Little progress on important tax & super legislation

From time to time, the government announces new initiatives. Of most interest to us, as your Accountants & Advisers, are the tax and super-related ones such as those announced in the Annual Federal Budget. These initiatives usually include commencement dates for these new policies at some point in the future (if not immediately). The challenge is that these proposed changes must be enacted into law first. Draft legislation is therefore prepared, which is then the subject of various feedback from the community and lobby groups, all while being debated in both houses of Parliament. Changes are made as required, and hopefully, the legislation will receive Royal Assent before the announced commencement date! But more importantly, with enough time for people to make sound decisions on the actual law (not just a press release!). There have been too many initiatives that have not made it through to legislation at all or with substantial changes.

Over the last couple of years, various significant measures have been announced with years of lead time. However, little progress has been made on their implementation into law. This causes serious issues for individuals, businesses and organisations such as super funds and software providers as much-needed certainty and preparation time steadily ticks away.

Division 296 tax

One such change is the proposed new Division 296 tax, due to commence on 1 July 2025. If enacted, Division 296 tax will impose up to an additional 15% tax on earnings on the proportion of superannuation balances exceeding $3 million. While legislation to implement the measure was introduced into Parliament late last year, the enabling Bill and the related imposition Bill remain before the House of Representatives.

Many professional associations have expressed strong concerns with key aspects of the proposed measure. In particular, the following aspects of the measure have drawn united criticisms:

inclusion of unrealised gains in the calculation of taxable earnings, which would set an undesirable and inappropriate precedent in the tax system
lack of indexation of the $3 million threshold
inability to carry losses back and apply them only against future gains (in some cases, they may never be able to be recognised), and
liquidity concerns regarding the ability to fund the payment of Division 296 tax liabilities, notwithstanding the extended 84-day period in which to pay the tax.

The lack of progress is increasingly concerning considering the large administrative and programming changes required for superannuation funds and digital service providers (DSPs) to comply with the new law if enacted. With less than a year to go until the announced start date, superannuation funds and DSPs have been left in a state of flux, not having the certainty they require to be able to start investing in the changes needed to implement the law.

Payday super

Another major proposed superannuation reform that remains in limbo is Payday super (PDS). The substantial reform to the current quarterly superannuation guarantee (SG) regime was announced in May 2023. It will require employers from 1 July 2026 to pay their employees’ SG contributions simultaneously as their salary and wages. While 1 July 2026 sounds like a long way off, the initial lead time of three years to design, enact and implement the new regime has quickly shrunk to less than two years until the announced start date.

Submissions have been made on a consultation paper detailing key concepts and possible options, but no exposure draft legislation has yet been released. The PDS framework needs to be enshrined into law at least a year before the announced start date so all stakeholders can ready themselves for a successful implementation of PDS. Employers will need to review the impact of PDS on their cash flow budgets. However, behind the scenes, DSPs will need to invest in and design to agreed specifications and the software needed by employers, payroll service providers, clearing houses, superannuation funds, and other intermediaries. Understandably, such a financial commitment will likely be made only with the certainty of enacted law.

Extension of Small Business $20,000 instant asset write-off to 30 June 2025

The announcement in the May 2023 Federal Budget of another temporary increase in the small business instant asset write-off (IAWO) threshold to $20,000 for 2023–24 was subject to extensive parliamentary delays, resulting in the legislation only being enacted on the third last day of that income year. The critical issue is that small businesses had to make significant asset purchasing decisions from 1 July 2023 to 27 June 2024 based on an announcement that may or may not have become law.

Small businesses and their advisers find themselves in a similar position again this year because the proposed measure announced in May 2024 to extend the $20,000 IAWO by 12 months to 30 June 2025 has not been legislated more than two months into the current income year. Providing certainty on this is important because, without legislative change, the IAWO threshold reverts to $1,000 from 1 July 2024.

We note that if enacted, the extension to 30 June 2025 will be the seventh time since 12 May 2015 that the IAWO threshold will have changed. For many years, accounting & tax lobby groups have suggested enshrining a permanently increased IAWO threshold for businesses with an aggregated turnover of less than $50 million for assets costing less than $30,000. This policy impacts investment and planning decisions for small businesses. Ideally, it is essential to have certainty before the start of, or at least early in, the income year so businesses can plan accordingly and make full use of the immediate deduction. It is hoped that the passage of the enabling Bill will be well before the end of the 2024–25 income year.

Denying deductions for ATO interest charges

But on a brighter note, these delays in enacting legislation are also impacting the MYEFO 2023–24 measure to deny deductions for the general interest charge (GIC) and shortfall interest charge (SIC) incurred on outstanding tax debts which were proposed to start on or after 1 July 2025. While the commencement of this measure is more than nine months away, a looming Federal election could disrupt the smooth progress of the enabling legislation.

There are dozens of other tax, super & business measures still waiting to be enacted. As a matter of system maintenance, the government needs to address the systemic issue of the extensive list so that proposed measures can be better managed going forward. Clarity is needed so greater certainty can be provided to taxpayers and their advisers. Got questions about any of these changes? Book in a call with DFK Everalls and together we both might find some clarity!