What Is Changing On 1 July 2022?

A series of changes and reforms for business and your superannuation will commence on 1 July 2022.

Here’s what is changing:

Changes and Reforms for Business

Superannuation Guarantee increase to 10.5%.

The Superannuation Guarantee rate will rise from 10% to 10.5% on 1 July 2022. It will continue to increase by 0.5% each year until it reaches 12% on 1 July 2025.

If you have employees, these changes will depend on your employment agreements. When the employment agreement sets pay on a ‘total remuneration’ basis (salary plus benefits like super), the employer will direct an extra 0.5% of that package to the employee’s super, reducing their take-home pay. If the employee earns a base salary plus super, their take-home pay stays the same, and the employer adds the 0.5% increase to their Superannuation Guarantee contributions.

$450 superannuation guarantee threshold removed.

From 1 July 2022, the Government will remove the $450 threshold test. This means that all employes have to pay superannuation guarantee to all employees aged 18 or over, regardless of how much they earn. It is important to ensure that your payroll system accommodates this change so you don’t accidentally underpay superannuation.

Note: For employees under the age of 18, superannuation guarantee is only paid if the employee works more than 30 hours per week.

Profits of professional services firms.

The ATO is concerned about how professional services firms will structure. This is specifically, professional practices such as lawyers, accountants, architects, medical practices, engineers, architects etc. They’re also concerned with how they’re operating through trusts, companies and partnerships of discretionary trusts. Also, how the profits from these practices are being taxed.

There is new ATO guidance that comes into effect from 1 July 2022. It takes a strong stance on structures designed to divert income in a way that results in principal practitioners receiving relatively small amounts of income personally for their work and reducing their taxable income. If these structures appear to be diverting income to create a tax benefit for the professional, Part IVA may apply.

Part IVA is an integrity rule which allows the Tax Commissioner to remove any tax benefit received by a taxpayer where they entered into an arrangement to obtain a tax benefit.

Significant penalties can also apply when Part IVA is triggered.

A new method of assessing the level of risk associated with profits generated by a professional services firm and how they flow through to individual practitioners and their related parties, will come into effect from 1 July 2022. Professional firms will need to assess their structures to understand their risk rating, and if necessary, either make changes to reduce their risks level or ensure appropriate documentation is in place to justify their position.

Any structural changes that need to be made to reduce risk, should be completed by the end of the 2022-23 financial year.

Lowering tax instalments for small business – PAYG (Pay As You Go).

PAYG instalments are regular prepayments made during the tax year on business and investment income. The actual amount owing is then reconciled at the end of the income year when the tax return is lodged.

Normally, Goods and Services Tax (GST) and PAYG instalment amounts are adjusted using a Gross Domestic Product (GDP) adjustment or uplift. For the 2022-23 income year, the Government has set this uplift factor at 2% instead of the 10% that would have applied. The 2% uplift rate will apply to small to medium enterprises eligible to use the relevant instalment methods for instalments for the 2022-23 income year:

Up to $10 million annual aggregated turnover for GST instalments, and
$50 million annual aggregated turnover for PAYG instalments

The effect of the change is that small businesses using this PAYG instalment method will have more cash during the year to utilise. However, the actual amount of tax owing on the tax return will not change. It will just be the amount you need to contribute during the year.

Trust distributions to companies.

The ATO recently released a draft tax determination dealing specifically with unpaid distributions owed by trusts to corporate beneficiaries.

If the trust has a loan, then it can potentially fall within the scope of the integrity provisions in Division 7A. If you don’t take certain steps, like placing the unpaid amount under a complying loan agreement, the ATO can treat these amounts as unfranked dividends. You’ll then need to pay tax on them at your marginal rate.

The ATO guidance deals specifically with, and potentially changes, when an unpaid entitlement to trust income will start being treated as a loan. The new guidance applies to trust entitlements arising on or after 1 July 2022.

Changes and Reforms For You

Home loan guarantee scheme extended.

The Home Guarantee Scheme guarantees part of an eligible buyer’s home loan. This enables people to buy a home with a smaller deposit and without the need for lenders mortgage insurance. An additional 25,000 guarantees will be available for eligible first home owners (35,000 per year). 2,500 additional single parent family home guarantees (5,000 per year) will be available too.

Changes to Your Superannuation

Work-test repeal – enabling those under 75 to contribute to super.

Currently, a work test applies to superannuation contributions made by people aged 67 or over. In general, you are employed for at least 40 hours over a 30 day period to qualify.

From 1 July 2022, the Government has scrapped the work-test. Iindividuals aged younger than 75 years will be able to make or receive non-concessional or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps.

Note: The work test will still apply to personal deductible contributions.

This change will also see those aged under 75 be able to access the ‘bring forward rule’ if your total superannuation balance allows. The bring forward rule enables you to contribute up to three years’ worth of non-concessional contributions to your superannuation in one year.

Downsizer contributions from age 60.

From 1 July 2022, eligible individuals aged 60 years or older can choose to make a ‘downsizer contribution’ into their superannuation. This contribution can be up to $300,000 per person ($600,000 per couple). It comes from the proceeds of selling their home. Currently, you need to be 65 years or older to utilise downsizer contributions.

You can make downsizer contributions from the sale of your principal residence that you have owned for the past ten or more years. Your contributions are excluded from the:

Age test,
Work test, and
Your total superannuation balance (but not exempt from your transfer balance cap).

First home saver scheme – using superannuation to save for a first home.

The First Home Superannuation Saver Scheme enables first home buyers to withdraw voluntary contributions they have made to superannuation and any associated earnings. They can put this towards the cost of their first home. At the moment, the maximum amount of voluntary contributions you can make and withdraw is $30,000. From 1 July 2022, the maximum amount will increase to $50,000. The benefit of this scheme is the concessional tax treatment of superannuation.

Would you like any advice or assistance with any of the new reforms or changes? Please contact your Aintree Group adviser today!

This is general advice only and has not been prepared with your situation and needs in mind. For individual and personalised advice, we highly recommend that you seek out proper professional advice from your advisers.