Changes to super guarantee from 1 July 2022 will benefit casual and part time employees
It has been a long time coming, but the $450 monthly minimum wage for Super Guarantee contributions has finally been abolished, starting 1 July 2022. This means employers will be required to make super contributions for all employees, including casual and part time employees on low incomes.
The $450 monthly minimum threshold was originally designed to reduce the administration burden on employers. However as employee super data and payments have now been digitised through SuperStream and Single Touch Payroll, the Government has agreed the threshold is no longer required. Also, as pointed out by the Senate Economics Committee in April 2016 in its report “A husband is not a financial plan…”, the $450 threshold unfairly impacts women who comprise 63% of the 300,000 employees who don’t receive super contributions as a result1.
Employers should also note that the rate of Super Guarantee is scheduled to increase to 10.5% of wages/salaries from 1 July 2022. This increase is already law and is part of a staged increase in compulsory super contribution to 12% by 1 July 2025.
Since both these changes are effective 1 July 2022, employers will need to ensure their systems and processes reflect these changes in the next few months.
Other superannuation changes
From 1 July 2022, employees will be able to make voluntary super contributions after age 67 and before age 75, without having to meet a work test. This applies to personal and spouse contributions and to salary sacrifice employer contributions. The work test2 will only apply if the individual wants to claim a personal tax deduction for their own contributions.
Example:
Helen is aged 68 and intends to reduce to part-time work of 2 days a fortnight, but she still wants to salary sacrifice $100 into super each fortnight. From 1 July 2022 no work test applies to her salary sacrificed contributions. She can also make her own contributions to super, but to claim a personal tax deduction for those contributions, she would need to meet the work test during 2022/23.
First Home Super Saver Scheme (FHSS)
The maximum amount of voluntary contributions that can be withdrawn from a person’s super to purchase a first home will increase to $50,000 from 1 July 2022 (up from $30,000). Under the FHSS a member can make a request to the ATO to withdraw up to $15,000 of voluntary contributions per year up to the maximum contribution amount, plus ATO calculated earnings from their super to purchase or build a first home.
Only personal contributions and salary sacrifice employer contributions can be withdrawn under the FHSS and all compulsory super guarantee contributions must remain in super until retirement. However increasingly younger members can see there are advantages in saving through super for a first home:
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Personal contributions to super can be tax deductible to the member.
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The ATO’s calculated earning rate on the contributions is higher than standard bank interest rates.
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The FHSS can offer an alternative take on the “Bank of Mum and Dad” as parents can gift money to their child, who then deposits it into super as a personal contribution.
Contractors and employees
Recently the thorny issue of when a contractor is to be treated as an employee for Super Guarantee purposes reared its head (again) in an Administrative Appeals Tribunal (AAT) case in January 20223.
Mr Pirie, a plumber, worked under a contract with Rickard Heating Pty Ltd that was treating him as a sub-contractor. The AAT found that it was not relevant that Rickard P/L and Mr Pirie had agreed that he was a contractor (rather than an employee) and the parties had agreed he would be liable to pay his own super contributions.
As determined by the AAT, since Mr Pirie worked under a contract that was wholly or principally for his labour, he was an employee for SG purposes. Quoting from the Tribunal, “It is important to point out that the definition of ’employer’ and ’employee’ in s.12 is wider than its ‘ordinary meaning’, and most probably is wider than what people, even business people, would ordinarily understand it to mean.”
Employers who are using contractors may wish to review their arrangements in light of this decision. To help employers the ATO has developed an employee/contractor decision tool: http://ato.gov.au/Calculators-and-tools/Employee-or-contractor/
To find out more about these super changes, contact us on Phone 02 9279 2001.
1 Retirement Income Review Final Report July 2020 p.45
2 The work test is 40 hours paid work over a consecutive 30 day period during the financial year the contribution is made. There is also a one-off exemption from the work test if you met the work test in the previous year and your super on the previous 30 June is less than $300,000.
3 Trustee for Virdis Family Trust t/a Rickard Heating Pty Ltd v FC of T [2022] AATA 3 22 January 2022
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