Super to be paid on payday from 1 July 2026; more action to catch non-payers
The Budget papers confirmed the Government’s intention to require all employers to pay their employees’ super guarantee amounts at the same time as their salary and wages from 1 July 2026. This payday super measure was originally announced by the Treasurer on 2 May 2023.
The ATO will receive additional resourcing (some $40.2 million) to help it detect unpaid super payments earlier. It is estimated that $3.4 billion worth of super went unpaid in 2019–2020.
The Government will also set enhanced targets for the ATO for the recovery of payments.
The proposed 1 July 2026 start date for payday super is intended to provide sufficient time for employers, superannuation funds, payroll providers and other parts of the superannuation system to prepare for the change.
Super fund NALI to be capped at twice general expense under NALE rules
The non-arm’s length income (NALI) provisions in s 295-550 of the Income Tax Assessment Act 1997, as they apply to non-arm’s length expenses (NALE), will be amended to limit the income taxable as NALI to twice the level of a general expense for self managed super funds (SMSFs) and small APRA funds.
In addition, fund income taxable as NALI will exclude contributions to effectively exempt large APRA regulated funds from the NALI provisions for both general and specific expenses of the fund. Expenditure that occurred prior to the 2018–2019 income year will also be exempted.
These proposed changes follow industry concerns regarding the ATO’s interpretation of the NALE provisions in Law Companion Ruling LCR 2021/2, and the implications of the ruling for both APRA-regulated funds and SMSFs.
A Government consultation paper released on 23 January 2023 indicated that any proposed legislative amendments in relation to the NALE rules would apply from 1 July 2023 (following the expiry of the ATO’s transitional compliance approach for general expenses (PCG 2020/5) for the period 2018–2019 to 2022–2023).
Currently, under LCR 2021/2, NALE of a “general nature” (eg accounting fees, actuarial costs, audit fees, investment adviser fees and compliance costs) may still have a sufficient nexus to all of the income of a fund. As a result, if an SMSF incurs a small fund expense that is not on arm’s length terms, all of the income derived by the fund (including taxable contributions and capital gains) could be taxable at 45%. The Budget changes propose to limit the income taxable at 45% as NALI to twice the level of a such general expenses.
The Government’s consultation paper (noted above) was released as part of a review to consider amendments to ensure the NALE provisions operate as intended. Although the consultation paper did not represent a settled position of the Government at that time, it proposed a factor-based approach whereby the maximum amount of fund income taxable as NALI at the highest marginal rate (45%) would be five times the level of the general expenditure breach. This would be calculated as the difference between the amount that would have been charged as an arm’s length expense and the amount that was actually charged to the fund. Where the product of 5 times the breach is greater than all fund income, all fund income will be taxed at the highest marginal rate.
A Treasury official confirmed on Budget night that the Government will proceed with the factor-based approach set out in the consultation paper but it will now adopt a two times factor (instead of a five times factor). At the current highest marginal tax rate of 45%, a maximum effective tax rate of 90% (two times 45%) will be applied to a general expenditure breach (down from the 225% originally proposed). It is expected that trustees would self-assess an arm’s length price (based on objective and supportable data) when applying this calculation method.
Super tax changes for account balances above $3 million confirmed, but no further details
The Government confirmed its intention to implement superannuation tax changes for individuals with account balances above $3 million from 1 July 2025, including in relation to defined benefit schemes.
However, the Budget Papers did not reveal any further details other than to note its estimate that the measure will increase receipts by $950 million, and increase payments by $47.6 million, over the five years from 2022–2023.
Under the proposed changes, announced on 28 February 2023, individuals with total superannuation balances (TSBs) over $3 million at the end of a financial year will be subject to an additional tax of 15% on earnings from 1 July 2025. Earnings will be calculated with reference to the difference in TSB at the start and end of the financial year, adjusting for withdrawals and contributions. This means that the proposed additional 15% earnings tax on an individual’s balance above $3 million will operate on an accruals basis and include any notional (unrealised) gains and losses.
Currently, fund earnings from superannuation in the accumulation phase are taxed at up to 15%. This 15% tax rate will continue for total superannuation balances below $3 million but individuals will pay an extra 15% for balances above that amount (around 80,000 people).
In response to the Government’s consultation paper, the SMSF Association has called for super funds to be given the option of reporting “actual earnings” rather than the proposed model which would calculate earnings based on the movement in the member’s TSB, which by definition, includes “unrealised gains”. In its submission, the Association set out numerous reasons why certain amounts would need to be excluded from an individual’s TSB to avoid “earnings” being overstated under the proposed model.
Super consumer advocate funding; ACCC super complaints mechanism
The Government will provide $5 million over five years from 2023–2024 to continue a superannuation consumer advocate to improve members’ outcomes. This funding will be offset by an increase in the Superannuation Supervisory Levy administered by APRA.
In addition, the Australian Competition and Consumer Commission (ACCC) will establish the first phase of a complaints mechanism for designated consumer and small business advocacy groups to raise systemic issues under consumer law (super complaints) within existing resourcing.