Superannuation laws- Eight important facts (2021)

 

Superannuation contributions, laws and changes can be a real minefield for employer’s, self managed super Funds 

( SMSF’s) and employees alike.

This article helps demystify superannuation terms, law requirements and all changes that may relate to your personal situation.

The eight facts summarised are an essential guide for the new financial year ahead.

1. Super Guarantee

Superannuation is money you pay eligible workers to provide for their retirement.

Super guarantee (SG) is the minimum amount you must pay to avoid the super guarantee charge. Super guarantee will increase on 1 July 2021 from 9.5% to 10% of an employee’s ordinary time earnings.

2. Super Guarantee percentage

The super guarantee percentage rates are shown in the table below:

Super guarantee percentage

Period

General super guarantee (%)

1 July 2020 – 30 June 2021

9.50

1 July 2021 – 30 June 2022

10.00

1 July 2022 – 30 June 2023

10.50

1 July 2023 – 30 June 2024

11.00

1 July 2024 – 30 June 2025

11.50

1 July 2025 – 30 June 2026

12.00

Your contributions for each employee are required to be paid on at least a quarterly basis.

3. Super Guarantee charge

The super guarantee charge (SGC) applies when employers don’t pay the minimum amount of super guarantee (SG) for their eligible employees to the correct fund by the due date.

The minimum SG is calculated as a percentage of each eligible employee’s earnings (ordinary time earnings) to a complying super fund or retirement savings account (RSA).

In addition, the employer will be required to pay nominal interest from the date the contribution should have been paid until the date the contribution is made.

An administration charge will also apply to each quarterly contribution.

4. Missed and late Super Guarantee payment options

If you do not pay an employee’s super guarantee on time and to the right fund, you must lodge the superannuation guarantee charge (SGC) statement and pay the SGC to the ATO.

When eligibility requirements are met, late super payments can be used to offset the SGC, pay super in the current quarter or put the payment towards future super payments.

5. Contribution Caps

The contribution caps limit the amount that can be contributed for a member each financial year. The caps are indexed annually.

A member whose total contributions in a year exceed the contribution caps may be liable for additional tax on the excess contributions.

6. Concessional Contributions

Concessional contributions are contributions made into your self-managed super fund (SMSF) that are included in the SMSF’s assessable income. These contributions are taxed in your SMSF at a ‘concessional’ rate of 15%, which is often referred to as ‘contributions tax’.

The most common types of concessional contributions are employer contributions, such as super guarantee and salary sacrifice contributions. Concessional contributions also include personal contributions made by the member for which the member claims an income tax deduction.

Concessional contributions are subject to a yearly cap:

  • From 1 July 2021, the general concessional contributions cap is $27,500 for all individuals regardless of age.
  • For the 2020-21 financial year, the general concessional contributions cap is $25,000 for all individuals regardless of age.
  • For the 2013–14 financial year onwards, excess concessional contributions are no longer subject to excess contributions tax. If a member’s contributions exceed the cap, the amount will be included in the member’s assessable income and taxed at their marginal tax rate.

Unused concessional cap carry forward

From 1 July 2018, members can make ‘carry-forward’ concessional super contributions if they have a total superannuation balance of less than $500,000. Members can access their unused concessional contributions caps on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire.

The first year in which you can access unused concessional contributions is the 2019–20 financial year.

7. Non-concessional contributions

Generally, non-concessional contributions are contributions made into your SMSF that are not included in the SMSF’s assessable income.

Non-concessional contributions include:

  • personal contributions made by the member for which no income tax deduction is claimed – this is the most common type of non-concessional contribution
  • excess concessional contributions for the financial year which the member does not elect to remove from the superfund after we send them an excess contributions determination will also count towards your member’s non-concessional contributions cap.

Non-concessional contributions do not include:

  • super co-contributions
  • structured settlements
  • orders for personal injury or capital gains tax (CGT) related payments that the member has validly elected to exclude from their non-concessional contributions.

If a member’s non-concessional contributions exceed the cap, a tax of 47% is levied on the excess contributions. Individual members are personally liable for this tax and must have their super fund release an amount of money equal to the tax.

From 1 July 2021

From 1 July 2021, the non-concessional contributions cap will increase from $100,000 to $110,000. Members under 65 years of age may be able to make non-concessional contributions of up to three times the annual non-concessional contributions cap in a single year.

If eligible, when you make contributions greater than the annual cap, you automatically gain access to future year caps. This is known as the ‘bring-forward’ option.

Note: if an individual has triggered a bring forward arrangement before 1 July 2021, they will not have access to any additional cap space as a result of the increase to the non-concessional cap.

Bring forward arrangements

Members who are under 65 may be able to access a bring forward arrangement as outlined in the table below.

Table: Contribution and bring forward available to members under 65

Total superannuation balance

Contribution and bring forward available

Less than $1.48 million

Access to $330,000 cap (over three years)

Greater than or equal to $1.48 million and less than $1.59 million

Access to $220,000 cap (over two years)

Greater than or equal to $1.59 million and less than $1.7 million

Access to $110,000 cap (no bring-forward period, general non-concessional contributions cap applies)

Greater than or equal to $1.7 million

Nil

8. Additional Tax on Concessional Contributions (Division 293) – for individuals

Division 293 tax is an additional tax on super contributions, which reduces the tax concession for individuals whose combined income and contributions are greater than the Division 293 threshold.

From 1 July 2017, the Division 293 threshold is $250,000. Prior to this, it was $300,000.

Division 293 tax is charged at 15% of an individual’s taxable contributions.

How you will know if you have to pay

You will be sent a notice of assessment once we receive both your income and contribution information.

If you lodge your tax return using myTax, your notice of assessment will be sent to your myGov Inbox. If you want your notice of assessment to go to your registered tax agent instead, you will need to ask them to update your communication preferences.

When you lodge your tax return

If your income indicates that you will be above the Division 293 threshold we will remind you about Division 293 tax when you prepare your tax return online.

Your notice of assessment will only be sent to you once we have also received the contribution information from your super fund.

Need help ?

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