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Managing employee tax and super obligations is a crucial aspect of running a business in Australia. It is essential to understand how super contributions are taxed and the proper procedures for paying tax and super for your employees.
In this blog, we delve into the world of super contribution taxation and introduce you to Workstem—a powerful, streamlined solution designed to simplify the process.Keep reading to learn more!
About tax and super australia
Your tax and super obligations in Australia vary depending on whether your worker is an employee or a contractor.
If your worker is an employee, you need to:
- Withhold tax (PAYG withholding) from their wages and report and pay the withheld amounts to the tax authority.
- Pay super (superannuation) for eligible employees at least on a quarterly basis.
- Report and pay fringe benefits tax (FBT) if you provide fringe benefits to your employees.
If your worker is a contractor, the obligations are as follows:
- Contractors generally handle their own tax obligations, so you don’t have to withhold tax from payments to them unless they fail to provide their Australian Business Number (ABN), or you have a voluntary agreement with them to withhold tax.
- You may still have to pay super for individual contractors if the contract is primarily for their labour.
- You are not obligated to pay fringe benefits tax (FBT) for contractors.
Rememb super contributions made by employers and salary-sacrificed contributions, also known as concessional contributions, are taxed at a rate of 15%. However, there are some exceptions to this rule:
- Low-income super tax offset (LISTO): If your annual income is $37,000 or less, the tax paid on your super contributions is refunded back into your super account through the low-income super tax offset.
- Division 293 tax: If your combined income and super contributions exceed $250,000, you are required to pay an additional 15% tax called Division 293 tax.
On the other hand, if you make contributions from your after-tax income, known as non-concessional contributions, you don’t have to pay any contributions tax.er, it is illegal to misclassify an employee as a contractor, so it’s important to ensure that you have correctly determined their status. Failure to do so may result in penalties.
*For the most accurate and detailed information, please visit the ATO website to learn about tax and super obligations
How are super contributions taxed?
As an employer in Australia, it’s essential to understand how super contributions are taxed. Here’s a simplified overview of the taxation rules for super contributions:
Employer Contributions and Salary Sacrifice Contributions
When you, as an employer, make contributions to your employees’ super accounts or when employees make salary-sacrificed contributions, these contributions are generally subject to a 15% tax rate.
However, there are exceptions to this rule:
- Low-Income Super Tax Offset (LISTO): If an employee’s annual income is $37,000 or less, the tax paid on their super contributions is refunded back into their super account through the low-income super tax offset.
- Division 293 Tax: If an employee’s combined income and super contributions exceed $250,000, they are required to pay an additional 15% tax called Division 293 tax on the portion that exceeds the threshold.
Non-concessional contributions, made from employees’ after-tax income, are not subject to any contributions tax.
*To ensure that employees don’t pay extra tax on their super, it’s important for them to provide their Tax File Numbers (TFNs) to their super funds.
Regarding super investment earnings, such as interest and dividends, they are generally taxed at a rate of 15%. However, any applicable tax deductions or credits are deducted before applying the tax.
When it comes to super withdrawals, the tax paid depends on the method of withdrawal:
- Super Income Stream: If an employee withdraws their super as regular payments over a long period and they are aged 60 or over, the income is usually tax-free. However, if they are under 60, they may be subject to tax on their super income stream. Detailed information can be found in the retirement income and tax guidelines.
- Lump Sum Withdrawals: If an employee is aged 60 or over and withdraws a lump sum from a taxed super fund, no tax is payable. However, if they withdraw from an untaxed super fund, such as a public sector fund, tax may be applicable. If they are under age 60 and the withdrawal amount is up to the ‘low rate cap’ (currently $235,000), no tax is payable. Amounts above the low rate cap are subject to a tax rate of 17% (including the Medicare levy) or the employee’s marginal tax rate, whichever is lower. If employees haven’t reached their preservation age, the tax rate is 22% (including the Medicare levy) or their marginal tax rate, whichever is lower.
*Please refer to the ATO website for detailed information on the tax payable on super contributions.
How to pay tax and super for your employees?
To pay tax and super for your employees in Australia, you can follow these steps:
|Set up Single Touch Payroll (STP) reporting:||Ensure you have implemented the STP2 reporting system, which allows you to report tax and superannuation information to the Australian Taxation Office (ATO) each time you run payroll.|
|Determine the appropriate tax withholding:||Calculate the correct amount of tax to withhold from your employees’ wages based on their income, tax brackets, and any applicable deductions or offsets. You can refer to the ATO’s tax tables or use payroll software to ensure accuracy.|
|Pay tax to the ATO:||Submit the withheld tax amount to the ATO according to the required schedule. This can be done electronically through the ATO’s Business Portal or using an online banking service.|
|Calculate and contribute superannuation:||Determine the superannuation guarantee contribution rate, which is currently set at 10.5% (as of 2023). Ensure you calculate superannuation based on your employees’ ordinary time earnings and pay it into their chosen super funds.|
|Pay super contributions to employees’ funds:||Make regular contributions to your employees’ super funds, at least quarterly, before the respective due dates. You can use the online services provided by your employees’ super funds or utilise a clearing house service to streamline the process.|
|Keep accurate records:||Maintain detailed records of tax withheld, super contributions made, and payment dates. It is essential to have these records for reporting and auditing purposes.|
|Stay informed and seek professional advice:||Stay updated with the ATO’s regulations and requirements regarding tax and superannuation. If you have specific questions or need assistance, consider consulting with the Workstem team directly for guidance.|
Streamline tax and superannuation processes with Workstem
Workstem simplifies payroll management through automation, compliance, and efficiency. Our platform automates payroll tasks, keeping accurate calculations for gross pay, overtime, allowances, loadings, and leave cashing out while complying with Fair Work and EBAs. With the STP 2 reporting software, businesses can meet ATO requirements.
We also streamline tax and superannuation processes, handling superannuation management, contribution handling, and accurate payroll calculations. Workstem supports multiple Super funds and ensures compliance with SG contributions.
By choosing Workstem, you can eliminate manual tasks, comply with regulations, and increase efficiency. Simplify your payroll, tax, and superannuation processes with Workstem for improved accuracy and streamlined operations.