WINTER 2022 Tax Bulletin
In This Issue
Superannuation Changes and Tax Planning 2022
PCG 2022/D1 on Section 100A – Staying out of the Red Zone
RestrictionS on Excess GST Refund
Superannuation Changes and Tax Planning 2022
As the end of the Financial Year approaches, many will be looking at their superannuation and making top up contributions before 30 June 2022. Businesses will similarly need to prepare for a number of changes that affect how much superannuation they will need to pay their employees from 1 July 2022.
Concessional Contributions:
The Concessional Contributions cap is $27,500 for the 2022 financial year. This includes Superannuation Guarantee contributions, Salary Sacrifice Contributions and personal deductible contributions made to a members superannuation account. It is important that where members wish to claim their superannuation contributions personally they ensure they do the following:
- Ensure they make the payment early enough so it is received by their superannuation fund by 30 June.
- Complete a Notice of Intent to claim and send it to their superannuation fund.
- Ensure they receive acknowledgement that the Notice of Intent has been received. This must be received prior to the due date for lodgement of the Individual’s Income Tax Return for the year they wish to claim the deduction.
It is important for members to also bear in mind their carry forward concessional contributions cap which allows members with a balance of under $500,000 to carry forward any unused caps for up to 5 years and claim a larger deduction in the year they wish to utilise their unused cap. This measure applied from 1 July 2018 so members who have not utilised all of their prior year contribution caps may be able to make a larger contribution in the 2022 financial year. A table below illustrates an example where a member did not utilise their whole cap in prior years and wish to do so in 2022.
| Financial Year | Annual Concessional Contributions Cap | Total Concessional Contributions cap including carry forward amounts | Concessional Contributions made | Unused cap that can be carried forward |
| 2018/19 | $25,000 | $25,000 | $10,000 | $15,000 |
| 2019/20 | $25,000 | $40,000 | $10,000 | $30,000 |
| 2020/21 | $25,000 | $55,000 | $10,000 | $45,000 |
| 2021/22 | $27,500 | $72,500 | $72,500 | $- |
Non Concessional Contributions:
The Non Concessional Contributions cap is $110,000 for the 2022 Financial Year. Members who are eligible can also utilise the bring forward provisions and contribute up to 3 years’ worth of Non Concessional contributions ($330,000).
Eligibility to make Non Concessional contributions requires two tests to be satisfied in the current year.
- The work test must be satisfied. This test requires all members aged between 67 and 74 to demonstrate that they have been gainfully employed for 40 hours or more in any 30-day period in a financial year in order to contribute.
- A member’s Total Superannuation Balance must be under $1.7 million. No Non-Concessional contributions can be made where a member’s balance is $1.7 million or more. Access to the bring forward provisions is also dependent on what a member’s balance is at 1 July each year. The table below illustrates this for a member wishing to utilise the bring forward provisions in the 2022 financial year.
| Total Superannuation Balance at 30 June 2021 | Non Concessional contributions cap for year (utilising bring forward provisions) | Bring forward period |
| Less than $1.48 million | $330,000 | 3 years |
| $1.48 million to less than $1.59 million | $220,000 | 2 years |
| $1.59 million to less than $1.7 million | $110,000 | Non bring forward period available |
| $1.7 million or more | $nil | Not Applicable |
Downsizer Contributions:
Since 1 July 2018, those who are 65 or older have been able to make a Non-Concessional contribution into their superannuation account of up to $300,000 from the proceeds on the sale of their family home provided they owned the home for 10 years and meets the test for the main residence exemption. This contribution can be made outside of the usual conditions and caps associated with other Non-Concessional Contributions such as Total Superannuation Balance restricting non concessional contributions for members with balances over $1.7 million. In order to utilise this contribution the seller of the home must make the payment to their superannuation fund and complete the appropriate forms within 90 days of settlement of the property.
From 1 July 2022 the age requirement will also be reduced to 60 years and older allowing a greater number of people to take advantage of this measure.
Changes to Superannuation from 1 July 2022:
A number of changes affecting superannuation have been enacted in previous budgets but only take effect from 1 July 2022. Taxpayers and business should be aware of these to ensure that they comply with these from the new financial year.
Removal of work test:
The work test which requires all members aged between 67 and 74 to demonstrate that they have been gainfully employed for 40 hours or more in any 30-day period in a financial year in order to contribute has been removed effective 1 July 2022 for those who wish to make Non Concessional Contributions (subject to other conditions for making Non Concessional Contributions).
For those wishing to make personal contributions who are aged between 67-74, they will continue to be required to meet the work test in order to claim a deduction for the contribution.
Change to Superannuation Guarantee Rate:
The current Superannuation Guarantee Rate of 10% increases to 10.5% from 1 July 2022. The rate is scheduled to increase each year until it reaches 12% from 1 July 2025. The table below illustrates the rate for the current and future years:
| Period | Superannuation Guarantee Rate |
| 2021/22 (Current) | 10% |
| 2022/23 | 10.5% |
| 2023/24 | 11% |
| 2024/25 | 11.5% |
| 2025/26 and onwards | 12% |
Removal of minimum income threshold:
The $450 minimum monthly earnings threshold has been removed effective 1 July 2022. Therefore employers will need to ensure that they pay all their employees Superannuation regardless of how much they earn per month.
