New financial year brings new tax developments for individuals and businesses
13 July 2021
With the new financial year now upon us, it is important for businesses and individuals to be across the new tax measures that took effect from 1 July 2021.
To assist with your tax and business planning for 2022, we have prepared a summary of the key changes that apply from 1 July 2021 that you or your business may need to consider for the 2022 income tax year.
Company tax rate for smaller companies reduced to 25%
From 1 July 2021, base rate entity companies that have an aggregated turnover of less than $50 million and derive 80% or less of its income from dividends, interest, royalties, rent and net capital gains will be taxed at a lower corporate tax rate of 25%. The equivalent 2021 rate is 26.5%.
The lowering of the corporate tax rate for these base rate entities means the effects of over-franking (e.g. if profits are taxed at 25% but franking occurs at 30%) or under-franking (e.g. if profits are taxed at 30% but franking occurs at 25%) will be even more pronounced than in previous years.
Removal of single touch payroll (STP) exemption for closely held payees
From 1 July 2021, payments made by small family businesses with 19 or less employees to closely held payees such as family members, either as salary or director’s fees or through trusts, will no longer be exempt from STP. Prior to this, small businesses with 19 or less payees were only subject to STP reporting for arm’s length employees.
This means that from 1 July 2021, STP reporting will apply to payments made to both arm’s length and closely held employees.
From 1 July 2021, the superannuation general transfer balance cap will be $1.7 million, up from $1.6 million for the 2021 income tax year. In addition:
Non-concessional contributions cap will increase from $100,000 to $110,000.
The concessional contributions cap will increase from $25,000 to $27,500.
The superannuation guarantee will increase from 9.5% to 10%.
The rate of superannuation guarantee that applies is determined by when the employee is paid and not by the period when the income was earnt. Therefore, the whole of salary and wages paid after 1 July 2021, even if part relates to a period before 1 July 2021, are subject to the 10% superannuation guarantee charge which will have to be paid to the employee’s superfund by 28 October 2021.
Likewise, the rate of 9.5% applied for prepayments of salary and wages in June although the work is only to be performed in July 2021. This 9.5% superannuation guarantee charge will have to be paid to the employee’s superfund by 31 July 2021.
Tax is constantly evolving and therefore it is important for you to know the latest tax developments that may affect your business. To find out more detail or discuss your personal circumstances, please talk to your adviser or contact the Findex Tax Advisory team.