Brace yourself: 2024 brings fresh tax cuts and a higher superannuation guarantee, reshaping your finances and business obligations in unexpected ways!
Personal tax & super
As of July 1, 2024, significant financial changes are in effect due to the introduction of personal income tax cuts and an increase in the superannuation guarantee rate to 11.5%. Employers must now ensure that their payroll systems are updated to comply with these changes, including adjustments in salary sacrifice agreements and PAYG withholdings. Additionally, the ATO is emphasizing the importance of strict adherence to super guarantee obligations, urging employers to verify they are meeting their responsibilities accurately.
Super Guarantee Obligations
- Employers must carefully assess who qualifies for the super guarantee (SG) as the definition of an employee for SG purposes is quite broad. It extends to temporary residents, backpackers, certain company directors, family members actively involved in the business, and some contractors. It’s crucial to ensure that classifications are accurate to comply with SG payment obligations.
- It’s essential for employers to verify that employee fund details and tax file numbers are accurately registered with the super fund to ensure that super guarantee (SG) contributions are correctly directed to the appropriate accounts. This is a key obligation to ensure compliance and proper handling of employee benefits.
- Employers must ensure that super guarantee (SG) contributions are deposited into the employee’s fund by the quarterly due date, with the next deadline on July 28. Missing this deadline results in the super guarantee charge (SGC), which includes the overdue SG amount, a 10% annual interest starting from the beginning of the quarter, and an administrative fee. Critically, unlike regular SG contributions, SGC payments are not tax-deductible, making timely compliance essential to avoid these costly penalties.
Wages
As of July 1, 2024, Australia’s national minimum wage rose by 3.75% to $24.10 per hour, or $915.90 per week, effective from the first full pay period after this date. Despite common concerns, historical data shows no direct link between rises in minimum wage and inflation rates. Additionally, the latest data indicates a slight decrease in annual wage growth in the private sector, down to 4.1% in the March quarter of 2024 from 4.2% in December 2023, marking the first decline since the September quarter of 2020 and suggesting that wage increases are beginning to stabilize.
Interest rates and cost of living
Reserve Bank of Australia (RBA) Governor Michelle Bullock has stated on several occasions that inflation, not interest rates, are at the heart of cost of living pressures. Interest rates are the RBA’s “blunt instrument” to bring inflation under control. With inflation easing more slowly than anticipated, the RBA is not ruling anything out because the path of interest rates is determined by the actions required to bring inflation to target.
Inflation has reduced from its peak of 7.8% in December 2022 to 3.6% in the March quarter, but increased again in May to 4% dampening expectations of an interest rate reprieve.
Business confidence
The latest NAB business survey is not happy reading with business confidence falling back into negative territory in May as conditions continued to gradually soften. Having experienced eight consecutive months of forward order declines, businesses are understandably circumspect over the outlook. GDP grew marginally in the March quarter and consumption per capita continued to decline.
However, labour market conditions are strong with unemployment at 4% for May.
Treasury forecasts that economic growth (GDP) will marginally improve to 2% in 2024-25. Not exciting but credible.
Migration & labour
Always a controversial topic. Post pandemic, Australia’s migration levels surged with the return of international students, working holiday makers, and an influx of temporary skilled labour to meet shortages.
In the year ending 30 June 2023, overseas migration contributed a net gain of 518,000 people to Australia’s population – the largest net overseas migration estimate since records began.
The 2024-25 Federal Budget estimates that net migration will fall to 260,000. While demand pressures from migration have been well publicised, particularly on housing, the positive impact was the impact on supply. Post COVID, Australia faced crippling labour shortages that impeded the return and growth of supply.
From 1 January 2025, student visa numbers will be capped, and according to the University of Melbourne Deputy Vice-Chancellor Professor Michael Wesley, student visa grants are already down 34% in March 2024 compared to the same time in 2023.
The Government’s focus is on skilled migration. Employer sponsored places will rise by 7,175, however skilled independent visas will reduce by 13,475.
The minimum salary requirement to sponsor an employee (Temporary Skilled Migration Income Threshold) will also increase to $73,150 on 1 July 2024.
What now?
Businesses fail (or fail to thrive) for a myriad of reasons, but the precursor is often a failure to understand what is occurring within the business and what to monitor. Strategically, managers need to be on top of their numbers to identify and manage problems before they get out of hand. If you do not know what the key drivers of your business are, then it’s time to find out (we can help you with that).
A lack of profit will erode your business, but not enough cash will kill it stone dead. Businesses often fail because they don’t manage their cash position. Plan, track, and measure your cashflow. This not only means closely monitoring your debtor collections and inventory but also running a rolling three month cashflow position. This should provide an early warning of any brewing problems.
Cash flows, operating budgets, cost control and debt management all need to be part of your business management. The more in control you are the lower your risk position.
Many small businesses also tend to absorb increasing costs. Putting up your prices during difficult times is not an act of social betrayal. If the cost of doing business has increased, you should flow these through unless you are comfortable making less for the same amount of effort, or you are in an industry that is so price sensitive you have no choice but to follow the lead of larger businesses.
