THE passing by both houses of Parliament of the carbon tax legislation has created a great deal of interest and controversy. By the responses received to last week's news of the increase in the superannuation guarantee levy to 12 per cent, this move is no less contentious.
QHas legislation also been passed to increase the tax rate to 18 per cent on super as well?
ATo the best of my knowledge neither party has a policy to increase the tax on super contributions to 18 per cent. Given Tony Abbott's opposition to the tax concessions for super, and his preference for the age pension, it will be interesting to see what superannuation policies the Coalition comes out with.
QI employ four people in a small business, including my wife and me. We are to receive a 1 per cent business tax cut but I feel this will be wiped out by the rise in super contributions paid by me from 9 to 12 per cent. Am I correct?
A I am not sure what tax cut you are referring to. If it is the 1 per cent cut in the company tax rate, this does not actually result in less tax paid by you as the owner of the business. It only means there will be more profit left in the company.
The other tax cut I know of is the one linked to the carbon tax. In this instance, the tax-free threshold is to be increased but the low-income tax offset is to be cut from $1500 to $445. This will result in a reduction in personal income tax of about $300.
You are right about the increase in the SGC to 12 per cent in effect being an increase in the tax paid by all businesses. When the SGC was introduced it was done as a trade-off, with the unions reducing demands for wage increases. With this latest increase, there is no trade-off. Big business will more than likely be able to pass on the increased costs as price increases.
Small businesses will more than likely have to absorb the increase and, when combined with the resulting increase in workers' compensation insurance and payroll tax, could threaten the viability of struggling businesses.
QThe money that an employer "compulsorily contributes" to my super comes from where? Is it my money contributed on my behalf by the employer, or is it the employer's money, begrudgingly contributed to my super because the government orders it?
A The contribution is a cost to employers and, although contributed on behalf of the employee, is not a cost to them unless they are employed under a salary-packaging arrangement.
Questions can be emailed to super@taxbiz.com.au
Max Newnham's book, Funding your Retirement A Survival Guide, is available in bookstores and as an e-book.
Frequently Asked Questions about this Article…
What is the superannuation guarantee increase and how does it affect my super contributions?
The superannuation guarantee (SGC) has been increased from 9% to 12%. That means employers must compulsorily contribute a higher percentage of an employee’s ordinary earnings into super. The extra contribution is paid by the employer on behalf of the employee — it increases employer costs rather than reducing your take‑home pay unless you are in a salary‑packaging arrangement.
Has legislation been passed to raise the tax on super contributions to 18%?
No. To the best of the article’s knowledge, neither major party has a policy to increase the tax on super contributions to 18%. The piece also notes political disagreement over super tax concessions and uncertainty about future Coalition superannuation policy.
I run a small business — will the 1% company tax cut offset the extra cost of the SGC rising to 12%?
A 1% cut in the company tax rate doesn’t directly reduce tax you pay personally as a business owner; it simply leaves more profit inside the company. The SGC rise increases payroll costs for employers and may outweigh any indirect benefit from a small company tax cut, so many small businesses are likely to feel the net impact as higher costs.
Where does the money for employer compulsory super contributions come from — the employer or the employee?
Employer compulsory super contributions are a cost to the employer. They are contributed on behalf of the employee, but they come from the employer’s funds. They are not treated as a direct cost to the employee unless the employee is on a salary‑packaged arrangement where contributions replace some salary.
Will big companies pass on the SGC increase to customers, and how will small businesses respond?
The article suggests big businesses are more likely to pass increased SGC costs on to consumers via price rises. Small businesses, by contrast, are more likely to have to absorb the extra cost, which — combined with other rising expenses — could hit their viability.
How do the carbon tax changes affect personal income tax and the low‑income tax offset?
Under the carbon tax package noted in the article, the tax‑free threshold is to be increased while the low‑income tax offset is cut from $1,500 to $445. The net effect described is a reduction in personal income tax of about $300 for affected taxpayers.
Could the higher SGC and related cost increases threaten struggling businesses?
Yes. The article warns that when the higher SGC is combined with likely increases in workers’ compensation insurance and payroll tax, struggling small businesses could face significant pressure and potential viability risks.
Where can I get more information or ask questions about these superannuation changes?
The article notes you can email questions to super@taxbiz.com.au for more information. It also references Max Newnham’s book, Funding your Retirement — A Survival Guide, as an additional resource available in bookstores and as an e‑book.
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