuation changes from 1 July

The super changes on the way from the start of the 2024-25 financial year.

A number of superannuation changes will come into effect from 1 July 2024 that are designed to help working Australians get more money into the retirement savings system.

If fully utilised, the changes potentially allow all super fund members, including those with a self managed super fund (SMSF), to add tens of thousands of dollars extra into their account from the start of the 2024-25 financial year.

What are the super changes?

Higher superannuation guarantee (SG) rate

The compulsory superannuation guarantee (SG) rate payable by employers to their employees will increase by 0.5% from 11% of ordinary time earnings to 11.5%. The SG rate will increase by a further 0.5% to 12% on 1 July 2025.

Increase to the concessional (before-tax) contributions cap

The concessional contributions cap, which is indexed to average weekly ordinary time earnings (AWOTE), will increase by $2,500 from $27,500 per financial year to $30,000.

Concessional contributions are taxed at a flat 15% rate and include the pre-tax super contributions paid by your employer into your super fund account as well as any personal super contributions you make, such as pre-tax contributions made through a salary sacrifice arrangement.

People with an existing salary sacrifice arrangement through their employer may want to review their current contributions level to factor in the higher contributions limit. Employees generally set their personal salary sacrifice contributions at either a fixed percentage of their salary or at a fixed dollar amount. These contributions are deducted from their pre-tax salary.

Increase to the non-concessional (after-tax) contributions cap

The annual non-concessional contributions cap that limits the amount of after-tax contributions that can be made into your super account will rise by $10,000 from $110,000 per financial year to $120,000. This level is also indexed to AWOTE.

This increase also changes the three-year bring forward limit from the current $330,000 to $360,000. This limit provides people with the opportunity to deposit up to three years of non-concessional contributions in one financial year, but then prohibits them from making any further non-concessional contributions for another three financial years.

However, those with a larger sum of money, such as from a large asset sale or inheritance, could consider depositing the maximum $110,000 annual amount allowable this financial year and a further $360,000 next financial year using the new three-year bring forward limit based on the higher non-concessional contributions cap.

Preservation age

The minimum age individuals must reach to access their super, either through an account-based pension or lump sum payments, will be 60. Amounts accessed from super are not subject to income tax.

Transfer balance cap

The transfer balance cap relates to the amount of superannuation that can be transferred from a super account to start a pension account, where the income payments and the investment returns are both generally tax free.

The transfer balance cap is indexed periodically to the consumer price index (CPI) and increased in $100,000 increments. The cap was lifted to $1.9 million at the start of the 2023 financial year, and will remain at the $1.9 million level in the 2024-25 financial year.

Amounts over $1.9 million must be retained within a superannuation accumulation account, where investment earnings are taxed at 15%.

Keep in mind that the value of assets held within a pension account can increase above the $1.9 million transfer balance cap without any penalty.

^{Important information and general advice warning}

^{Vanguard Super Pty Ltd (ABN 73 643 614 386 / AFS Licence 526270) (the Trustee) is the trustee of Vanguard Super (ABN 27923449966) and the issuer of Vanguard Super products. The Trustee has contracted Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) (VIA) to provide some services to members of Vanguard Super. Any general advice is provided by VIA. The Trustee and VIA are both wholly owned subsidiaries of The Vanguard Group, Inc. (collectively, “Vanguard”). The retirement savings tips provided above are general in nature and don’t take into account your personal financial objectives, situation or needs. You should consider your objectives, financial situation or needs, and the Product Disclosure Statement (PDS) and Target Market Determination (TMD) before making any decision about Vanguard Super. The PDS and TMD can also be accessed free of charge by calling 1300 655 101. Before you make any financial decision regarding Vanguard Super, you may wish to seek professional advice from a suitably qualified adviser. Any past performance information is given for illustrative purposes only and should not be relied upon as, and is not, an indication of future performance. The information above is current as at time of publication and was prepared in good faith and we accept no liability for any errors or omissions.}

Tony Kaye, Senior Personal Finance Writer
May 2024
vanguard.com.au

What Employment Contracts Does My Small Business Need?

