Business Owners – Are you paying the Superannuation Guarantee to your Contractors?

If you are an Australian business owner and you are trying to work out if you must pay superannuation guarantee (SG) contributions to independent contractors, then firstly you need to know their status under the Superannuation Guarantee (Administration) Act 1992.

It is important to know that having contractors with an ABN who issue your company with invoices does not automatically remove your SG obligation. If a contractor is not an employee of your organisation, then you will need to consider if they are deemed to have ‘common law employee’ status for the purpose of paying SG contributions.

SG contributions are generally payable to a contractor who:

• Has an ABN and issues an invoice for work performed
• Performs work personally and does not or cannot delegate their work
• Is engaged wholly or principally for their personal labour and skill (and only partially or not at all for equipment and materials), their labour and skill making up more than 50% of their contract or invoice value
• Is engaged to work on an hourly basis (time) and not for achieving a specific outcome, result or project (product)

SG contributions are generally not payable to a contractor who:

• Is paid to achieve a result (product), not just provide labour (time)
• Does not work as an individual but rather is a company, trust, or partnership
• Delegates the work to others

If a contractor is running their own business, supplying their own staff, tools, materials and bearing business risks, the obligation to pay SG may not apply.

However, business owners who get it wrong and fail to pay SG are at risk of:

• Being corporately liable for the Superannuation Guarantee Charge (SGC), plus interest and administration fees
• Incurring Australian Taxation Office (ATO) penalties, such as fines, for non-compliance
• Being personally liable as Director/s of your company for any unpaid SG

To get it right as a business owner, you will need to:

• Review your contractor arrangements and assess whether SG applies
• Ensure SG contributions are processed timely – schedules and deadlines are adhered to – and reported accurately – keep records for ATO compliance (through SuperStream)
• Work closely with your bookkeeper or accountant to mitigate the risk of SGC and ATO penalties for unnecessary non-compliance

Next Steps

Keep your business running smoothly and reach out to YML Business Services TODAY for our bookkeeping services. We help you stay on top of the rules surrounding Superannuation Guarantee (SG) and independent contractors. Our bookkeeping team is here to support you with accurate and timely management of your SG payments.

How can YML help?

Talk to our YML Business Services Team today to see how YML Group can assist you with your SG obligations. For more information, view our website and contact us on (02) 8383 4455 or by using our Contact Us page on our website.

NEW Work Test for Retirees – What it means for you

Australia’s ‘work test’ must be met by Australians who have reached 67 years of age and want to make voluntary superannuation contributions for which they will claim a tax deduction.

A new rule states that the ‘work test’ no longer must be met by anyone under 75 who wishes to make voluntary contributions to their superannuation accounts, unless they want to claim a tax deduction.

What is the Work Test?

The ‘work test’ requires that anyone aged 67 to 74 years of age must work at least 40 hours within 30 consecutive days in a financial year to be eligible to make voluntary superannuation contributions, such contributions payable at any time within the same financial year as the work is completed.

This ‘work test’ was removed for non-concessional (after tax), salary sacrifice and voluntary employer contributions for people aged 67 to 74 years of age. However, the ‘work test’ remains if you want to claim a tax deduction for personal deductible contributions.

Being ‘gainfully employed’ forms part of the criteria to meet the ‘work test’. Gainful employment means receiving gain or reward and may include remuneration such as salary, wages, directors’ fees, business income, bonuses, commissions, fees or gratuities which have been obtained in return for personal exertion.

Unpaid work does not qualify as being ‘gainfully employed’.

The term ‘gainfully employed’ once unfairly excluded company directors and officeholders in non-traditional employment roles, but a new tax law draft restores eligibility meaning that directors and officeholders may claim a tax deduction on voluntary superannuation contributions if they meet the 40-hour ‘work test’ (or exemption – see Note). This draft change is already in effect.

Any director of a company (including non-executive directors who do not engage in the day-to-day management of an organisation) is specifically included as an employee for Superannuation Industry (Supervision) Act 1993 (‘SIS Act’) purposes, provided that a director is entitled to payment for their work as a company director.

Work may be undertaken offshore, although residency matters may arise.

