Employment taxes update – September 2019

10 September 2019


Australian tax obligations affecting employers are always changing. This update addresses changes to legislation and case law developments affecting employers – including payroll tax, fringe benefits tax, income tax, superannuation and pay-as-you-go withholding – as well as the ATO’s interpretation of those laws and regulations from the last 6 months (April to September 2019).


1     Payroll tax


Some states have adjusted payroll tax rates and thresholds and extended regional employer concessions for the new financial year, and a service contract for an agreed result was held by the NSW court to be caught by the “employment agency agreement” rules.

1.1  Tax free threshold and rates 2019/20


Headline tax free thresholds and rates for 2019/20 are as follows.

State    

Tax free
threshold  

Rate

Variations to rate

NSW    

$900,000   

5.45%        

VIC      

$650,000   

4.85%   

Regional employers pay half the rate. 

QLD

$1.3m*

4.75%

4.95% if >$6.5 million national wages.
Regional employers subtract 1% from rates.

WA

$850,000*

5.5%

6% if >$100 million national wages.
6.5% if >$1.5 billion national wages.

SA

$1.5m*

4.95%

TAS

$1.25m

4%

6.1% if >$2 million national wages

NT

$1.5m

5.5%

ACT

$2.0m

6.85%

 

* Note that the tax-free threshold is gradually clawed back in QLD, WA and SA as wages surpass it. In SA, the last $600,000 of the tax-free threshold is not clawed back.

As a simplification measure, NSW now allows a single annual return if payroll tax is up to $20,000, and fixed monthly instalments if payroll tax is up to $150,000.

1.2   Employment agency rules extend to integrated workers

Bayton Cleaning Company Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 657 (7 June 2019)

The NSW Supreme Court held that companies that provide services to their clients and subcontract the work are caught by the “employment agency agreement” payroll tax rules if the actual workers are “integrated” in the client’s business. Working daily onsite at the client’s premises on an ongoing basis was found to be enough for that, even if the contract is for a specified result and workers do not take instructions or general directions from the client.

The key consequence of the “employment agency agreement” rules applying is that “relevant contract” payroll tax exemptions become unavailable.

Our separate article provides more details.

1.3   Installation may be ancillary to the delivery of goods

Downer EDI Engineering Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 743 (21 June 2019)

Where a contractor is paid to deliver goods, payment for ancillary services provided by the contractor are also exempt from payroll tax. That will include installation of the delivered goods if it is relatively quick. The court has held that the ‘cable-guy’ who delivers set-top boxes to homes and then installs them performs the installation as a relatively quick ancillary service that is also exempt from payroll tax.

2     Fringe Benefits Tax


An exposure draft Bill has been realised to extend the FBT exemption for taxi travel to and from work to ride-sharing and a Productivity Commission draft report recommends dramatic cuts to remote area tax concessions.

2.1    Taxi travel FBT exemption to include ride-sharing, but exclude limousines


Exposure Draft of Treasury Laws Amendment (Measures For A Later Sitting) Bill 2019
(6 September 2019)

There is currently an FBT exemption for travel to and from work in a licenced taxi. An exposure draft Bill proposes to remove the licencing condition to ensure that ride-sharing cars also qualify.

However, the proposed changes will deny the exemption for limousines, meaning that the Bill resolves one complexity in the legislation just to create another. We know from the Uber GST case that a Honda Civic is certainly not a limousine. However, any luxury car potentially could be, including especially a London-style taxi where a partition separates the driver.

2.2   Proposal to cut back remote area concessions


Productivity Commission report into Remote Area Tax Concessions and Payments
(4 September 2019)

The Productivity Commission draft report into remote area concessions and payments recommends:

  • cutting the FBT exemption for employer-provided housing to 50%, and restricting it to where there is an operational need for the employer to provide the housing;

  • eliminating essentially all other remote area tax concessions for employers and workers (including eliminating the zone offsets and current 50% FBT concession for subsidising employee-provided housing); and

  • reviewing what should be considered remote with a view to excluding in particular Kalgoorlie and places within 100km of Cairns or Townsville.

The proposals should not affect fly-in fly-out workforces. Their travel, meal and accommodation costs should be ‘otherwise deductible’ and therefore remain FBT free on that alternative basis.

Submissions are due by 11 October 2019.

