A brand-new financial year - what’s ahead for 2022/23
The start of a new financial year is always busy for businesses and employers. Last year we had the added complication of a Federal election in May, with promises from both parties that affect super for your employees. Now that the Federal election is over, we have some clear air to look forward to in 2022/23.
Reminders for end of 2021/22 and start of 2022/23
The key super reminders for employers are:
- The Super Guarantee (SG) rate increased to 10.5% of ordinary time earnings from 1 July 2022.
- Employees who are over 18 but earn less than $450 per month are now covered by SG from 1 July 2022. Employees under 18 are covered if they work more than 30 hours in a week, even if they earn less than $450.
- Super Guarantee contributions for the April to June 2022 quarter were due by 28 July 2022. Remember, if these contributions were made to the super fund in the month of July 2022, they are tax deductible in the 2022/23 tax year, even though the contributions may relate to an employee’s ordinary time earnings in the previous financial year.
- Employers and employees need to ensure that salary sacrifice arrangements are entered into before the work is performed. Any salary, bonuses, entitlements that accrue before the arrangement is set up cannot be sacrificed into super. Employees should also consider the impact of the concessional contributions cap, especially as SG contributions (also concessional contributions) have now increased to 10.5% salary in 2022/23.
- From 1 July 2022, there is now no longer a ‘work test’ to make salary sacrifice and after-tax personal contributions for those aged 67 to 75 1.This removes an unnecessary rule for salary sacrifice contributions and provides some breathing space for those retiring to choose if they want to make personal contributions into super after retirement. Older employees should note however that, although the work test has been removed to make personal contributions to super, it is still required to claim a personal tax deduction for those contributions.
ATO releases new super and tax thresholds for 2022/23
- The contributions caps remain at the same level as 2021/22 with the concessional contribution cap for 2022/23 set at $27,500 and the non-concessional contribution cap at $110,000 (or $330,000 over the next 3 years).
- The income threshold for Division 293 tax remains at $250,000 for 2022/23. Division 293 is an additional 15% tax on concessional contributions of higher income earners.
- The income level for the maximum $500 Government co-contribution has increased to $42,016 for 2022/23 (up from $41,112 in 2021/22). Over this threshold the maximum co-contribution reduces until it finally ceases at $57,016 (up from $56,112 in 2021/22).
Eligible Termination Payments (ETPs) and super withdrawals:
- The ETP cap amount and the (super) low-rate cap amount have increased to $230,000 for 2022/23 (up from $225,000 in 2021/22). The ETP cap amount is the concessionally taxed amount of a termination payment (other than the tax-free redundancy and leave payments). The low-rate cap applies to super withdrawals cashed between preservation age (currently 59) and age 60, and is the amount of the taxable component taxed at 0%.
- The tax-free amount of a redundancy/early retirement scheme payment has increased to $11,591 plus $5,797 for each full year of service for 2022/23 (up from $11,341 and $5,672 for 2021/22).
- The 50% reduction in the annual minimum payment for account-based pensions (including transition to retirement pensions) has been extended to 2022/23. Therefore, pensioners under age 65 have a minimum drawdown this year of 2% of the account balance and 2.5% for those aged 65 to 74.
- The Transfer Balance Cap for retirement-phase pensions will remain at $1.7 million for 2022/23. This is the maximum amount that can transfer to the tax-free phase.
New issues on the horizon for 2022/23
Following the Federal election in May, the new ALP Government has been sworn in with Stephen Jones MP as the new Assistant Treasurer and Minister for Financial Services (including superannuation). As Shadow Minister, he has made it clear that the ALP did not come in with a sweeping reform agenda for super, but will give the industry time to digest the “tsunami” of regulatory reform that is already on its plate. In the run up to the election, the new Minister did however indicate some areas they may look at:
- Improving the professionalism of financial advice with a recognition of prior experience.
- Reviewing some of the assumptions behind super fund performance measurements, particularly for ethical and faith-based investment options.
- Aligning employer super contributions with wage/salary payments.
What is likely to happen with the new Government are significant changes to employment and industrial relations laws. These include:
- Making superannuation a right under the National Employment Standards. This will allow employees to pursue underpayment of SG contributions as an employment entitlement.
- Support for increases to the minimum wage in line with cost-of-living increases. The new Government has already put a submission to the Fair Work Commission on this.
- Re-introducing same job/same pay legislation. This is to provide employees engaged through labour hire firms with the same pay and conditions as directly hired employees.
- Extending the powers of the Fair Work Commission to cover “employee-like” situations, so minimum conditions can be set for workers in the gig economy.
- Redefining casual employment to consider the circumstances of the arrangement, rather than just what the contract says. The ALP will also set limits on the number and duration of fixed term contracts, with a cap of 24 months after which the employer must offer permanent employment.
These and other issues will be considered in the Employment Summit the new Government has planned for September 2022, which will bring unions and businesses together to work to a plan to improve productivity.
1 The cut off date for the fund to receive salary sacrifice, spouse and personal contributions is the 28th of the following month after the member turns 75.