Tax Planning Tips – Pay Employee Superannuation early

Tax Planning Tips – Pay Employee Superannuation early

Paying your employee’s superannuation on time, in full, is essential. Especially now that the introduction of Superstream means that superannuation funds will report employers who fail to meet their payment obligations to the ATO.

What if I told you that making this payment early, rather than late, is actually a effective tax planning tool?


A bit of background information

Each time your employees come to work they accumulate a superannuation entitlement. The current rate for superannuation is 9.5%. Some employees don’t qualify for superannuation payments but for the purpose of this exercise I’m focus on those that do.

At the end of each financial quarter (e.g. July to September, or January to March) we need to pay this superannuation amount into the employee’s super fund.

These payments are due on the 28th day of the month after the quarter ends. For example superannuation that relates to the January to March quarter is due on the 28th of April.

What most business owners are not aware of is the fact that until the superannuation is paid it is not deductible and if you miss the payment deadline (the 28th) the amount is no longer deductible at all, even after you pay…but you still have to pay!


How does this strategy work?

Your employees superannuation payments for the April to June quarter are due on the 28th of July.

If we pay them on time they are not claimed as a deduction until next year because they were paid after 30 June.

If you paid $100,000 in wages during the March to June quarter that’s $9,500 of superannuation you’ll need to pay in July. This payment will be claimed as a deduction next year.

What if we brought the payment forward? Just one month? You’d get the tax deduction in this financial year. Assuming you are managing your business cashflow well the money should be set aside each time you process payroll. If the money is just sitting there, why not bring the deduction forward?

Assuming you pay an average of 30% tax the $9,500 payment, which you have to make in July anyway, would reduce this years tax bill by $2,850 if you paid in June!. That’s extra cash in your bank account now rather than after you lodge next years tax return.


Option 1 – No Tax Planning: Pay the $9,500 superannuation bill in July (next financial year):

You make the $9,500 Superanuation payment in July 2018.

The $2,850 Tax Deduction is received in September 2019, or later depending on when you lodge your tax return.

This means you don’t get the cashflow benefit of the payment for over 12 months after you pay it!


Option 2 – With Tax Planning: Pay the $9,500 superannuation bill in June (this financial year):

You make the $9,500 Superannuation payment in June 2018.

The $2,850 Tax Deduction is received in September 2018, or earlier depending on when you lodge your company tax return.

The net result is $2,850 of cash in your bank account 12-18 months faster just by making the superannuation payment 1 month early. I know a few $thousand here and there may not seem like much but this is an easy win and it’s just one of the tax planning options you should be exploring with your accountant at this time of year (April-June).


Other Points to Notes

1. You need to make your payment before business closes on 30 June. The funds must have left your bank account. Ideally, process the amounts at least 3 working days before 30 June.

2. Paying your superannuation obligations early might inadvertently push your employees over their contribution cap for the year and be detrimental to them. Currently your employees can contribute a maximum of $25,000 per year to their superannuation fund.


Profit First Australia

A common issue during Tax Planning is a lack of cash. All the great ideas in the world are useless if you don’t have the cash available to implement them. This is just one of the many reasons we recommend Profit First. If the system is up and running in your business the money required to implement this and many other tax planning strategies will have been accumulated through-out the year. When you reach year end it’s just a matter of chatting with your accountant and implementing the plan!

If you’re interested in getting your cashflow on track you can learn more about Profit First Australia here.


Next Steps

What should you do next?

  • Look out for more tax planning tips in the coming weeks!
  • Ensure you and your accountant are working towards a year end tax planning strategy, and
  • If your accountant isn’t doing tax planning then contact us!
Xero Streaming – Setting up Superstream in Xero

Xero Streaming – Setting up Superstream in Xero

SuperStream is here! It is time to get on-board before the grace period ends and the ATO starts fining employers for failing to comply. This article with cover how to implement Superstream in Xero specifically. For a more general discussion around Superstream obligations, options and information requirements read our comprehensive article here.

Xero & Superstream – Where do I start?

The first step is ensuring you have all the relevant information regarding your employees and their superfunds.

Once your employees have provided the necessary information its time to update Xero ready for your next payrun. Xero have implemented ‘Auto Super’ across all their premium plans to make this process as easy as they can for business owners.

Step 1 – Add or Update Superfunds

Within Xero’s payroll set-up you need to add each superfund that your employees use. If you already have superfund’s added to the payroll system you will need to update these funds with any new information. In particular, the Unique Superannuation Identifier (USI) is likely to be new information.

Step 2 – Update employees information

Once all relevant superfunds have been added or updated please ensure the correct superfund has been selected for each of your employees. This will ensure the correct information is reported to each superfund.

Step 3 – Start Using Auto Super

Now you’re ready to make your superannuation payments. The system works in a very similar manner to the normal batch payment function in Xero.

– Create a new super payment batch

1. Go to Payroll > Superannuation.
2. Click + Add Super Payment.
3. From the payment details page, choose the lines to pay from the list of posted pay runs.
4. Once you have selected your accruals for inclusion in this batch, click Submit for Approval.

You will be redirected to the superannuation home screen where the batch will appear as ‘pending authorisation’. The authoriser will receive a text from Xero with an authorisation code, which is valid for 24 hours.