As a small business owner, you may be looking to recruit employees in a variety of capacities and for a range of purposes.

If so, you might consider the roles you would like these employees to fulfil and the contracts that will reflect these roles. Hence, this article explores key employment contracts for your small business depending on the nature of work, such as:

casual contracts;
permanent (part-time or full-time) contracts;
fixed-term (part-time or full-time) contracts; and
maximum-term (part-time or full-time) contracts.

Employee Classifications

Casual, part-time and full-time are the most common contracts for small businesses. However, depending on your nature of work, you may want to consider fixed-term or maximum-term contracts for your employees.

Casual Employees

Casual employees are those employees that you hire on an ad-hoc basis. For example, during the Christmas and New Year period, many retail stores hire casual employees to cope with increased customer sales demands. Employers typically pay casual employees an hourly rate and are not entitled to many benefits that part-time or full-time employees receive, like paid annual leave and personal/carer’s leave.

Part-Time Employees

Part-time employees are employees who you hire to work for less than 38 hours per week. These employees are entitled to paid and long service leave under Australian law.

Full-Time Employees

Full-time employees are perhaps the most common form of employees who you hire on a permanent, maximum term or fixed term basis. Employers can generally expect their full-time employees to work for an average of 38 hours per week and are entitled to a full suite of paid leave, long service leave and other entitlements under Australian law.

Types of Employment Contracts

There are different types of employment contracts that you should consider before hiring staff.

Permanent Employment

Permanent employment refers to employees engaged on an ongoing basis until you or the employee terminate their employment. Typically, you pay permanent employees at an hourly rate or provide an annual salary. Permanent employees also receive entitlements such as:

annual leave;
personal/carer’s leave;
unpaid carer’s leave; and
compassionate leave, amongst others.

Fixed-Term Employment

Small businesses typically hire fixed-term employees to carry out work for a specific period. If you would like employees to carry out a specific project within an identifiable time frame, then drafting a fixed-term employment contract could be a useful option for your business.

Maximum-Term Employment

Maximum-term employees are very similar to fixed-term employees. The key difference is that you or the maximum-term employee can terminate the employment arrangement before the end date after providing notice. On the other hand, a fixed-term employee must work the entire set period of time as there is usually no option to terminate the contract before the end date for either party.

Who is an Employee?

When investigating the type of employment contracts that your small business may require, you should understand the difference between an employee and a contractor. This is because employees and contractors receive different benefits under Fair Work legislation. Likewise, you must provide workers with their correct entitlements as their employer.

It is often hard to tell the difference between an employee and a contractor. However, a good starting point is noting that employees work in your business and are part of your business, whereas contractors run their own businesses.

It is essential to get this classification correct and for the agreement to reflect that, especially for your small business. Recent changes in the law now emphasise that the contract between you and your worker is the most important element. Accordingly, you do not want your business to be at risk of a ‘sham contracting’ arrangement.

Key Takeaways

When engaging workers for your small business, there are various employee classifications and kinds of contracts to note. Accordingly, these factors will influence the entitlements you legally owe your employees. You should also be aware of the differences between an employee and a contractor to avoid sham contracting arrangements.

Gurpreet Sandhu, Lawyer
April 26, 2023
legalvision.com.au

Are you receiving Personal Services Income?

Do you earn personal services income (PSI)?

While most people may think that it only applies to builders or tradies, it may also apply to any instance where individuals work and earn income using their personal effort or skills.

PSI generally only applies to individuals who receive more than 50% of their ordinary or statutory income from a contract as a reward for their personal effort or skills. An example that most people would be familiar with is a sole trader tradesperson using their skills to earn income, either directly or through an interposed entity (a PSE). However, PSI can apply to any industry, trade or profession where individuals use their personal effort or skills. This includes so-called “white collar” professionals in IT, finance and medicine, in addition to the construction industry and related trades.