Note: There is a ‘work test’ exemption, applicable only once per individual and then may not be used again. It is applied for those people recently retired with superannuation total balances at the previous 30 June of under $300,000.

How can YML help?

Talk to our YML Super Solutions Team today to see how YML Group can assist you with your SMSF. For more information, view our website and contact us on (02) 8383 4444 or by using our Contact Us page on our website.

What you MUST know about selling your Main Residence

What you need to know about Capital Gains Tax (CGT) when selling your Home

Capital Gains Tax (CGT) implications when selling your home (‘main residence’) must be addressed because unless you qualify for the main residence exemption, CGT may be triggered. CGT applies when you sell an asset for more than you paid for it. Any gain is added to your assessable income and taxed at your marginal rate.

The full main residence exemption, however, allows you to disregard any capital gain (or loss) when selling your home if the following criteria apply:

• You are a resident of Australia
• You lived in the property for the entire ownership period
• The property was not used to produce income (via rental or running a business)
• The land itself is less than two (2) hectares

If you sell vacant land, intending to build on it but not yet having done so, the main residence exemption generally is not available.

Partial CGT Exemption if you rented out your Home before selling

If you rented out your home, the Australian Taxation Office (ATO) allows you to treat the property as your main residence for up to six (6) years whilst it is rented out, so long as you have not nominated another property as your main residence during this time.

Renting out your home means full CGT exemption will not apply. You will need to apportion any capital gain and may be eligible for a partial CGT exemption.

Main Residence Exemption if you leave your Home vacant before selling

Leaving your home vacant, so long as you have not nominated another property as your main residence, allows you to treat the property as your main residence indefinitely, thus qualifying for the main residence exemption, assuming all relevant criteria are met.

Can I claim the Main Residence Exemption if I’m residing overseas at the time of selling?

If you are a foreign resident for taxation purposes at the time of sale of your home, generally, you may not claim the main residence exemption, even it the property was your home when you were living in Australia prior to living overseas.

If you have been a foreign resident for a continuous six (6) years or less during your Australian property ownership period, and one of certain qualifying life events has occurred (such as, for example, a terminal illness or a death in your immediate family, or a formally-agreed relationship termination), then you may satisfy the life event test which may result in your qualifying for the main residence exemption.

Note, foreign residents are subject to Foreign Resident Capital Gains Withholding (FRCGW), a 15% withholding tax on the sale price of their Australian property, adjusted accordingly when you have lodged your annual tax return.

The ‘Interest-deductibility Test’ and how it affects the Main Residence Exemption

If any part of your home is or was used to produce an income (via rental or running a business) and you would therefore be eligible to deduct interest on your home loan, then you may not qualify for the full main residence exemption.

The part of your home used exclusively to produce an income may allow you to claim a proportionate interest deduction.

However, if the home loan used to purchase the property is not solely in the owner’s name, interest deductibility may be denied unless you, the owner, can prove that you are legally responsible for the home loan, and the property or part thereof was used to produce an income (via rental or running a business).

What do I need to report to the ATO in my annual Tax Return?

Whether you expect a full or partial main residence exemption, you have reporting obligations, including:

• Electing eligibility for full or partial main residence exemption, if applicable
• Declaring any rental income earned from renting out part or all the property
• Claiming an interest deduction on the portion of the property used to generate an income
• Using your records to declare purchase price, move in and out dates, rental and business use (income-generation) periods, and accurate proportions of relevant interest and associated expense deduction claims
• Declaring whether you were an Australian or a foreign resident at the date of sale
• Claiming satisfaction of any life event test (if you were a foreign resident)
• Selecting the correct exemption code: “I: Main residence exemption (Subdivision 118-B)”
• Using “Property transfer” data already available to support CGT reporting

Next Steps

Contact YML Chartered Accountants for tailored advice about selling your home (‘main residence’), especially if selling your home involves rental periods, foreign residency, or shared ownership.

How can YML help?

Talk to our YML Chartered Accountants today to see how YML Group can assist you with your CGT obligations. For more information, view our website and contact us on (02) 8383 4400 or by using our Contact Us page on our website.