The above information is provided as an information service only and, therefore, does not constitute financial product advice, and should not be relied upon as financial product advice. None of the information provided takes into account your personal objectives, financial situation or needs. You must determine whether the information is appropriate in terms of your particular circumstances. For financial product advice that takes into account of your particular objectives, financial situation or needs, you should consider seeking financial advice from an Australian Financial Services licensee before making a financial decision.
PCG 2022/D1 on Section 100A – Staying out of the Red Zone
On 23 February 2022, the ATO issued PCG 2022/D1 which sets out the Commissioner’s compliance approach with section 100A. The PCG provides a risk review matrix for taxpayer to use as a self-assessment tool to determine the applicable ‘risk zones’ set out by the Commissioner.
The Commissioner will actively target taxpayers in the ‘red zone’. It is therefore necessary to understand this zone and how to steer away from it in the 2022 year.
The PCG defines a red zone arrangement where:
- the beneficiaries’ respective entitlements appear to be motivated by sheltering the trust’s (taxable) net income from higher rates of tax; and
- the arrangement involves contrived elements directed at enabling someone other than the presently entitled beneficiary to have use and enjoyment of the economic benefits referable to the trust’s net income.
The PCG provides the following examples of the Red Zone:
- The offsetting of pre-age 18 expenses (what the ATO term, “parental expenses”) for a child against distributions made once the child turns 18.
- A distribution to a non-resident beneficiary whereby the beneficiary makes a loan or a gift equivalent to the distribution to an associate.
- A distribution to a loss entity whereby the trustee or another person has the use or enjoyment of the economic benefit of the distribution.
Based on the PCG, taxpayers would be in the Red Zone where all of the following applies:
- A beneficiary who is made presently entitled is on a lower tax rate.
- There are contrived elements in place – such as, making a non-resident beneficiary presently entitled and then gifting or lending the funds to an associate, making a loss entity presently entitled but not paying the distribution and offsetting parental expenses against future distributions to the adult child; and
- Some other person or the trustee has the use or enjoyment of the economic benefit of the distribution.
Based on the guidance in the PCG and examples provided, the following scenarios should be avoided for the 2022 year in order to stay out of the Red Zone:
- Parental expenses accrued in trusts should not be offset against current or future distributions to the relevant child.
- If distributions are made to adult children, there should be no gifting or payment of the entitlement to the parents. In this case, beware of offsetting entitlements by way of journal entries to the parents accounts, as this will be deemed a ‘payment’ to the parents.
- If distributions are made to non-resident beneficiaries or loss entities, ensure that the funds follow to that entity as soon as possible thereafter.
Restrictions on Excess GST Refund
Where a taxpayer has overpaid GST and seeks a refund from the Commissioner, they will have to pass the tests in Division 142 of the GST Act in order to be entitled to a refund. The concept of ‘excess GST’ is intended to apply to amounts that were treated as GST in a BAS, but were not in fact payable. Generally, excess GST can arise as a result of a range of circumstances including:
- mischaracterisation of a transaction as a taxable supply when it was GST free or input taxed;
- a miscalculation of the amount of GST payable; or
- an accounting or reporting error.
Division 142 prevents refunds of overpaid GST even in situations where a taxpayer has inadvertently treated a supply as being subject to GST when the supply isn’t subject to GST.
Excess GST can be refunded without restriction under Division 142 if it has not been “passed on” to another entity and the refund will not give the supplier a windfall gain.
Where excess GST has been paid, Division 142 of the GST Act provides that the excess GST is only refundable where the GST has not been ‘passed on’. Generally, a refund of overpaid GST can only be claimed if:
- excess GST has not been passed on – the taxpayer is entitled to a refund of the excess GST not passed on; and
- excess GST has been passed on by the taxpayer, the taxpayer is entitled to a refund to the extent that they have reimbursed the other entity for the amount of the excess GST (s 142-10).
The question of ‘passing on’ is one of fact and not of fairness – considerations of fairness may be relevant in deciding whether the Commissioner exercises the discretion under subsection 142-15(1) but are not relevant to whether excess GST has been passed on.
- Where the excess GST is included on a tax invoice issued by a supplier, this is prima facie evidence that the GST has been passed on. The onus is on the supplier to demonstrate sufficient circumstances to conclude that it had not passed on excess GST.
Additionally, the Commissioner retains a discretion to prevent a refund of overpaid GST if refunding the amount would give a taxpayer a windfall gain. This can include a situation where the excess GST has been passed on to a recipient, who then claims input tax credits (ITCs) on the amount. A refund to the supplier would mean that the ATO is short changed as not only has it allowed the recipient ITCs, it would provide the supplier with a windfall gain to the supplier who has passed on the excess GST.
Division 142 is an administrative defence the Commissioner applies in considering whether to issue refunds on overpaid GST. In any dispute, the taxpayer has the onus of proving that its circumstances are outside the ordinary and that it did not pass on the excess GST. We recommend that clients consider this provision when seeking refunds of overpaid GST as failure to do so can be costly.