If you earn PSI during the income year, the deductions that can be claimed will be limited to the deductions that you could have claimed if you were an employee (rather than someone earning PSI) and the income earned was salary and wages. This means that, for example, you would be unable to deduct rent, mortgage, interest, rates or land tax in relation to a residence or part of a residence that you use to gain or produce your PSI. This rule applies to all PSI, regardless of whether it is earned as a sole trader or through a company, partnership or trust. To avoid that outcome, individuals/personal services entities (PSEs) can generally self-assess whether they conduct a personal services business (PSB) against four tests. If any one of the four tests is met during an income year, the PSI rules will not apply to limit the deductions available to the individual or PSE.

Your tax professional can guide you through the maze.

AcctWeb

5 checklists to support your business

Find the list of tasks to be done in your business or reminders you need to know about.

Do you like to tick things off a to-do list? Our checklists will help you know which steps you need to complete when undertaking operational tasks or improving your business.

Here are our top 5 checklists for business owners.

1. Cyber security checklist

Protecting your business from cyber threats is crucial. Scams, email attacks, and malicious software can cost a lot of time and money. They can also compromise your sensitive data and reputation. Use the Cyber security checklist to find out how cyber secure your business is and strengthen your business against cyber threats.

2. Sustainability checklist

Being sustainable is about making positive changes in your business for the planet and people around you. It helps you stay resilient and meet the growing demand for products and services that do no harm. The Sustainability checklist guides you through some steps you can take towards sustainability.

3. Hiring employees checklist

Are you thinking about hiring staff for your business? Use the Hiring employees checklist to help you meet Australian laws when hiring an employee. We’ve also included some tips that might help you through the hiring process.

4. End of financial year checklist

The end of the financial year (EOFY) is an important time for your business. You'll need to complete bookkeeping, tax returns and plan for the new financial year. Use the End of financial year checklist to prepare, get your business organised and work smarter in the year ahead.

5. Setting up your finances checklist

Get your finances in order. The Setting up your finances checklist will help you understand the steps to set up your business accounts and find the tools and help you need to start managing your business finances.

12 March 2024
business.gov.au

Estate planning considerations

Estate planning is a complex area which requires careful consideration of tax implications.

Many issues that affect the distribution of assets to beneficiaries will need to be considered before an individual dies, to ensure undesirable tax consequences are avoided for both the individual and their potential beneficiaries. These include the timing on the transfer of the assets, potential gifts, transfer duties and the use of testamentary trusts.

While gifts can be made as a part of estate planning before an individual dies, remember that if the gift is an asset (e.g. property, crypto assets, shares, etc), CGT will apply at the time of the gift (and the donor may have insufficient funds to pay the tax).

Another consideration in terms of the timing of transfers (in particular, of property) is the transfer duty involved at the state or territory level. For example, in New South Wales, if property is received from a deceased estate in accordance with the terms of a will, the beneficiary will pay transfer duty at a concessional rate of $100. However, if the transfer occurs before an individual’s death or not in accordance with a will, normal rates of transfer duty will apply. In that scenario, it would be better to wait to transfer the property. The rules for each state and territory differ, so it’s important to check before making decisions.

Superannuation benefits are tax to non-dependent beneficiaries – taking pensions before death are tax effective, although introduce complications in managing cash flow.

For individuals looking to exert more control after their own death, or protection or flexibility for the family, a testamentary trust may be one way of providing a flexible and tax-efficient way to manage and distribute the assets of the estate to beneficiaries. Generally, the terms and conditions of the testamentary trust are outlined in the will of the deceased, including the appointment of trustees and beneficiaries and how the trust assets are to be managed and distributed. The trust itself comes into existence upon the death of the person making the will, and it is separate from the deceased estate for legal and tax purposes.

