DescriptionThis video covers some of the basics of payroll tax, including an introduction to payroll tax and how it is administered in Victoria. What is taxable and what needs to be included in your payroll tax returns. It also includes what’s exempt, self-assessment, common mistakes and the PTX Express system.
Hello and welcome to this On Demand webinar: Payroll tax overview.
Before we get into the content today, I’d like to introduce myself. My name is Catherine Clarisse and I work with the Customer Education Branch at the State Revenue Office. I’m also joined today by my colleague Darrel McMahon. Hi Darrel. Hi everyone.
Let’s get started with the presentation for today.
On your screen, you can see the agenda for our content today.
We will begin with an introduction to payroll tax and how it is administered in Victoria.
We will then discuss what is taxable, what needs to be included in your payroll tax returns.
And what’s exempt, so what can be excluded from your returns.
We’ll move on to some information on self-assessment and the PTX Express system and then finish up with some common mistakes that we see here at the SRO.
Payroll tax is a self-assessed tax, paid monthly by employers who pay wages in Victoria.
In some circumstances, when a liability is around $10k a year or less, there is the ability to request to go on an annual cycle.
Payroll tax is paid by employers on wages paid to employees or deemed employees – this could include certain contractors and also any on-hired labour.
An employer will become taxable for payroll tax in Victoria once their total Australian wages exceed $550,000 (or $45,833 per month). So, once the TOTAL Australian wages exceed the Victorian threshold, as long as you pay some amount of wages in Victoria, you must register for payroll tax at that time.
The legislation for payroll tax was harmonised across most of the states and territories in Australia in 2007 so that the treatment of common payroll tax elements is consistent across the country. Differences in the treatment of certain elements of payroll tax will be highlighted throughout the presentation today.
One of the main differences are the rates and thresholds in each state or territory.
As you can see, these vary considerably.
You will need to look at your total Australian wages to determine if you have a payroll tax liability in each state or territory in which you employ. This is regardless of the amount of wages paid in each location, we’re looking at your total wages.
If your total Australian wages exceed the threshold in any state in which you employ in any month, you will need to register for payroll tax in that state or territory.
We do see a lot of confusion in this area which means that some employers will fail to register for payroll tax when required.
If you pay wages in multiple states and territories, you will only be entitled to a portion of the deduction amount in each state or territory.
Let’s look at a basic example of an employer who pays wages in three different states.
We have total Australian wages of $1.2 million. Half of the wages are being paid in Victoria, and one quarter of the wages each being paid in both New South Wales and South Australia.
The employer will be entitled to deductions in each state as a proportion of their total wages. This means that the employer would be entitled to half of the deduction, or $275,000 in Victoria, and one quarter of the deduction in New South Wales and a quarter of the deduction in South Australia.
If you only employ for a portion of the year, you will only be entitled to a portion of the deduction amount.
Let’s have a look at the example on the screen now. If you employ only in Victoria and for the full financial year you would be entitled to the full deduction of $550,000.
If you employ for 274 days, you would be entitled to a deduction of $411,749, if you employ for 183 days, you would be entitled to a deduction of $275,000.
Continuing on with the theme of interstate employees, let’s have a look at how these wages should be declared for payroll tax purposes. A harmonised position has been developed to ensure consistent treatment of this. These are called the nexus provisions.
The general rule is that if an employee worked solely in one state or territory during a month, the payroll tax should be paid to that state or territory.
The complexity arises when we have employees working within multiple jurisdictions within a calendar month. These provisions are particularly relevant in our border regions, where employees go back and forth across the border during the month or within transient-type employment such as truck drivers or flight attendants, as an example.
There is a four-tier test to determine where the wages should be declared. The test requires that you start at tier 1, and only move to the next test tier if you are unable to establish the previous tier. So the first thing we would look at is where the employee’s principal place of residence is located and the total month’s wages would then be declared to that state or territories revenue office.
If we can’t establish where the employee’s principal place of residence is located then we would move to the second tier of the provisions and look at where the employer’s business is registered.
In the circumstance where we cannot determine where the business is located, then we would move to the next tier and look to where the wages were physically received or where the employees bank account is located.
