Navigating tax changes: Key updates on Payday super, contractor super and tax exemptions for NFPs
Navigating tax changes: Key updates on Payday super, contractor super and tax exemptions for NFPs
Is your Not-For-Profit (NFP) aware of the latest tax developments facing the industry? Our BDO experts Russell Postle, Judy White, and Stefanie Merlino recently hosted a webinar to discuss the latest developments and help ensure your reporting processes are current.
Topics covered in the webinar included payday super, application of the superannuation guarantee legislation to independent contractors and ATO reporting processes. The key points are summarised below:
Tax exemption reporting
New reporting requirements are being applied to NFPs that are non-charity self-assessing as income tax exempt.
As with any change, these NFPs must review their constitution, governing documents and activities including:
- Identify clauses that prohibit distribution to members, both while operating and on windup
- Identify substantive provisions and adherence to these
- Review objects and match them to current activities and those contemplated
- Review materials such as the website – do the contents match the objects?
- Confirm the financial statements share the correct message
- Ensure the organisation focuses on its objects both in terms of actions and how the organisation reports and promotes its activities on its website, external facing materials and internal documents.
Payday Super
Significant changes proposed to commence 1 July 2026, are coming to the superannuation guarantee (SG) regime. This currently operates as a self-assessment system applying on a quarterly basis. The proposed changes are based on super contributions being required on a Payday basis, instead of a quarterly basis.
There are 3 key areas of the legislation that refer to a quarterly basis that would require change under the proposed Payday Super regime. These areas include calculations of the SG shortfall, the nominal interest and administration components, and the maximum contribution base.
While we are awaiting further direction from the Government on the changes to this framework, we anticipate that, under any government changes to the SG legislation, SG contributions will be required on a monthly basis at a minimum (rather than quarterly).
Now is the time for organisations to review the systems they use and consider future system and process/operational requirements, as we move away from quarterly contributions to the anticipated Payday/ monthly contributions regime.
We also urge organisations to take care regarding SG compliance. We note that the Australian Taxation Office (ATO) is currently active in this area conducting SG reviews. These reviews are often based on Single Touch Payroll information, which provides more transparency to the ATO regarding SG compliance.
We also refer you to our earlier article on Payday Super impacts specifically for the NFP industry: 'Payday Super: Navigating impacts on Not-For-Profits in 2023-24'
Contractors, Super & other updates
One of the biggest challenges for not-for-profit organisations is the distinction between an employee versus an independent contractor. This is an area where we have seen increased ATO focus, given some of the developments which we discuss below.
These arrangements were highlighted by two High Court judgments, both handed down on 9 February 2022 – Construction, Foresty, Maritime, Mining and Energy Union & Anor v. Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd & Anor v. Jamsek & Ors [2022] HCA 2, which confirmed the importance of the written contract entered into between the parties.
Where a comprehensive written contract has been entered into between two parties, classification of the nature of the relationship between the parties is based on the terms of the contract. In addition, the practical reality of the arrangement should also be considered, particularly where the contract is silent on any relevant factors.
It is important to note, even where an independent contracting relationship (and not one of employment) is found to exist between two parties, this does not necessarily mean there are no SG obligations. The SG legislation, Superannuation Guarantee (Administration) Act 1992, contains an extended definition of an employee for SG purposes that may create a SG obligation for the engaging entity on payments made to the independent contractor engaged. This includes where the person works under a contract that is wholly or principally for the labour of the person.
The ATO has recently issued refreshed guidance on who is an employee for SG purposes, which is currently in draft form and undergoing a consultation process. Draft Taxation Ruling 2023/4DC1 sets out the ATO’s consolidated guidance on the extended meaning of an ‘employee’ for SG purposes, together with the common law factors surrounding this classification.
For further details on the three topics above and to hear more insights from our experts, watch the webinar now.