Employment taxes update – July 2018

27 July 2018

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 4 months (April to July 2018).

1                Payroll tax


Some state payroll tax rates and thresholds have been adjusted 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            Rates and thresholds for 2018/19

The current headline rates and thresholds for 2018/19 are as follows.

State

NSW

VIC

QLD

WA

Payroll tax rate

5.45%

4.85%

4.75%

5.5%

Tax-free threshold

$850,000   

$650,000   

$1.1m   

$850,000  

 

State

SA              

TAS           

NT           

ACT         

Payroll tax rate

4.95%

6.1%

5.5%

6.85%

Tax-free threshold

$600,000

$1.25m

$1.5m

$2.0m

Note that the tax-free threshold is gradually clawed back in Qld and WA as wages surpass it. Large employers with over $100m wages pay higher rates in WA. Concessional rates applies in SA between wages of $600,000 and $1m, and for regional Victorian employers.

1.2            Payroll tax on service contracts – integrated workers


HRC Hotel Services Pty Ltd v Chief Commissioner of NSW [2018] NSWSC 820

Recent NSW cases have shown that the concept of an “employment agency agreement” under which payments are subject to payroll tax is different to its ordinarily understood meaning.

Now the NSW court has said some sub-contracted work to produce an agreed result (or deliverable) is caught by the rules. In essence that will be where the sub-contracted worker is “integrated” in the client’s business, in the sense of appearing to outsiders to be added to the client’s workforce, and to be working like an employee of the client’s business would.

Refer separate Riposte article for more detail.

1.3            Failure to properly document a related party transaction results in payroll tax liability


B & B Stevenson v Chief Commissioner of State Revenue (NSW) [2018] NSWCATAD 103

A retired husband and wife held a licence to manage and operate a franchise branded hotel. They orally sub-licensed the management and operation of that hotel to a company they owned and were the directors of.

The company paid them fees. There was insufficient evidence of the fees the company owed to them under the oral sub-licence agreement, so the tribunal concluded those fees were director’s fees subject to payroll tax.

This case is a reminder to properly document related party dealings so claims by the revenue authority for taxes can be disproved.

2                Fringe benefits tax (FBT)


The ATO has finalised its practical guidance for exempt vehicles, and various FBT rates were indexed for the 2018/19 FBT year.

2.1            Minor private use guidance for exempt vehicles finalised at 1,000km


Practical Compliance Guideline PCG 2018/3

The ATO has finalised that it will accept 1,000km private travel by an exempt vehicle per year as minor and disregarded use, provided no single return journey exceeds 200km. In addition, diversions to and from work limited to 2km are also allowed, for example to the local milk bar.

To take advantage of this safety net, employer policy must limit the private use to that degree and the employee must give a representation that he or she complied. The vehicle must have been provided for work use, not be a luxury car and not be provided as part of salary packaging.

The guideline does not directly address whether carrying a family member on the 2km diversion, for example to or from school, means the whole journey to or from work also counts towards the 1,000km limit.

2.2            Indexation of key thresholds


Key updated FBT thresholds for 2018/19 are as follows:

  • commercial car parking station threshold: $8.83
  • reasonable food and drink allowance while living-away-from-home: $265, plus $133 for each accompanying adult and $67 for each accompanying child (weekly, for Australia)
  • benchmark interest rate: 5.20%

3                Income tax


Personal tax cuts have been enacted, Australian expatriates living overseas may find it harder to claim tax non-residency, and image rights of sportspersons and artists will be taxed personally.

3.1            Personal tax cuts enacted


Treasury Laws Amendment (Personal Income Tax Plan) Act 2018

The personal tax cuts announced in the May Federal Budget have been enacted. For 2018/19 this means a modest reduction in personal income tax for lower and middle income earners through a new Lower and Middle Income Tax Offset of up to $530, and an increase in the threshold at which the 39% tax rates begins from $87,000 to $90,000 income (worth up to $135).

3.2            “Permanent place of abode” refers to a specific address, not a locality


Harding and Federal Commissioner of Taxation [2018] FCA 837

Australian tax residency is more ‘sticky’ for Australian domiciled individuals who leave permanently than it is for other individuals such as foreign expatriates who leave Australia permanently.

An individual who is Australian domiciled by origin at birth or later choice will retain Australian tax residency after permanent departure from Australia until he or she establishes a foreign “permanent place of abode”. The court said this requires moving into accommodation at a specific address that is intended to remain home for the entire stay in the foreign locality, but not just moving to the one foreign locality more generally.

In the case, an Australian domiciled employee rented a two-bedroom family apartment in Bahrain for the first year he was there. He looked to buy a family house in Bahrain for the longer term. That showed the apartment was only intended to be temporary, so he retained Australian tax residency for the first year in Bahrain and was therefore taxed in Australia on his wages for that year.

The decision represents an additional risk for Australians who leave to live overseas. Australian employers who send employees on foreign assignment should also bear in mind that where wages remain taxable, FBT may continue to apply to benefits such as accommodation provided.

3.3            Board of Tax review of tax residency test


Review of the Income Tax Residency Rules for Individuals

The Board of Taxation released its report into the individual residency test. The release is timely given the factual intricacies in the above case decision in Harding. The report recommends a simple bright-line primary test for residency to avoid those kinds of nuances. They recommended counting the days present and absent from Australia in a 12 month period as the primary test for the creation and cessation of Australian tax residency, subject to an integrity rule to stop someone not being tax resident anywhere.

Refer separate Riposte article for more detail.

3.4            Image rights to be taxed personally


The Government announced in the May Federal Budget that high profile individuals will be taxed personally on payments for their image or fame. Licences and assignments of image rights to an entity that is related to the individual will no longer be effective to reduce tax.

4                Superannuation


4.1            Opt out of SG to prevent excess contributions


Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018

Mandated Superannuation Guarantee contributions for high paid employees with more than one job in aggregate often exceed the $25,000 concessional contributions cap.

To prevent these excesses, a Bill before Parliament that will allow affected employees to apply to the ATO to opt out of receiving Superannuation Guarantee from one or more of their employers.

5                Pay-As-You-Go withholding (PAYG-W)


Nothing to report.

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Authors

Graham Warren

Special Counsel

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Cameron Blackwood

Director

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