If we were unable to determine this, then, and only then, would we look to where the services are mainly performed. You can’t pick and choose a tier to suit – you must apply the test in order. If it turns out that you have been incorrectly paying payroll tax to the wrong jurisdiction, there is a commissioners’ agreement that allows for you to seek a refund from the revenue office you paid the tax to, and pay it to the correct revenue office without any penalties or interest applied.
For more information on the nexus provisions, search for the revenue ruling PTA039 on our website at www.sro.vic.gov.au/nexus-provisions.
There is an exemption available for employees who are working overseas for a continuous period of six months or more. They are able to briefly return for meetings or a holiday but must return overseas and continue to work there.
If an employee is working overseas for less than six months, you would declare their wages as normal.
That completes our introduction to payroll tax. Let’s look at what is taxable.
Payroll tax is a tax on wages. This includes many different wage components.
Of course we have salaries and remuneration paid to employees but we also need to include all of the elements on the screen now.
Let’s have a look at each of these in more detail.
Allowances need to be included in your payroll tax declarations. These could be called many different things, including first aid allowance, dirt allowance, site allowance. There are a couple of exceptions to this rule which we will talk about later in the presentation.
Reimbursements are not taxable unless they are subject to fringe benefits tax. These are considered a business expense, rather than wages.
The revenue ruling for allowances and reimbursements is PTA-011, available on our website.
Apprentice wages are taxable in Victoria unless the apprentice has been engaged via an approved not-for-profit group training organisation. There is a list of these on our website.
This is one area where there are differences between the jurisdictions so, if you have apprentices in other states or territories, make sure you check with those jurisdictions to find out the correct way to treat these payments.
Directors’ fees need to be included, regardless of whether the fees are paid to a working or non-working director. It also doesn’t matter where the wages are paid to. They may be paid to the director themselves or possibly to a director’s trust fund or company. All of these amounts need to be included.
It’s important to make the distinction between wages paid to directors and payments made to them in their capacity as an owner of the business. Profit distributions are not considered wages, and do not need to be declared for payroll tax purposes. There is a revenue ruling that covers this in more detail: PTA-016 – Profit distributions and loan accounts.
All leave needs to be included for payroll tax purposes, including long service leave, sick leave, leave loading and all other types of leave.
Superannuation is also taxable and includes all super guarantee amounts, any pre-tax super contributions made by employees, salary sacrifice amounts or top-up payments made to defined benefit funds.
Bonuses and commissions
Bonuses and commissions all need to be included for payroll tax as well as shares and options.
Shares and options
Shares and options should be declared at the market value as per the ATO provisions and can be declared at the grant date or the vesting date. It’s up to the employer to decide which of these dates is used, as long as you always use a consistent approach.
Payments made on termination need to be declared including pay in lieu, contract payouts, severance payments, golden handshakes and leave paid on termination.
The exception to that rule is the income tax free component of a genuine redundancy or early retirement scheme. This amount will be listed as item D on the PAYG summary so that amount is exempt. All other payments made on termination need to be included. The revenue ruling for this is: PTA-004 – Termination payments.
Fringe benefits need to be included for payroll tax. The revenue ruling for fringe benefits is PTA-003 so if you need more information on this topic, you can view the ruling on our website.
When declaring your fringe benefit amounts, you need to ensure that you only declare the Victorian component of fringe benefits in Victoria.
For large companies, it can be difficult to determine specifically where fringe benefits are paid. In these situations, there is an approved apportionment method for declaring these.
On the screen we have an example where total Australian wages are $1 million. We have $750,000 of wages in Victoria and $250,000 in other states. This means that 75% of the total wages are paid in Victoria.
What we can then do is take the total fringe benefits amount and declare 75% of this in Victoria, and the remaining 25% would be declared in the other states in which the employer is providing fringe benefits.
Let’s have a look at how to declare the fringe benefits for payroll tax.
There are two methods for declaring your fringe benefits. The actual method and the estimated method. Let’s look at the actual method first.
This method would be used where the employer tracks all of the fringe benefits paid on a month-to-month basis.
When it comes time to complete the monthly return, you would declare the actual fringe benefits paid during the month. To do this, take the type 1 and type 2 benefit amounts added together and gross up by the lower type 2 gross up factor. This is the amount that you would include on the monthly returns.
