A SmartCompany guide to the superannuation levy increase – what businesses need to know

Business groups are still fighting the Federal Government over its move to increase mandatory superannuation from 9% to 12% by 2019, but plenty of small businesses are still confused about how the scheme works.

With Assistant Treasurer Bill Shorten’s comments that businesses would likely trade off wages for the superannuation increase, it’s no wonder entrepreneurs are confused about the timeline for the new initiatives.

And with the Government coupling the superannuation increase to the mining tax legislation, businesses are confused as to whether they’ll be paying for the increase out of pocket, or whether the Government will use mining tax funds to pay some of their way.

It’s all a bit confusing. SmartCompany has covered the subject since its debut at the Henry Tax Review response in 2010, and we have all the details for you to stay informed.

First thing’s first – how it all started

The superannuation increase was first announced back in May 2010, when the Government included the plan in its response to the Henry Review.

This has led to some confusion as to why the Government has included the superannuation increase in the mining tax legislation. However, there is no direct link between the two, other than being announced as a response to the Henry Review at the same time.

Who’s paying?

Employers will pay any increase in super. The Government has no involvement in this scheme, unlike others such as Paid Parental Leave, which are paid by the Government but then distributed by an employer.

The increased superannuation levy simply means that instead of paying an extra 9% of an employees’ salary as superannuation, from July 1 2013, you will need to pay 9.25%. This will continue to rise to the point that you will need to pay 12% from July 2019. Businesses won’t receive any sort of assistance for this.

The Government did introduce a provision to give low-income earners an extra $500 for their super, ensuring no tax is paid on super contributions up to that amount. But this payment will have no impact on employers.

When does this all start?

The increases begin on July 1, 2013, at which point you’ll have to increase the amount you pay in superannuation.

But that doesn’t mean you’ll have to pay the 12% rate from July 2013. The Government has scheduled the payments to increase over the next decade, so businesses have time to get used to the higher payments and won’t automatically transition to the 12% rate.

The timetable, and how it all works

From next July, the mandatory superannuation payment will rise from 9% to 9.25%.

A second 0.25% increase will occur on July 1, 2014. That brings the rate up to 9.5%, which will apply for the 2014-15 year.

Then in 2015 and each year after to 2019, the rate will increase by increments of 0.5%. That means the timetable looks like this:

  • 2015-16 – 10%
  • 2016-17 – 10.5%
  • 2017-18 – 11%
  • 2018-19 – 11.5%
  • 2019-20 – 12%

Then after 2019, the rate will remain at 12% permanently.

How much will this cost?

That depends on how much each business structures their payroll. But if you spend $1 million on salaries, your super contribution will increase from $90,000 to $92,500 from July 2013. From July 2014, you would pay $95,000, assuming your wage bill remains at $1 million.

However, the Government has warned that although businesses may choose to reduce pay rises in order to afford the superannuation increase, no business is able to break existing wage agreements.

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