How to take advantage of the 1 July super cap increase
From 1 July 2024, the amount you can contribute to super will increase. We show you how to take advantage of the change.
The amount you can contribute to superannuation will increase on 1 July 2024 from $27,500 to $30,000 for concessional super contributions and from $110,000 to $120,000 for non-concessional contributions.
The contribution caps are indexed to wage growth based on the prior year December quarter’s average weekly ordinary times earnings (AWOTE). Growth in wages was large enough to trigger the first increase in the contribution caps in 3 years.
Other areas impacted by indexation include:
- The Government super co-contribution – Income threshold
- The super guarantee maximum contribution base (the limit for compulsory super guarantee payments)
- The tax-free thresholds for redundancy payments
- The CGT contribution cap (amount that can be contributed to super following the sale of eligible business assets)
For those with the disposable income to contribute, superannuation can be very attractive with a 15% tax rate on concessional super contributions and potentially tax-free withdrawals when you retire. For business owners who might have had an exceptional year or sold their business, it’s an opportunity to get more into super. However, the timing of contributions will be important to maximise outcomes.
If you know you will have a capital gains tax liability in a particular year, you may be able to use ‘catch up’ contributions to make a larger than usual contribution and use the tax deduction to help offset your capital gain tax bill. But, this strategy will only work if you meet the eligibility criteria to make catch up contributions and you lodge a Notice of intent to claim or vary a deduction for personal super contributions with your super fund.
Using the bring forward rule
The bring forward rule enables you to bring forward up to 2 years’ worth of future non-concessional contributions into the year you make the contribution – this is assuming your total superannuation balance enables you to make the contribution and you are under age 75.
If you utilise the bring forward rule before 30 June, the maximum that can be contributed is $330,000. However, if you wait to trigger the bring forward until on or after 1 July, then the maximum that can be contributed under this rule is $360,000.
The total superannuation balance (TSB) thresholds that apply to determine the maximum amount of bring forward NCC available will be adjusted as follows:
‘Catch up’ contributions
If your super balance is below $500,000 on the prior 30 June, and you want to quickly increase the amount you hold in super, you can utilise any unused concessional super contributions amounts from the last 5 years.
Let’s look at the example of Gary who has only been using $15,000 of his concessional super cap for the last few years. Gary’s super balance at 30 June 2023 was $300,000, so he is well within the limit to make catch up contributions.
Gary could access his $27,500 concessional cap for 2023-24 plus the unused $55,000 from the prior 5 financial years. If Gary doesn’t access the unused amounts from 2018-19 by 30 June 2024, the $10,000 will no longer be available.
Transfer balance cap unchanged
The general rate for the transfer balance cap (TBC), that limits how much money you can transfer into a tax-free retirement account, will remain at $1.9 million for 2024-25. The TBC is indexed by the December consumer price index (CPI) each year.
Revised stage 3 tax cuts confirmed for 1 July
The revised stage 3 tax cuts have passed Parliament and will come into effect on 1 July 2024.
Before the new tax rates come into effect, check any salary sacrifice agreements to ensure that they will continue to produce the result you are after.
Resident individuals
Non-resident individuals
Working holiday makers
Closing Loopholes: Fair Work Legislation Amendments
Two Bills amending the Fair Work Legislation have recently passed parliament.
The Closing Loopholes No. 2 Bill received Royal Assent on 26 February 2024. This Bill follows the passing of the Closing Loopholes Bill 2023, which received Royal Assent on 14 December 2023. The Closing Loopholes legislation aims to address gaps in employment laws that have historically been exploited for unfair practices. A summary of the key changes from both legislative instruments is outlined below:
Small business redundancy exemption (effective 15 December 2023)
- employers that become a small business (those with less than 15 employees at a particular time) as a result of downsizing in the lead up to insolvency may still be required to pay their employees redundancy pay
New rules for labour hire workers (effective 15 December 2023)
- Employees, unions and host employers can now apply to the Fair Work Commission (the Commission) for certain new types of orders. When in effect, labour hire employees will need to be paid at least the same rate of pay they would be paid under the host employer’s enterprise agreement (or other workplace instrument).
