In this Sky Update, we bring you all the latest tax news along with some other items that may pique your interest.
Superannuation Changes From 1 July
We have previously reported a number of superannuation changes due to start on the 1st of July 2021. With that date now upon us, we wish to remind you of the following changes that should be kept front of mind:
- An increase in the employee superannuation guarantee rate from 9.5% to 10.0%;
- An increase in the concessional contributions cap from $25,000 to $27,500;
- An increase in the non-concessional contributions cap from $100,000 to $110,000; and
- An increase in the transfer balance cap from $1.6m to $1.7m.
In particular, we wish to remind employers to increase employee superannuation contributions from 9.5% to 10.0% from the first pay day occurring on or after the 1st of July.
Additionally, we wish to clarify that employee salary rates may only be reduced to take account of the new 10.0% rate where the employees contract stipulates their package to be inclusive of superannuation. Of course, subject to the pay rate remaining at or above the National Minimum Wage or Award rates.
Not only are there legal and contractual issues associated with reducing pay rates, there are broader issues of perceived fairness and employer/employee relations. Any employer contemplating reducing pay rates is urged to proceed with caution and careful consideration of all issues.
If you have questions about how any of these changes affect you, please get in touch.
Property Development Tax Pitfalls
The application of taxation laws to property transactions can be highly complex and it will not always be the case that a sale will be taxed under the Capital Gains Tax (CGT) regime with the benefit of the “discount method” to reduce the amount subject to taxation.
The recent Administrative Appeals Tribunal (AAT) decision in McCarthy and Commissioner of Taxation highlights these complexities.
In this case, the taxpayer acquired a property and subsequently subdivided and sold. They had sought a Private Ruling from the ATO asserting that the sale should be taxed under the CGT regime. The ATO issued the Private Ruling stipulating that the sale would not be taxed under the CGT regime and that the sale should be taxed as ordinary income.
The taxpayer subsequently lodged her tax return in-line with the Private Ruling decision and upon receiving her assessment, lodged an Objection to have the tax treatment of the property transactions reviewed. The ATO Objection decision affirmed the accuracy of the assessment resulting in the taxpayer then lodging an application for review of the Objection decision in the AAT.
The AAT affirmed the ATO’s assessment as being correct. In the AAT decision it was noted that:
“The Tribunal finds the Myer Emporium principles, summarised in Myer Emporium at 209–210 as “a profit or gain so made will constitute income if the property generating the profit or gain was acquired in a business operation or commercial transaction for the purpose of profit‑making by the means giving rise to the profit” (see [33(a)] above) apply in the present case. The profit generated by the purchase and subdivision of the Property and the sale of the subdivided lots is properly treated as ordinary income under s 6-5 of the ITAA-1997.
In plain English, the decision was that the property had been purchased with the intention of subdividing and re-sale for profit as opposed to being held as a long term investment.
The consequence of this being that the sale was not taxed under the CGT regime with the benefit of the discount method to reduce the amount that was subject to taxation. It can be surmised that the ultimate outcome was that the taxpayer paid substantially more tax than they had expected to.
Whilst the AAT did not deal with the matter of Goods & Services Tax (GST), we expect that the taxpayer will also have had unexpected obligations arising in that realm.
This highlights just one of the many tax pitfalls that can arise with property transactions and the need to obtain expert advice from the outset. With the right advice, those embarking on property transactions can plan and manage to ensure that they maximise their outcomes and do not end up with any nasty surprises.
Fair Work Commission (FWC) Annual Wage Review 2020-21
The FWC has recently published their decision from the Annual Wage Review.
In that decision, the FWC has increased the National Minimum Wage by 2.5% to $772.60 per week or $20.33 per hour. The increase will apply from the first full pay period on or after 1 July 2021.
The Fair Work Ombudsman has subsequently published guidance on the application of that increase and the impact on pay-rates included in Awards.
Most Awards will increase from the first full pay period on or after 1 July 2021. The Retail Award will increase from the first full pay period on or after 1 September 2021. There are then 21 Awards that will increase from the first full pay period on or after 1 November 2021.
Amongst those 21 Awards are industries most heavily impacted by the ongoing Coronavirus pandemic such the Air Travel related Awards, Fitness Award, Hair and Beauty Award, Registered Clubs Award, Hospitality Award and Restaurant Award.
We recommend that you keep an eye on the Fair Work Ombudsman’s Pay Guides page for the new guides that are expected to be published imminently.
SMSF Member Limit Increase
On the 22nd of June Treasury Laws Amendment (Self Managed Superannuation Funds) Bill 2020 received Royal Assent.
The passing of this Bill into law means that from 1 July 2021, Self Managed Superannuation Funds (SMSF) can have 6 members. Previously, SMSF were limited to 4 members.
This change means that more people will be able to participate in a SMSF to pool together and invest their superannuation.
Victorian Wage Theft Laws Start
On 1 July 2021, Victoria’s new “wage theft” laws come into force and make it a crime for a Victorian employer to:
- Deliberately underpay employees;
- Dishonestly withhold wages, superannuation or other employee entitlements; and
- Falsify or avoid keeping employee entitlement records to obtain a financial advantage.
These crimes will be punishable by fines of up to $198,264 or up to 10 years’ jail for individuals and fines of up to $991,320 for companies.
More information on the new laws can be found here.
Given the significance of the punishments, Victorian employers are encouraged to ensure that they are compliant with all of their obligations. If you need assistance to understand your employer obligations, please get in touch.
The New South Wales, Queensland and South Australian state governments have all recently issued their 2021/22 budgets.
We have collated the following links to additional information on the measures announced in each of those budgets.
If you have any questions on any of the measures announced, please get in touch.
Quote of the Month
The fear of failure stops many of us from “having a go” and limits our ability to reach our full potential.
When we link our self-worth to our successes or failures, we are playing a high stakes game and the fear of failure can be incredibly powerful.
When that fear is strong, we encourage you to change your way of thinking. Try thinking like Dolly Parton who said “I never feel like a failure just because something I tried has failed”.
What Dolly has managed to achieve in her life, starting from very humble beginnings, speaks volumes for the power of having the correct perspective on failure.
To double down on the Dolly quotes, remember that “you’ll never do a whole lot unless you’re brave enough to try”.
Next time you feel the fear of failure kicking-in, remember that you are not defined by your failures and pluck-up the courage to have a go.
Sky Accountants Ballarat
Phone: 1300 328 855
Office Address: 902 Howitt Street, Wendouree, Victoria 3355, Australia
Postal Address: PO Box 2234, Bakery Hill, Victoria 3354
Sky Accountants Gisborne & Macedon Ranges
Phone: 03 97444522
Office Address: 45 Hamilton Street, Gisborne, Victoria 3437, Australia
Postal Address: PO Box 270 Gisborne Victoria 3437