– Authorise the payment batch

Once you receive the SMS with a code to approve a superannuation batch payment:

1. Log in to Xero and go to Payroll > Superannuation.
2. Click on the batch which shows as ‘Pending Approval’.
3. Review the list of payments included in the batch.
• If you notice anything amiss, you can delete the payment.
• If everything looks good, click Approve & Submit, then enter the authorisation code you received in the SMS.

Once you have authorised the payment batch, it will appear as Awaiting Processing.

The payment details are sent off to ClickSuper, Xero’s third party superannuation clearing house. They will direct debit your bank account for the total amount payable for your batch and distribute the relevant amounts to your employees’ superfunds.

A Final Word

Xero has extensive how-to guides as part of their knowledge database. I’d recommend anyone using Xero that needs help getting Superstream up and running have a scan through this information. If you still need more assistance your Accountant or Bookkeeper should be able to assist further.

Working with Panic Atax

Panic Atax is an Accounting and Business Advisory firm specialising in building strong relationships with clients and removing the stress many small business owners experience around Financial Reporting, Tax and Cash Flow. If you’re looking for an accountant to build a great, long term working relationship with we’d love to hear from you.

Streaming Super – A quick start guide to Superstream

Streaming Super – A quick start guide to Superstream

SuperStream is the new way all employers must report and pay their employee’s superannuation contributions. With the SuperStream system superannuation contribution data will be processed electronically and the payments made by EFT or BPAY.

Why do we need Superstream? What’s wrong with the way I process super now?

The ATO claims Superstream is all about automating the superannuation contribution process and making the system easier for both employers and superannuation funds. ‘Making Super Simple’ is their favourite tagline in regard to the system changes.

While I do agree the system will provide small time savings for some employers the reality is the system is actually designed to allow the ATO to more efficiently identify employers who are not meeting their superannuation obligations. By matching the payments made to superfunds with the data transmitted they can tell if particular employers have missed the payment deadline for super and take appropriate action.

I’m certainly not saying that catching super cheats is a bad reason for the overhaul to the system. Employers who do not pay their employees entitles on time and in full should have a spotlight on them. However, we’re all adults, lets be honest with each other!

How do I get myself Superstream ready?

Getting yourself Superstream ready is a 3 stage process. Given the time it may take to complete these steps I’d highly recommend you take action on this right now. You need to be on step 3 by 1 July 2016.

Step 1 – Choose a Superstream option

There are a range of SuperStream solutions allowing you to choose the one that best suits you and your business. These options include:

A payroll system

If you use a payroll system, either a stand-alone software package or the payroll module within bookkeeping packages like Xero, check with your system provider that it is SuperStream ready. If they are not you may wish to look at updating your bookkeeping system. It’s also important to check whether they cover data transmission, payments or both.

A super fund’s online system

Large retail superfunds have their own online payment systems you can use. If all of your employees use the same default fund this may be a good way to go. However, if your employees use different funds this may not be an efficient option to choose.

A super clearing house

A clearing house pays super to your employees’ funds for you. You send a single electronic payment to the clearing house, together with the contribution data for all your employees and the clearing house does the rest. Many retail superfunds offer these options and it may be worth having a chat with your default fund to see if they can facilitate this for you.

If you have 19 or fewer employees, or a turnover of less than $2 million a year, you can use the ATO’s free Small Business Super Clearing House.

It’s important to remember that even if you outsource parts of the super contribution process you are still responsible for ensuring your employee’s super is paid correctly.

A messaging portal

A messaging portal can convert contribution data for your employees to a SuperStream compliant format and send it to the relevant funds for you. You still need to make one electronic payment. Speak to your financial institution if you wish to explore this option.

Step 2 – Collect Information from employees and update your records

In preparation for Superstream you will need to collect some data about your employees and their superfunds. You may already have some of this information.

What Information do I need?

Ask your employees to provide you with the following information if you do not already have it on file:

– The employee’s tax file number;
– The Superfund’s ABN
– The Superfund’s bank account details;
– The Superfunds Unique Superannuation Identifier (USI).

If your employee has a Self-Managed Superfund (SMSF) they will need to provide you with an ‘Electronic Service Address’ (ESA) rather than the USI provided by the retail superfunds.

Where will my employees find this information?

The easiest way to get this information is to have your employees contact their respective superfunds and ask for the information. While there are some resources available online which will allow you to look up ABN’s and USI’s given the way retail funds are structured it can be almost impossible for someone from outside the fund to work out which ABN and USI are applicable to a particular employee’s superannuation product.

If your employee has an SMSF they may need to contact their accountant to request the ABN and ESA for the fund. If they don’t provide you with this information, you can ask them to complete and return a standard choice form that mandates the provision of this information. If they don’t return this form within 28 days and you are ready to use SuperStream you can pay their super contributions to your default fund.

For new employees all the information required for SuperStream will be provided when an employee completes a Standard Choice Form.

Once you have all of this information, enter it into your chosen SuperStream solution (the options covered earlier).

A Final Word

I believe the most popular Superstream alternatives for small businesses will be electronic payroll systems (like Xero) and the ATO’s free clearing house. If you are a business client of Panic Atax chances are you’re using Xero as your payroll platform. Our article on how to apply Superstream in the Xero environment can be accessed here.

Working with Panic Atax

Panic Atax is an Accounting and Business Advisory firm specialising in building strong relationships with clients and removing the stress many small business owners experience around Financial Reporting, Tax and Cash Flow. If you’re looking for an accountant to build a great, long term working relationship with we’d love to hear from you.