Employment taxes update – April 2019

3 April 2019

Australian tax obligations affecting employers are always changing. This update addresses changes to legislation and case law developments affecting employers – including Federal Budget announcements, 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 2019).

1              Federal Budget announcements

The Federal Budget for 2019/20 was handed down on Tuesday 2 April 2019. Employment-related tax announcements included the following:

  • Single touch payroll: STP data collection will be expanded to capture more information about gross pay amounts and other details in order to reduce the compliance burden on employers that report information to multiple Government agencies.
  • Personal income tax cuts: The Government will bring forward and increase previously announced personal income tax cuts, including:
    • an increase in the top threshold of the 19% tax rate band to $45,000 (from 2022/23); and
    • a reduction in the 32.5% tax rate to 30%, which will then apply to all personal income earned between $45,000 and $200,000 (from 2024/25); and
    • an increase to the maximum Low and Middle Income Tax Offset from $530 to $1,080 for 2018/19 to 2021/22.
  • Voluntary superannuation contributions: Individuals aged 65 and 66 will be able to make non-concessional contributions without needing to meet the 40 hours in 30 days work test (from 1 July 2020).
  • Opt-in for insurance through superannuation: The start date for proposals to ensure that insurance through superannuation is only offered on an opt-in basis for individuals aged under 25 and for low balance accounts with less than $6,000 will be deferred to 1 October 2019.
  • Australia-Israel double tax treaty: Australia entered into a double tax treaty with Israel, which will enter into force once domestic ratification instruments are exchanged by both countries.
  • ABN holders: ABN holders will need to keep income tax return lodgements up to date (from 1 July 2021) and confirm the accuracy of their details on the ABN register (from 1 July 2022), or else risk losing their ABN.

For information on other aspects of the Federal Budget, please refer to our Budget Tax Brief.

2             Payroll tax

The status of individual workers as either contractors or employees remains an often litigated area in borderline cases.

2.1            ‘Retainer’ rendered commission-based workers to be employees

Universal Supermodels v Commissioner of State Revenue [2018] QSC 257 (21 February 2019)

The distinction between a contractor and an employee can be finely balanced and close attention to details needs to be taken. A ‘retainer’ paid to commission-based workers may be indicative of employment, and was central in tipping the balance in this case.

The case involved dancers working at an adult entertainment venue. The ‘retainer’ was structured as $50 guaranteed minimum income per shift payable in the event that the 50% commission they each earned from the venue for services they provided its patrons turned out to be less.

The decision is consistent with the single-judge High Court decision in Barrett (1973) where junior commission-based sales staff were also paid a retainer in the form of a wage but were still considered employees once they progressed in seniority to work commission-only.

By contrast it would be clear, in the absence of sham contracting, that an individual is a contractor if either:

  • each customer engages the contractor directly; or
  • the contractor can and does in fact delegate some of the contracted work to at least one other person who they are responsible for.

3             Fringe benefits tax (FBT)

3.1            Remote area concession being reviewed


Remote Areas Tax Concessions and Payments: Productivity Commission review (12 March 2019)

The Productivity Commission has released an issues paper calling for submissions for its review of remote area FBT concessions and the zone tax offset, including the areas they should continue to apply to. Refer to details in our Riposte article for more information.

4              Income tax

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


Harding v Federal Commissioner of Taxation [2019] FCAFC 837 (22 February 2019)

An Australian who ceases to reside in Australia continues to be Australian tax resident until he or she establishes a “permanent place of abode” overseas. The Full Federal Court held that it is sufficient to move to live for an intended permanent duration in a particular foreign city, town or locality, rather than needing to move to live permanently at a specific address there. For example, it would suffice if the individual moved into a short-term serviced apartment there while looking for a longer term rental.

This appeal court decision overturns the court decision at first instance and restores what was commonly believed to be the correct position.

Refer to our separate Riposte article for more detail about the appeal decision.

4.2            A courier van owner-driver was not an employee


Qian and Federal Commissioner of Taxation [2019] AATA 14 (9 January 2019)

The Tribunal accepted that a courier van was substantial equipment. That was a significant factor in concluding that the owner-driver was a contractor, and not an employee of the dispatch service. That has been the long held outcome for truck owner-drivers since Ready Mixed Concrete [1968] and Australian Air Express v Langford [2005].

The Full Federal Court in Hollis v Vabu said cars used for courier delivery were sufficiently substantial in that case, but that is not universally applicable. For example, the ATO said in ATO Interpretative Decision ATO ID 2014/28 that pizza delivery drivers were employees principally because they attended the putative employer’s restaurant premises frequently.

The Qian decision further highlights that close attention needs to be taken to all the details in borderline employee-contractor decisions.

