Australia: Important new employment and superannuation contribution rates from 1 July 2012

Last Updated: 18 July 2012
Article by Ben Urry and Nick Noonan

Kemp Strang clients are encouraged to ensure that they are aware of the new rates and thresholds applying from the start of the current financial year that are relevant to their organisations. Following are some of the key changes that may affect you.

High income threshold

  • "High income threshold" for unfair dismissal purposes increased to $123,300 per annum.
  • The maximum compensation for unfair dismissal increased to $61,650.
  • An employee's "earnings" for the purposes of the high income threshold:
    • Includes wages, money that is paid on the employee's behalf (eg superannuation top-ups or salary sacrifice), and the agreed value of non-monetary benefits (eg laptops and mobile phones)
    • Excludes payments that cannot be determined in advance (eg commissions, bonuses or overtime), reimbursements, and compulsory employer superannuation contributions.

Federal minimum wage

The federal minimum wage is $606.40 per week ($15.96 per hour, based on a 38 hour week).

Casual loading for award/agreement free employees

The casual loading for award/agreement free employees is 23%. This is the minimum casual loading that must be paid to award/agreement free employees (as applied to the employee's base rate of pay).

Minimum rates in modern awards

As a consequence of the increased in the federal minimum wage, the minimum wage rates set out in modern awards have also increased. The Fair Work Ombudsman has a number of tools on its website to assist in calculating the new rates.

Tax-free component of genuine redundancy payments

The tax-free component of any genuine redundancy payment will be calculated as follows: $8,806 + ($4,404 x completed years of service).

The balance of any genuine redundancy payment which exceeds this amount will be taxed as an employment termination payment, subject to the following rules.

Employment termination payments (ETPs)

The taxation of ETPs changed from 1 July 2012. An employment termination payment is a payment made in consequence of the termination of employment. It can include payments in lieu of notice, ex gratia payments, and the part of a genuine redundancy payment which exceeds the tax-free amount.

ETPs do not include a payment for unused annual leave or unused long service leave, or the tax-free part of a genuine redundancy payment.

Prior to 1 July 2012, ETPs made within 12 months of termination of employment qualified for a concessional tax rate. The concessional rate only applied up to an ETP cap amount (which increased to $175,000 from 1 July 2012) as follows:

  • if the employee was over their "preservation age" by the end of the particular tax year (for the 2011/12 year this age was 55 years) the applicable tax rate was 15% (plus Medicare Levy),
  • otherwise the applicable tax rate was 30% (plus Medicare Levy).

In either case, the excess of the ETP over the ETP cap amount was taxed at the employee's marginal tax rate (up to 45% plus Medicare Levy).

From 1 July 2012, a new regime applies to ETPs made within 12 months of termination of employment. This regime applies a "whole of income (taxable income) cap" to certain ETPs, limiting the application of the concessional tax rate to only that part of the ETP that takes a person's total annual taxable income (including the ETP) to no more than $180,000.

ETP amounts above this $180,000 cap will be taxed at marginal rates. For example, if an employee's employment is terminated and the employee receives an ETP of $50,000:

  • If the employee's taxable income for the year is $180,000 (excluding the ETP) the whole of the ETP will be taxed at the marginal rate of 46.5%.
  • If the employee's taxable income for the year is $100,000 (excluding the ETP) the employee will receive the concessional tax rate on the whole of the ETP as follows:
    • 16.5% (if aged over their preservation age), or
    • in all other cases 31.5%.

If the employee's taxable income for the year is $175,000 (excluding the ETP), then they will qualify for the concessional tax rate on $5,000 of the ETP, and they would be taxed at 46.5% on the remaining $170,000 of the ETP.

Certain ETPs will not be affected by this "whole of income" cap, and will continue to be subject to the pre-1 July 2012 regime, including ETPs relating to:

  • death or invalidity,
  • genuine redundancy, and
  • payments made in connection with a genuine dispute, which are principally compensation for personal injury, unfair dismissal, harassment or discrimination.

Maximum superannuation contribution base

The maximum superannuation contribution base for the financial year ending 30 June 2013 year is $45,750 per quarter, or the equivalent of $183,000 per year.

The maximum superannuation contribution base is used to determine the maximum superannuation guarantee contribution an employer is required to make under the superannuation legislation.

Accordingly, the maximum superannuation contribution an employer is legally required to contribute is an amount of $16,470 per annum (9% of $183,000).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Kemp Strang has received acknowledgements for the quality of our work in the most recent editions of Chambers & Partners, Best Lawyers and IFLR1000.

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Ben Urry
Nick Noonan
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