Be ready for pay day superannuation.
It’s been a turbulent few years for Australian businesses, and the bumps in the road don’t seem to be letting up anytime soon. To help prepare you for the road ahead, we’ve recapped two changes to legislation that could catch out ill-prepared businesses.
Same-day super
Starting from July 1, 2026, employers will be required to make Superannuation Guarantee (SG) contributions to employees with each pay cycle, rather than on a quarterly basis. There will be a new 7 day ‘due date’ for contributions to arrive in the employees’ superannuation fund after each time an employer makes an ordinary time earnings (OTE) payment. If employers do not make their contributions fully and on time, they are responsible to pay GS charge. Contributions must be paid on payday, ensuring they reach the employee's super account within 7 calendar days.
There are limited exceptions:
Contributions for OTE paid within the first two weeks of employment for a new employee will have their due date deferred until after the first two weeks of employment.
Small and irregular payments that occur outside the employee’s ordinary pay cycle would not be considered a payday until the next regular OTE payment or ‘payday’ occurs.
The benefits of implementing these changes include:
Enhances Australia’s superannuation system by ensuring employees receive their contributions more regularly, which helps minimise unpaid super.
More frequent SG contributions will allow employees to better monitor their entitlements, while also aiding employers in managing payroll. This change is part of a wider government initiative aimed at improving retirement outcomes and combating superannuation theft.
Despite the benefits, same-day superannuation contributions can significantly impact cash flow for businesses. Some potential unintended consequences include:
Immediate cash outflow: Businesses may experience a higher cash outflow on the same day as employee payments, which can affect liquidity, especially if cash reserves are low.
Planning for contributions: Companies will need to budget more accurately to ensure they have sufficient funds available for same-day contributions, potentially requiring adjustments in cash flow management practices.
Compliance costs: Businesses might incur costs related to adjusting payroll systems and ensuring compliance with the new regulations, which could temporarily strain cash flow.
General interest charge and shortfall interest charge deductions
Currently, both general interest charges (GIC) and shortfall interest charges (SIC) are tax-deductible for all entities. However, an announcement made in December 2023 has set a deadline for this deduction. Beginning with the income year starting on 1 July 2025, the Government will prohibit tax deductions for interest charges imposed by the Australian Taxation Office (ATO), specifically GIC and SIC.
By eliminating these deductions, the government intends to encourage entities to properly assess their tax obligations and make timely payments. This initiative aims to create fairness among individuals and businesses that consistently adhere to their tax responsibilities, leading to a more equitable tax system.
This measure is not yet law. The Treasury released draft legislation on Tuesday, 24 September 2024 detailing its plans to deny deductions for general interest charge and shortfall interest charge incurred from 1 July 2025. Many in the industry have concerns that this measure will disproportionally affect businesses with cash flow issues and sole traders.
For those businesses which are already trying to pay historical tax debt, the inability to claim these deductions may result in higher amounts of income tax payable, which the business may not have adequate resources to pay. Significant increases could put additional financial pressure on businesses already struggling, and it may force directors to question the viability of their operations.
While the intention of these legislative changes are intended to positively impact employees and the economy, we foresee that there may be unintended consequences. The changes will require business owners to reconsider their business models and cashflow, and if they determine that they cannot met the new legislative requirements, potentially close their businesses.