However, establishing and managing testamentary trusts can involve significant costs, and there is a requirement to carefully draft the trust deed, so it includes clear instructions for the establishment and operation of the testamentary trust, in order to avoid possible future disputes. There may also be ongoing legal, accounting and administrative expenses, making testamentary trusts a complex route to head down. Offsetting this are family flexibility, asset protection and tax savings, which can be significant.

The specific tax implications of estate planning can vary widely depending on individual circumstances and the state or territory in which an individual lived. This is a complex area where seeking professional advice tailored to the situation is crucial.

AcctWeb

The Deadliest pandemics in History

Check out the Deadliest pandemics in History

ATO changes will make it harder for over 42,000 small businesses.

The ATO reports that more than 42,000 small businesses fail to work with them in regard
to finalising their tax obligations.

This means all are risking massive consequences when overdue payment rules change in 2025.

Apparently some 50,000 taxpayers have outstanding tax obligations of over $100,000 and they are ignoring the ATO’s calls to pay up. Of those, slightly more than 42,000 are small businesses and they owe a total of $11 billion.

Of Australia’s $50 billion in collectable debt, 65% is related to small and medium enterprises.

But the ATO is changing its debt repayment rules in 2025 and will increase their efforts to get these debts paid.

Also, the general interest charge (GIC – currently 11.34%.) — the interest tacked onto payments to the ATO will lose tax deductibility status on July 1, 2025. This change is expected to add an extra $500 million a year to the government’s coffers, as the tax office formally abandons the COVID-era leniency it showed taxpayers.

When these ‘disengaged’ small businesses do finally pay, they may well find the amount owed is significantly more than expected after interest is charged. Even for those who ‘self-report’, but understate their tax obligations, will be tracked down and will owe interest on the shortfall as well. Any interest on such shortfalls will also lose tax-deductible status.

According to industry bodies it seems that few taxpayers are currently aware of the impending change.

The appropriate legislation has yet to be drafted but it’s almost certain it will be. Better to ‘clear the decks’ now rather than wait, as things will only get harder for these small businesses.

GST, PAYG withholding a ‘significant portion’ of $50bn tax debt

Small businesses are increasingly falling behind on debts, with two-thirds of all debt owed by small business, the ATO warns.

In a recent address, ATO Tax Commissioner Rob Heferen stressed the importance of small business owners meeting their obligations, with small business debts to the ATO continuing to climb.

The Tax Office is currently chasing over $50 billion in collectable debt, with 65 per cent of all collectable debt owed relating to small business, said Heferen, speaking at the Council of Small Business Organisations Australia (COSBOA) summit.

Of the collectable debt owed by small business, around three-quarters or 74 per cent relates to activity statements.

“This means a significant portion of the amount going unpaid is GST collected from consumers or PAYG withholding, withheld from employees pay,” said Heferen.

“We are seeing an increasing number of businesses fall behind on these types of payments, from which point it is very difficult for businesses to get back on top of their obligations and remain viable.”

The freshly minted commissioner told the COSBOA summit that ensuring taxpayers pay their tax and super obligations will remain a key focus for the ATO.

In September of last year, deputy commissioner Vivek Chaudhary said the ATO’s collectable business debt had nearly doubled over the last four years. In June 2019, taxpayers owed $26.5 billion while, at the time of his speaking, the debt had climbed to $50.2 billion.

These amounts only reflect debt owed by businesses, though they make up 90 per cent of all collectable debt. Chaudhary called the growth “concerning” and “unsustainable.”

“Too many businesses have accumulated unsustainable levels of debt. We want to guard against our payment culture turning from consistently paying on time to paying late,” he said.

Chaudhary said late payment creates an unlevel business playing field, and this idea was echoed in Heferen’s Thursday address.

“Many of your members are telling us how concerned they are about the unfair competitive advantage businesses not complying with ATO obligations are getting over those who are doing the right thing,” said Heferen.