4.3            Settlement structure impacts the tax


Kort [JSJG] and Federal Commissioner of Taxation [2019] AATA 336 (7 March 2019)

How an employee frames his or her personal injury claims, and how the settlement is drafted can significantly impact the tax outcomes, and often therefore the overall cost of the settlement for the employer. Factors to keep in mind include the following.

  • Lump sum compensation received for claims of both (i) lost income and (ii) personal injury or other wrongs is all received on capital account where the quantum of compensation attributable to each cannot be isolated.
  • An identifiable compensation amount has to be just for personal injury to avail the capital gains tax exemption in s.118-37.
  • Anxiety, stress, pain, suffering, discrimination and bullying are not of themselves personal injuries, but circumstances may nevertheless develop into a recognised medical condition.
  • If a compensated personal injury also caused or led to loss of employment, then the employment termination payment (ETP) tax rules are instead invoked. Those rules, where applicable, provide only a narrow tax exemption for compensation for personal injury in so far as the amount is to cover expected lost wages as a result of the personal injury.
  • A denial of liability by the employer prevents compensation being classified as for a personal injury, and thus prevents application of either personal injury tax exemption.

5             Superannuation and pensions


The ATO has outlined the evidence it will now require before being satisfied that SG does not apply on annual leave loading. An employer was successful is recovering overpaid superannuation contributions paid in error.

5.1            Superannuation guarantee (SG) owed on annual leave loading


ATO announcement entitled ‘Ordinary time earnings – annual leave loading (12 March 2019)

SG on annual leave loading is a significant developing issue.

The ATO announced that going forward it requires SG to be paid on the loading unless there is current written evidence of a mutual agreement between the industrial parties that shows the purpose of the loading was to compensate for the loss of opportunity to work and earn overtime while taking leave. Historical explanations that confirm that was indeed the original purpose will no longer be accepted by the ATO as still current.

The ATO will take a ‘no action’ approach for the past, provided the position taken was reasonable and appropriate evidence is put in place as soon as practicable.

Please refer to our separate Riposte article for more information.

5.2            Superannuation contributions made in error can be recovered


North Adelaide Services Partnership v Retail Employees Superannuation Trust [2019] SASC 5 (5 February 2019)

An employer that overpays superannuation contributions due to a mistake either about the facts or what its legal obligations are can recover the overpayment. By contrast, consciously overpaying does not give rise to the same right of recovery. Generally it is only the knowledge of the office holder who has authority to make the contributions for the employer that matters, and not that of other employees may have known the contributions were excessive.

However, recovery is invariably a difficult process. The North Adelaide Service Partnership had to take the superannuation fund to court to gain recovery of its overpaid contributions. With their precedent, it will hopefully become easier for other employers.

5.3            Default insurance for inactive accounts becomes ‘opt in’


Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019(18 February 2019)

Default insurance cover provided through superannuation will cease once an account has been inactive for 16 months, unless the member ‘opts in’ to retain the cover. The change applies from 1 July 2019.

Contrary to the original Government proposal, default cover will remain ‘opt out’ for individuals with active accounts who are under 25 years of age or have less than a $6,000 balance.

In related developments, fees able to be charged on superannuation accounts with balances under $6,000 will be capped at 3%, exit fees are being banned and incentives to employers to choose a particular fund as its default will be banned.

5.4            Older worker bonus


Social Services and Other Legislation Amendment (Supporting Retirement Incomes) Act 2019(14 February 2019)

Older workers will not count the first $300 per fortnight earned from working towards their Age Pension means testing (up from $250). The change applies from 1 July 2019.

6             Pay-As-You-Go withholding (PAYG-W) and other tax collection

6.1            Director penalty liability to extend to recovery of GST


Treasury Laws Amendment (Combatting Illegal Phoenixing) Bill 2019(13 February 2019)

A Bill is before Parliament to extend the director penalty regime to allow the ATO to collect estimates of anticipated GST and other indirect tax from directors. A system of director identification numbers is proposed to make tracking rogue directors easier.

Associated amendments prevent sole directors resigning to escape their liability, and existing amendments limit the scope of directors to place companies into administration to escape.

6.2            Deduction denied where fail to meet withholding requirements


Treasury Laws Amendment (Black Economy Taskforce Measures No. 2) Act (29 November 2018)

As a reminder, failing to withhold any amount from employee wages or contractor payments where an ABN is not held, or withholding but failing to report it to the ATO, will from 1 July 2019 result in denial of the tax deductions for the payments. The same will apply for payments to labour hire workers.

The loss of deduction is on top of other existing culpability and director penalties, and applies even to honest errors. However, the deduction is not lost if the error is voluntarily disclosed and conceded. That will not necessarily help where the withholding obligation is contested.

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Authors

Graham Warren

Special Counsel

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Cameron Blackwood

Director

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