New year tax reminders
A new tax year is upon us once again and there are a few things you need to be aware of for housekeeping:
The Superannuation Guarantee (SG) rate has increased since 1 July 2021 to 10%.
If your employees’ salaries are inclusive of SG, you will need to work out the SG portion of their salaries by way of this formula: (Gross salary inclusive of SG / 1.1) x 10%.
In other words, if your employee’s SG-inclusive salary is $100,000, the minimum SG contribution you need to make on their behalf is ($100,000 / 1.1) x 10% = $9,091.
Therefore, their gross salary exclusive of SG will be $100,000 – $9,091 = $90,909.
One detail that people often miss is that there is actually a ceiling called the Maximum Contribution Base at which an employer is no longer obliged to make SG contributions in excess of that amount.
For the year ending 30 June 2022, the Maximum Contribution Base is $58,920 per quarter or $235,680 per year. Therefore, if your employee’s gross salary exclusive of SG is $240,000, you would only need to contribute a maximum of $235,680 x 10% = $23,568 for that employee for that year.
Note that the the marginal tax rates for individuals have not changed.
Base Rate Entities
If you carry on business via a company and the aggregated turnover of the company for the year ending 30 June 2022 is less than $50 million and 80% or less of its assessable income is passive in nature (eg, interest, dividends, etc), the company is a Base Rate Entity and its tax rate is now 25%, which is down from 26% last year.
On first glance, this lower corporate tax rate appears to be an attractive tax break but you need to be aware that the tax perk only applies to the extent that the cash profits are left in the company. If you take the profits out of the company in cash, the profits would effectively be subject to the tax rate of the shareholder via the dividend franking system, which could go as high as 45% plus Medicare Levy of 2%.
If the cash profits are taken out of the company as a loan, the Division 7A provisions would apply, which would essentially give rise to the same tax outcome if you treat the loan as a complying Division 7A loan or pay back the loan within the prescribed time frame. If you do not comply with the rules, the loan would become a deemed unfranked dividend, which would give rise to adverse tax consequences.
There are also some rules on how the Base Rate Entity tax rate may continue to apply if the cash profits are taken out of the company and put into another company. These rules are reasonably complex and professional advice is recommended.
Loss carry back rules
Perhaps a detail that is less publicised are the ‘loss carry back’ rules.
Essentially, if your company’s aggregated turnover is less than $5 billion in the loss-making year (or the income year before that year) but it paid tax in an earlier year, it could potentially ‘carry back’ the loss to the earlier profit-making year, which may result in a refundable tax offset.
Based on the current rules, if your company made a tax loss in the years ended 30 June 2022, 30 June 2021, or 30 June 2020, that loss can be carried back to an earlier year within those 3 years.
For example, if the company made a tax loss in the year ended 30 June 2021 but it had taxable income in the year ended 30 June 2020, the loss can be carried back to the latter. On the other hand, if the tax loss was incurred in the year ended June 2020, no carry-back would be available.
It should also be noted that the amount of the tax offset is limited to the company’s actual tax liability in the profit-making year to which the loss is carried back and the franking account balance at the end of the year for which the entity lodges is tax return to claim the offset (ie, either the year ended 30 June 2021 or the year ending 30 June 2022).
Again, these rules are not for the faint-hearted and professional advice is recommended.
Important disclaimer: No person should rely on the contents of this article without first obtaining advice from a qualified professional person. This article is provided on the terms and understanding that the author and BDO Services Pty Ltd are not responsible for the results of any actions taken on the basis of information in this article, nor for any error in or omission from this article. The article is provided for general information only and the author and BDO Services Pty Ltd are not engaged to render professional advice or services through this article. The author and BDO Services Pty Ltd expressly disclaim all and any liability and responsibility to any person in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this article.