“There’s also a significant risk of businesses trading whilst insolvent and creating a situation where all creditors – including suppliers and employees miss out on what they are owed.”

Lessons from debts on hold

Heferen also told conference attendees that the ATO last year learned the “very hard lesson” that its ability to waive taxpayer debt was very narrow.

Though he did not go into details, Heferen was likely referring to the Australian National Audit Office’s disapproving review of the agency’s approach to debts on hold.

Where recovery of a debt does not make economic sense, typically because it is for an insignificant amount, the ATO will often put the debt collection on hold.

The ATO began advising taxpayers that it would be offsetting the debts against returns or credits last year after the ANAO raised concerns with the ATO's previous practices for the debts following the end of the pandemic.

The awareness campaign was later paused following concerns raised by the community.

The Taxation Ombudsman this week called for the ATO to wipe interest from the approximately $15 billion the ATO said it was actively looking to claw back with these debts.

On Tuesday afternoon, Karen Payne told ABC Drive the ATO was right to collect the debts, but that it should “have regard to the circumstances in which the debt … has been raised and communicated to taxpayers.”

“If the debt is very old and you haven’t been advising taxpayers that it exists, then it would seem fair to me that any interest component should be remitted,” added Payne.

Nick Wilson
05 April 2024
accountantsdaily.com.au

How to Draft a Standard Form Contract

A standard form contract is a pre-written contract used repeatedly for a particular type of transaction.

These contracts are common when one party has more bargaining power than another, such as in consumer or employment contracts. Standard form contracts are sometimes called “take it or leave it” contracts because the party with less bargaining power may not be able to negotiate the contract’s terms.

Considerations When Drafting a Standard Form Contract

There is no legal definition setting out the requirements of a standard form contract. However, where a contract is considered standard form, the unfair contract terms regime will apply if one party to the contract has:

100 or fewer employees; or
less than $10 million in annual turnover.

The following drafting considerations may assist in mitigating the risk of a standard form contract being considered unfair. These considerations are designed to protect consumers and ensure that they are not unfairly disadvantaged by the terms of the contract.

The key requirements are as follows.

1. Plain Language

Standard form contracts should be written in plain language that is easy to understand. This means you should avoid using legal jargon or technical terms.

2. Clarity

The contract should avoid using vague or uncertain language that parties can interpret in multiple ways. Ambiguous and uncertain terms are likely to be a source of confusion and conflict in the future.

3. Transparency

The contract should be easily accessible and provided to the consumer in a clear and understandable way.

4. No Unfair Terms

The contract should not contain any unfair or disadvantageous terms unless the term is reasonably necessary to protect the business’s legitimate interests. This includes terms that:

allow one party to vary the terms of the contract unilaterally;
allow one party to avoid liability for negligence; and
limit the consumer’s rights to seek legal redress.

5. Notice of Terms

Ensure you provide the contract to the consumer in a way that allows them to read and understand the contract terms before they agree to them.

What Will a Court Consider When Determining if a Contract is Standard Form

The Australian Competition and Consumer Commission (ACCC) provides that, in determining whether a contract is standard form, a court may take into account any relevant matter. However, at a minimum, they must consider whether:

the party that prepared the contract has all or most of the bargaining power in the transaction;
the contract was prepared without or before any discussion between the parties about the transaction;
the other party could only accept or reject the terms of the contract as presented;
the other party was offered any real opportunity to discuss the terms of the contract; and
the terms of the contract consider any specific features of the other party or the transaction.

Why are Standard Form Contracts Used?

Standard form contracts are common when one party has more bargaining power than the other. For example, in consumer transactions, the seller may have more bargaining power than the buyer, and may be able to impose standard terms on the buyer. Similarly, in employment contracts, the employer may have more bargaining power than the employee and may be able to impose standard terms on the employee.

While standard form contracts can be useful in some situations, they can also be problematic if the contract terms are unfair or disadvantageous to the consumer.

