11 Nov 2011 | Superannuation
The passing by both houses of parliament of the carbon tax legislation has created a great deal of interest and controversy. By the responses received to last week’s news of the increase in the superannuation guarantee levy to 12 per cent, this move is no less contentious.
Q. Has legislation also been passed to lift the tax rate to 18 per cent on super as well?
A. To the best of my knowledge neither party has as a policy to increase the tax on super contributions to 18 per cent. Given Tony Abbott’s opposition to the tax concessions for super, and his preference for the Age pension, it will be interesting to see what superannuation policies the coalition comes out with.
Q. I employ four people in a small business; two of those people are my wife and myself. We are to receive a one percent business tax cut but I feel this will be totally wiped out by the raise in super contributions payed by me from nine to 12 per cent. Am I correct? The treasurer talks glowingly about the tax cut and the increase to super contributions, but is he a little misinformed about the realities of it on small business?
A. I am not sure what tax cut you are referring to. If it is the one percent cut in the company tax rate this does not actually result in less tax paid by you as the owner of the business. It only means there will be more profit left in the company to be used by the business.
The other tax cut I know of is the one linked to the passing of the carbon tax. In this instance the tax free threshold is to be increased, but at the same time the low income tax offset is to be cut from $1500 down to $445. This will result in a reduction in personal income tax of approximately $300.
You are right about the increase in the SGC to 12 per cent effectively being an increase in the tax paid by all businesses. When the SGC was originally introduced it was done as a trade off with the unions reducing demands for wage increases. With this latest increase there is no such trade off.
The increase will either result in an increase in operating costs for business, or be a catalyst for decreasing their workforce. Big business will more than likely be able to pass on the increased costs as price increases.
Small businesses will more than likely have to absorb the increase and, when combined with the resulting increase in workers compensation insurance and payroll tax, could threaten the viability of many businesses already struggling in this two speed economy.
Q. The money that an employer ‘compulsorily contributes’ to my super comes from where?
Is it my money contributed on my behalf by the employer, or is it the employer’s money who begrudgingly contributes it to my super because the government orders it?
A. The compulsory SGC contribution by employers is a cost to employers and although contributed on behalf of the employee is not a cost to them unless they are employed under a salary packaging arrangement.
Q. I am afraid that the increase in super to 12 percent will result in my employer increasing the amount he has to pay and I will end up with less take home pay. Is this right?
A. If you are paid a salary package amount the increase in the compulsory employer superannuation contribution will result in a decrease in your take home pay.
Questions can be emailed to firstname.lastname@example.org