2.3    Indexation of key thresholds


Key updated FBT thresholds for 2019/20 are as follows:

  • commercial car parking station threshold: $8.95

  • reasonable food and drink allowance while living-away-from-home: $269, plus $135 for each accompanying adult and $68 for each accompanying child (weekly, for Australia)

  • benchmark interest rate: 5.37%

3    Superannuation Guarantee


The courts have held that “ordinary time earnings” on which SG is owed takes its industrial meaning and considered when entities that pay employees of other entities become liable for their SG.

3.1     “Ordinary time earnings” is determined by the industrial instrument or employment contract


Bluescope Steel v Australian Workers Union [2019] FCAFC 84
(24 May 2019)

The Full Federal Court held that SG requirements are met by paying 9.5% contributions on earnings for “ordinary hours of work” as defined by the industrial instrument or employment contract which are paid at an ordinary rate of pay. The decision restores the position advocated for by the ATO in ruling SGR 2009/2.

Our separate article provides more details.

3.2    Entity that pays the worker is different to the entity that engages the worker – who is liable for the SG?


Scone Racing Club v Federal Commissioner of Taxation [2019] FCA 976
(21 June 2019)
Racing Queensland Board v Federal Commissioner of Taxation [2019] FCA 509(12 April 2019)

Disputes can arise about who is liable for SG when the entity that pays the worker is different to the entity that engages the worker. An example is where a franchisor pays employees of a franchisee directly. Generally it will be the party that engages the worker which is still liable for SG.

However, the rule for performing entertainers and sportspersons treated as employees under the extension in s.12(8) is a bit different. Under the extension, an entity that is directly liable to pay the performing entertainer or sportsperson is also liable for SG, and is thus the deemed employer irrespective of who actually pays the performer.

In two horse racing cases, racing clubs paid the jockeys their riding fees from a centralised pool of funds on behalf of the horse owners who had hired the jockeys. Since the horse owners were the parties directly liable to pay the jockeys their riding fees, and the clubs just discharged that liability from the pool, the horse owners were still liable for any SG.

4     Income Tax


4.1   Back payments taxed on cash receipts basis but with possible rebate


As a reminder, employee remuneration is taxed on a cash receipts basis, and not in the year the work was done. There have been three recent cases that make that point: Roszkiewicz and Commissioner of Taxation [2019] AATA 931 (20 May 2019), Biswas and Commissioner of Taxation [2019] AATA 2372(5 August 2019) and Lochtenberg v Commissioner of Taxation [2019] FCA 1167 (2 August 2019)

However, a special rebate can be claimed in the year of receipt of large back-payments to offset the disadvantage of being pushed into a higher marginal tax rate that year compared to if the payments were made on time in earlier years.

5    PAYG withholding


Recent legislative changes and cases highlight the need to properly follow PAYG withholding and remittance procedures and record keeping. Non-compliance can result in losing the tax deduction for the costs and director personal liability for the PAYG.

5.1   No tax deduction if fail to withhold or notify the ATO of the withholding payment


As a reminder, since 1 July 2019, a payer that fails to withhold from wages, or withholds but fails to notify the ATO of the payment, is denied a tax deduction. The same applies for failing to withhold from, or report, payments to contractors who do not provide an ABN.

The practice of some employers that choose to just pay 47% FBT wherever there is a withholding failure should reconsider the appropriateness and risk in light of this change.

Proper records should be retained to prove the gross payment and PAYG withheld. In Price v Commissioner of Taxation [2019] FCA 543 (18 April 2019), PAYG was not considered to have been withheld because the difference between the gross payments allegedly owed and actual payments did not bear sufficient similarity to the expected PAYG.

5.2    PAYG withholding is on obligation on the payer, which may not be the employer


PAYG withholding is an obligation on the paying entity, and its directors can become personally liable if an amount is withheld but not remitted to the ATO. They should take care. For example, in CLK Kitchens & Joinery Pty Ltd v Commissioner of Taxation [2019] FCA 1086 (12 July 2019) the directors of CLK Kitchens became personally liable for unremitted PAYG withheld from wages it paid to employees of CLK Services.

5.3    Single Touch Payroll reporting deferral for inbound assignees


ATO STP deferred reporting announcement
(8 July 2019)

The ATO announced that it will allow deferred reporting of offshore wage payments to inbound assignees until the end of the month following payment if immediate reporting is impractical to administer. To take advantage of the concession, the assignee would need to remain employed by the offshore entity that makes the payment.

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Authors

Graham Warren

Special Counsel

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Cameron Blackwood

Director

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