Key Takeaways

A standard form contract is a pre-written contract used repeatedly for a particular type of transaction. The prohibition of unfair contract terms is designed to protect consumers and ensure they are not unfairly disadvantaged by the contract terms. Therefore, if you are providing a standard form contract to your customers, you should carefully review the terms of the contract to ensure it does not contain any unfair terms.

Jordan Bramis
June 9
legalvision.com.au

ATO to crack down on rental income, WFH deductions this tax time

Taxpayers who “copy and paste” work-related claims each year or try to offset their rental income by inflating deductions will be in the Tax Office’s sights.

The Tax Office has revealed its focus areas this tax time, making clear it will ramp up scrutiny on landlords inflating claims for rental deductions and individuals incorrectly claiming work-from-home expenses.

Assistant commissioner Rob Thomson also warned taxpayers against rushing to lodge their returns on 1 July because it often resulted in them failing to include all their income sources.

“These are the areas that people are most likely to get wrong, and while these mistakes are often genuine, sometimes they are deliberate. Take the time to get your return right,” Thomson said.

Rental deductions would be under the microscope after the ATO found that 9 out of 10 rental property owners got their tax returns wrong, with most common issue being incorrect repairs and maintenance claims.

“This year, we’re particularly focused on claims that may have been inflated to offset increases in rental income to get a greater tax benefit,” Thomson said.

He said immediate deductions could be claimed for general repairs and maintenance of a rental property – like replacing damaged carpet or a broken window – but capital expenses could not.

“If you rip out an old kitchen and put in a new and improved one, this is a capital improvement and is only deductible over time as capital works,” Thomson said.

He recommended owners either “carefully reviewed” their records before lodging a return to ensure they were claiming deductions correctly, or using a registered tax agent to help with preparing income tax returns.

‘Ensuring you provide full and complete records to your registered tax agent allows them to prepare your tax return correctly, so you claim everything you’re entitled to and nothing that you’re not.”

Another target for the ATO will be work-related expenses in light of recent changes to WFH deduction rules. The ATO said that many taxpayers would trip up on changes to the fixed rate method of calculating a WFH deduction after more than 4 million people claimed one last year.

The 80c shortcut method, introduced during COVID-19, finished at the end of FY22 and a revised fixed rate method was introduced in 2023, raising the rate from 52c to 67c an hour.

The revised fixed rate method changes also included a broadening of expenses covered and adjusted record-keeping requirements, meaning “you must have comprehensive records to substantiate your claims as you would for any other deduction”, the ATO said.

Taxpayers would need to produce records that showed the actual number of hours worked from home (like a calendar, diary or spreadsheet) and additional running costs incurred to claim a deduction (like a copy of your electricity or internet bill) or face a “please explain” from the Tax Office.

“Deductions for working from home expenses can be calculated using the actual cost or the fixed rate method, and keeping good records gives you the flexibility to use the method that works for you, and claim the expenses you are entitled to,” Thomson said.

“Copying and pasting your working from home claim from last year may be tempting, but this will likely mean we will be contacting you for a ‘please explain’. Your deductions will be disallowed if you’re not eligible or don’t keep the right records.”

Thomson also said taxpayers should not rush to lodge returns on 1 July if they had income from multiple sources.

“We see lots of mistakes in July where people have forgotten to include interest from banks, dividend income, payments from other government agencies and private health insurers,” he said.

“By lodging in early July, you are doubling your chances of having your tax return flagged as incorrect by the ATO.”

Taxpayers should check with employers to see if their income statements had been marked as “tax ready” and if income was pre-filled in myTax before lodging.

“We know some prefer to tick their tax return off the to-do list early and not have to think about it for another 12 months, but the best way to ensure you get it right is to wait for just a few weeks to lodge … that way, an amendment doesn’t need to be made later, which could result in unnecessary delays.”

Christine Chen
06 May 2024
accountantsdaily.com.au