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Super changes for low income, older Australians

Earlier this month, the bill to remove the $450 monthly income threshold for the payment of Superannuation Guarantee (SG) was finally passed in Parliament, with the change to take effect from the 1st of July 2022. Employers will subsequently be required to pay 10% SG for every dollar an employee earns, regardless of whether or not their monthly income reaches or exceeds $450. 

The removal of the earnings threshold was originally announced in the 2021/22 Budget package in May 2021 and is anticipated to significantly benefit over 300,000 people who earn less than $450 a month per job. The new measure will add slightly to the cost of wages for employers Australia wide but most significantly to the retail and hospitality sector businesses that have historically utilised large and casual employee pools to avoid or minimise SG payments. 

The removal of the SG payment threshold was included in the Treasury Laws Amendment (Enhancing Superannuation Outcomes For Australians and Helping Australian Businesses Invest) Bill 2021, which also references two other key super reforms:

  1. The Super Downsizer Scheme, which provides eligibility to contribute up to $300,000 to your super fund from the sale or partial sale of your home,  will see the eligibility age lowered to 60 from 65 years from the 1st of July 2022; and
  2. The Work Test, which currently applies to people aged 67 to 74 years old wanting to make additional non-concessional and salary sacrificed super contributions, will be scrapped.

RATs to be deductible and FBT-exempt

In what is a welcome follow up to our last newsletter, the Federal Government announced on the 7th of February 2022 that Rapid Antigen Tests (RATs) and Polymerase Chain Reaction (PCR) tests will be made tax deductible retrospectively, commencing the 1st of July 2021. The tests will also be made Fringe Benefits Tax exempt in situations where businesses are providing tests to employees under duty of care provisions.

As these measures are not yet law at the time of writing, we will need to wait until the legislation has passed before providing further advice. In the meantime, however, if you are purchasing RATs for work-related use, we advise you to save your receipts.

Safe Transition Industry Support Package

On the 10th of February 2022, Premier Mark McGowan announced a further small and medium-sized business support package valued at $77 million, specifically for the international education, tourism, aviation and events industries – sectors impacted by WA’s delayed full border re-opening. The funding is aimed at “support[ing] the cash flow of businesses and partially offset[ing] some of the additional costs or lost revenues in these sectors.”

Grant applications will open soon. Until then, we refer you to the Small Business Development Corporation website for more information and where you can also now apply for the Getting the show back on the Road grants.

The contractor vs employee debate continues

Here’s the scenario: You have a business that requires the time and effort of other people to deliver a service to your target customers. You can’t run your business alone. To be successful in a competitive industry, a key aspect of your business plan involves keeping the prices your customers pay as low as possible. This, in turn, means you need to keep your operating costs as low as possible. 

A significant cost to business in services industries is human labour. From a variable cost model perspective, the more services you provide to your customers, the more human labour you need to acquire and pay for. 

When bringing in people to help you meet demand, usually businesses have two main options: employees or contractors. Typically, employees are more expensive to have on the books than contractors since you need to consider sick and annual leave (where they are entitled to those benefits), superannuation guarantee, worker’s compensation insurance, and to provide the various tools and equipment necessary for the employee to do their job. There is a “master/servant” and “control” component to the employee/employer relationship, which are a couple of the tests used to determine if a person is an employee or a contractor. You, as the business owner or “master”, typically have “control” over your employee or “servant” and their output. Essentially, as you instruct your staff, so must they perform.  

With contractors, on the other hand, often the only financial responsibility you have to them concerns the payment of their invoices. The contractor will do or provide the work they’re engaged to do, using their own tools or equipment, and – again, often – that’s it. They are responsible for managing their own taxation liabilities, insurances, updating their tools and equipment, and so on. The contractor typically is not “controlled” by you. Rather, they are engaged to provide a service or outcome and if the service or outcome is delivered, the way in which the results are obtained are largely up to them. Commonly, if there are deficiencies discovered in any of the work output produced, it is on the contractor to remedy the situation. 

These broad-brush definitions used to be enough to clarify the relationship between a business or employer and an employee or contractor. For decades now, however, Australian courts have considered if, and subsequently determined when, a person is an employee as opposed to a contractor. Governments, in turn, have increasingly introduced legislation to more explicitly provide businesses with guidance as to what rules apply and when.  

The Superannuation Guarantee (Administration) Act 1992 (Cth), at section 12, for example, defines “employee” and “employer” more broadly than “what people, even business people, would ordinarily understand [it] to mean.” 

Section 12 (3) states:

“If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.”

Under this definition, businesses are liable to pay Superannuation Guarantee (SG) on the earnings of “contractors” regardless of the fact the “contractor” in question may charge for their work via an invoice. As SG is applicable to contractors who “wholly or principally” provide labour, so too is the Superannuation Guarantee Charge (SGC) in the event that a business does not pay SG on the contractor’s earnings over $450 per month. (This particular point was recently affirmed in The Trustee For Virdis Family Trust t/a Rickard Heating Pty Ltd and Commissioner of Taxation (Taxation) [2022] AATA 3.) 

Since the distinctions between employees and contractors can be subtle and a potential minefield in the event you get it wrong, we refer you to an excellent article DBA Lawyers recently wrote, highlighting some of the more recent developments on the subject.

Essentially, if you are ever in doubt about your responsibility as an employer or business owner, it is crucial that you seek professional advice.