New discrimination protections (effective 15 December 2023)
- There are stronger protections against discrimination for employees who are (or have been) experiencing family and domestic violence
Sham contracting arrangements (effective 27 February 2024)
- The defence to misrepresenting employment as an independent contractor arrangement (known as ‘sham contracting’) changes from a test that the employer did not know and was not ‘reckless’ as to the type of contract, to one of ‘reasonably believed’ it was an independent contracting arrangement.
Changes to enterprise agreements and the bargaining process (effective 27 February 2024)
- Multiple employers who are franchisees of the same franchisor (or related bodies corporate of the same franchisor) can access the single-enterprise stream in the enterprise bargaining framework.
- There are new rules allowing the transition from a single-interest employer agreement or supported bargaining agreement to a single-enterprise agreement.
- Terms in an intractable bargaining determination made by the Commission can’t be less favourable to employees (or employee organisations) than terms in the existing enterprise agreement that deal with the same matters.
Changes to Casual Employment (effective 26 August 2024)
- The existing definition of ‘casual employee’ in the Fair Work Act will be replaced with a new one. An employee is considered casual only if there isn’t a firm advance commitment to continuing and indefinite work, considering the real substance and practical nature of the employment relationship.
- A new pathway will replace the existing rules for eligible employees to change to permanent employment if they want to.
- There will be new rules against:
- dismissing or threatening to dismiss workers to engage them as a casual
- making certain misrepresentations in relation to casual employment.
Right to disconnect (effective 26 August 2024)
- Eligible employees will be given a new ‘right to disconnect’ outside of work hours.
- Employees will have the right to refuse to monitor, read or respond to contact (or attempted contact) from an employer or a third party outside their working hours, unless that refusal is unreasonable.
- Rules will apply when determining whether an employee’s refusal is unreasonable or not.
- Employers and employees will be able to go to the Commission to seek orders on this right.
Definition of employment (effective 26 August 2024)
- New definitions of ‘employee’ and ‘employer’ will be added into the Fair Work Act.
- When determining whether a worker is an employee or an independent contractor, consideration must be given to the:
- real substance, practical reality and true nature of the relationship
- whole relationship between the parties, including the terms of the contract and how the contract is performed in practice.
- There will be some exceptions to the application of the new definitions. This includes that certain workers will be able to ‘opt out’ of being employees through a notification process if they earn more than the contractor high income threshold. The contractor high income threshold hasn’t been set yet.
Minimum standards for gig economy workers and the road transport industry (effective 26 August 2024)
- New protections will apply to certain ‘employee-like workers’ in the gig economy and contractors in the road transport industry. These workers are called ‘regulated workers’.
- The Commission can now set minimum standards for regulated workers.
- Registered organisations (like a union) representing regulated workers will be able to make collective agreements with digital labour platform operators and road transport businesses.
- The Commission will also be able to deal with disputes where a regulated worker thinks their services contract has been unfairly terminated, or that they have been unfairly deactivated from a digital platform.
- Independent contractors who earn less than the contractor high income threshold (including regulated workers) will also be able to apply to the Commission if they think their services contract contains an unfair contract term.
- A Digital Labour Platform Consultative Committee and a Road Transport Advisory Group will also be set up
Criminalising intentional wage underpayments & changes to civil penalties for wage underpayments (effective 1 January 2025)
- Intentional underpayments by employers will become a criminal offence.
- A Voluntary Small Business Wage Compliance Code (Voluntary Code) will be established. Compliance with the Voluntary Code means a small business won’t be criminally prosecuted if they underpay their employees.
- The maximum civil penalty for certain contraventions involving underpayments by companies who are not small businesses will be increased to the greater of 3 times the underpayment amount, or $469,500. For serious contraventions, it will be 3 times the underpayment amount, or $4,695,000.
