Employment taxes update - April 2018

3 April 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 3 months (January to March 2018).

Payroll tax

WA looking for labour hire contract scams

Media release of 10 January 2018

WA said they were actively auditing labour hire agency contracts, and had seen scams where agencies were not passing on payments of payroll tax from employers to the State Revenue Office.

Fringe benefits tax (FBT)

After-school care at primary school is FBT exempt for teachers

ATO Interpretative Decision ATO ID 2001/309 (12 March 2018)

The ATO affirmed its decision that after-school care at primary school for children of employees is exempt from FBT under the onsite child care facility exemption.

To qualify, the child care needs to be on premises of the employer. The care could be at a different school from which the teacher works if the employer at both schools is the same. That might be particularly useful for employees of State education departments that have many schools.

Income tax

An inbound expatriate has been unsuccessful in gaining tax exemption for accrued foreign earnings received only after relocating. An employee lost the whole of his work travel expense claim after fractionally exceeding the ATO reasonable limit. The ATO ruled that dividend equivalent payments under share plans may be double taxed to the employee and plan trustee that holds the shares.

Temporary resident taxed on income received for previous foreign service

De Figueiredo and Commissioner of Taxation [2018] AATA 62 (23 January 2018)

Deferred bonuses and accrued leave entitlements paid to expatriate employees before they relocate to Australia are not taxable.

However, payment after relocation to Australia, whether in cash (as in the Blank case), or in kind (as in the De Figueiredo case), results in the full value being assessed as an employment emolument without regard to the extent to which the rights accrued from foreign service performed while a non-resident.

Both cases involved Glencore’s employee profit participation plan. Mr Blank had cashed his rights out under the plan upon retirement. Mr De Figueiredo exchanged his rights for shares in a new Glencore holding company.

Excess travel expense claim means full substantiation required

Tyl and Commissioner of Taxation [2017] AATA 2850 (22 December 2017)

If deductions claimed for overnight work-related travel costs exceed reasonable limits set by the ATO, the whole claim must be substantiated with receipts or invoices, not just the excess.

A truck driver claimed fractionally more than the reasonable limit after miscalculating from his diary the number of nights he had spent away. He had not retained receipts or invoices to back his claim, so the whole deduction was denied and a 25% penalty imposed for lack of care.

Dividend equivalent payments double taxed

Taxation Determination TD 2017/26 (20 December 2018)

Employees with unvested shares are entitled under some employee share plans to be paid an amount by the plan trustee when the shares vest equal to the dividends that accrued on the shares during the vesting period. The ATO says the amount paid is assessable as employment income, even if the plan trustee held the unvested shares and had already paid tax on the actual dividends when received. The result is double tax.

If the trustee instead distributes the dividends to the employees concerned each year by 30 June year end, the trustee will not also be taxed.

Overseas aid manager’s income exempt, but not ADF sub-contractor’s overseas income

Defence contractors and aid workers continue to battle for tax exemption for their foreign earnings while on assignment under s.23AG:

Changes to statute now prevent any aid employees of an Australian government agency from claiming exemption.

Superannuation

Overtime and public holiday pay was held to be subject to Superannuation Guarantee (SG) under the terms of particular industrial instrument. Legislation is proposed to make it easier for the ATO to pursue unpaid SG and punish those responsible for defaults.

Superannuation owed on additional hours and public holiday work

Australian Workers’ Union v Bluescope Steel [2018] FCA 80 (14 February 2018)

Details in industrial agreements often determine which pay components over and above regular wages for defined bandwidths of normal working hours also constitute pay for ordinary hours that are subject to SG. Hours subject to a penalty rate or loading can sometimes be caught.

Under the Bluescope industrial agreement, public holidays worked were explicitly ordinary hours.

Under the agreement, employees were paid an annualised salary to cover all pay components. However, additional on-call hours and scheduled overtime hours worked differed dramatically between employees. That meant the annualised salary was not just an aggregated restatement of all the pay components. Rather, it caused the pay for additional on-call hours and scheduled overtime hours to be indistinguishable from pay for ordinary hours, with the result that SG was owed on pay for all those hours as well.

ATO power to direct that SG be paid, and expanded criminal and personal liability for SG defaults

Treasury Laws Amendment (2018 Measures No. 4) 2018 Bill  (28 March 2018)

Proposed legislation before Parliament will give the ATO power to direct that SG be paid, even if the liability is contested. Failure to comply will be a criminal offence punishable by up to 12 months imprisonment. Bankruptcy is not stated as a defence. An objection can be made against the direction.

In addition, directors of companies that fail to pay or disclose SG owed (or remit PAYG withheld) may become personally liable once the due date for payment passes. There will no longer be a three month leeway to instead place the company into liquidation.

Already enacted single touch payroll reporting rules will require substantial employers to immediately report pay components to the ATO. This reporting will not suffice as disclosure of SG owed. Errors in the reporting that are not detected and corrected by 14 July following year end result in another criminal offence punishable with imprisonment.

Industry hopes these heavy burdens are abated with balanced amendments to the Bill, and for it be spelled out explicitly when the ATO must withdraw a direction to pay SG.

More common SG risk exposures to check include classification of:

  • individual contractors as covered by SG or not;
  • pay components in complicated industrial pay scales (like in the Bluescope case above); and
  • third party commissions, retainers and the like that supplement employee wages.

Choice of fund forms

The draft legislation will also allow choice of fund forms given to new employees to be pre-populated with the employee’s existing fund details. This may render the employer or industry default less likely, and favour funds that have first contact with individuals joining the workforce for the first time.

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

Two industries with poor compliance history have been targeted for tighter reporting and closer scrutiny. Meanwhile, an employee has been protected from bearing the cost of failure by the employer to pay tax withheld from wages to the ATO.

Cleaning and courier business will need to be report payments to sub-contractors

Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018 (7 February 2018)

The Government introduced a Bill to require businesses that supply cleaning or courier services to report annually to the ATO the amount of consideration they pay their sub-contractors to undertake the work for them.

The Government regards sub-contractors in these industries as high-risk and that this will improve their income tax and GST disclosures.

Employee tax offset still allowed for tax withheld but not passed on by the employer to the ATO

Cassaniti v Federal Commissioner of Taxation [2018] FCA 92 (16 February 2018)

Employees are entitled to tax offsets for tax their employer withholds from wages, even if the employer fails to pass that tax onto the ATO. The court held that remains the case where a paying agent pays net wages on behalf of the employer. The court accepted the quantum of gross pay and tax withheld from the offer of employment and payslip records. Absent such records the employee may be liable to pay tax on the cash amount actually received without the benefit of any tax offset.

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Authors

Graham Warren

Special Counsel

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Adrian O'Shannessy

Consultant

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Cameron Blackwood

Director

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