The Fringe Benefits Tax traps
The Fringe Benefits Tax year (FBT) ends on 31 March. We explore the problem areas likely to attract the ATO’s attention.
Electric vehicles causing sparks
In late 2022, the Government introduced a concession that enables employers to provide some electric vehicles to employees without incurring the 47% fringe benefits tax (FBT) on private use.
The exemption applies to the use of electric cars, hydrogen fuel cell electric cars or plug-in hybrid electric cars if:
- The value of the car is below the luxury car tax (LCT) threshold for fuel efficient vehicles ($89,332 for 2023-24 financial year) at the time it is first sold in a retail sale; and
- The car is both first held and used on or after 1 July 2022.
If your business is planning on acquiring an electric vehicle, be aware that from 31 March 2025, the FBT exemption will no longer apply to plug-in hybrid electric vehicles unless the vehicle met the conditions for the exemption before this date and there is already a binding agreement to continue to use the vehicle privately after this date.
The exemption only applies to employees – For the FBT exemption to apply, the vehicle needs to be supplied by the employer to an employee (including under a salary sacrifice agreement). Partners of a partnership and sole traders are not employees and cannot access the exemption personally.
If LCT applies to the car it will never qualify for the FBT exemption. For example, if the EV failed the eligibility criteria in 2022-23 when it was first purchased because it was above the luxury car limit of $84,916, the fact that it resold in 2023-24 for $50,000 does not make it eligible for the exemption on resale. Likewise, if the car was used by anyone (including a previous owner) before 1 July 2022 then it will probably never qualify for the FBT exemption.
Home charging stations are not included in the exemption. The FBT exemption includes associated benefits such as registration, insurance, repairs or maintenance, but it does not include a charging station at the employee’s home. If the employer installs a home charging station at the employee’s home or pays for the cost, then this is a separate fringe benefit.
FBT might not apply but you do the paperwork as if it did. While the FBT exemption on EVs applies to employers, the value of the fringe benefit is still taken into account when working out the reportable fringe benefits of the employee. That is, the value of the benefit is reported on the employee’s income statement. While you don’t pay income tax on reportable fringe benefits, it is used to determine your adjusted taxable income for a range of areas such as the Medicare levy surcharge, private health insurance rebate, employee share scheme reduction, and certain social security payments.
What about the cost of electricity? The ATO’s short-cut method can potentially be applied to calculate reportable fringe benefit amounts and applies a rate of 4.20 cents per kilometre. If you are not using the short-cut method, you need to have a viable method of isolating and calculating the electricity consumption of the car.
The exemption does not apply if the employee directly purchases or leases the EV. If an employee purchases or leases the EV directly, and the employer reimburses them under a salary sacrifice arrangement, the FBT exemption does not apply because this is not a car fringe benefit. However, the exemption can potentially apply to novated lease arrangements if they are structured carefully.
Not all electric vehicles are cars. To qualify for the exemption, the EV needs to be a car – electric bikes and scooters do not count, nor do vehicles designed to carry a load of 1 tonne or more or that carry 9 passengers or more.
Other FBT problem areas
Not registering. If you have employees, it is unusual not to provide at least some fringe benefits. If your business is not registered for FBT but you have provided entertainment, salary sacrifice arrangements, forgiven debts, paid for or reimbursed private expenses, or have provided accommodation or living away from home allowances, it’s important that the FBT position is reviewed carefully. The ATO targets businesses that aren’t registered for FBT.
When employees travel. There has been a renewed focus recently on whether employees are travelling in the course of performing their work (deductible and not subject to FBT) or travelling from home to their place of work (not deductible and subject to FBT). The Federal Court decision in the Bechtel Australia case is a good example. The case dealt with the travel of fly-in-fly-out workers between home and their worksite – involving flights, ferry and bus travel. The Court found that the employees were travelling before they commenced their shift and that the employer was liable for FBT in connection with the transport that was provided. The case highlights the need for employers to ensure that they are fully aware of the connection between work and travel.
Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone.