Once the annual reconciliation comes around, you would declare the full financial year’s type 1 and type 2 fringe benefits, grossed up by the type 2 factor including any paid in June.
Let’s have a look at the other declaration method for fringe benefits. This is the estimated method.
This would be used if specific fringe benefits are not tracked on a monthly basis.
For the monthly returns (from July 2015 to May 2016) you would use your previous year’s FBT return, add together the type 1 and type 2 fringe benefits, grossed up by the lower type 2 gross up factor, and declare 1/12th of these on each monthly return.
Upon annual reconciliation, you would have completed your new 2015-16 FBT return. You would take the type 1 and type 2 fringe benefits, grossed up by the lower type 2 gross up factor and declare this amount as the actual fringe benefits for the year. Any differences in the estimated amount and the actual amount will be reconciled at this time.
Let’s have a quick look at living away from home allowance as this is a common area where we see over-declaration.
When an employee is living away from home for work, they may be paid a living away from home allowance. These amounts normally trigger an FBT liability and therefore are included within the declared fringe benefits for payroll tax. Make sure that you don’t also declare these amounts under the allowances section of the payroll tax return, as this will be declaring twice.
Now that we’ve covered everything that needs to be included for payroll tax, let’s look at exemptions.
First, we have motor vehicle allowance. We need to determine if the employee is using their own car. The business cannot have any interest in the vehicle at all and the allowance must apply to business travel only.
Then we would look at the method of calculation for the motor vehicle allowance. If you are paying your employee on a per/km basis, this is considered to be an exempt fringe benefit and is therefore exempt from payroll tax. There is no limit on the amount of kilometres that can be paid by this method.
If you are paying your employee a flat amount, for example $100 a week, these payments are exempt up to 77c per/km. This amount is derived from the ATO.
For example, let’s say that you pay your employee a $100 motor vehicle allowance and they travel 100km. You would multiply the number of kilometres by 77 cents to determine the exempt portion. This would be 100km x 77c, giving us an exempt component of $77. Any amount paid over and above the exempt component will need to be declared for payroll tax. In this case, you would need to declare $23.
An important thing to note when claiming any exemption is that you need substantiation to support the exemption. In the case of motor vehicle allowance, you would need evidence of the number of kilometres travelled. We recommend the ATO method of keeping a log book for 12 weeks and using it for five years. Make sure you have a copy of this information for your records.
The revenue ruling for motor vehicle allowance is PTA-005v2.
There is an additional revenue ruling for motor vehicle allowances paid to real estate salespersons which is PTA-025, so if you’re in the real estate industry, you might want to have a look at that revenue ruling too.
The next exemption we have is for accommodation allowance. Similar to motor vehicle allowance, these amounts are exempt to a certain point.
The exempt amount is $255.45 per night. This amount consists of three components:
- Room of $132,
- Meals of $104.70, and
- Incidentals of $18.75
Once again, these amounts are based on the ATO rates for the lowest capital city in the lowest salary band.
These amounts may only be claimed as exempt where they are paid to the employee. For example, if the organisation arranges the accommodation and pays for this separately, the exempt amount will be for meals and incidentals only.
Reimbursements are not considered to be an allowance and are not taxable for payroll tax. So, if the employee pays for everything and then brings receipts for reimbursement, these amounts are not included.
Charge backs are also not considered wages and so don’t need to be included.
The revenue ruling for accommodation allowance is PTA-005v2 .
There is also an additional ruling there, PTA-024, which is for overnight accommodation allowances paid to truck drivers.
OK, let’s move on now to fire and emergency services duty.
When an employee is absent from work to assist with a relief effort, payments made to them within this time are exempt. This is only where the employee is not required to take their own leave.
Assisting with a relief effort may be anything from volunteer firefighting to making sandwiches for volunteers.
Substantiation for this exemption may be a letter from the fire department stating that the person assisted with a relief effort and the dates they were involved.
The next exemption is Defence Force duty. Similar to the last exemption, if an employee is absent from work as a result of their membership of the Defence Force or the armed forces, payments made to them during this time are exempt.
Substantiation for this one could be a letter from the Defence Force.
In Victoria, there is an exemption for maternity leave and adoption leave for 14 weeks of full-time wages or the part-time equivalent, so maybe 28 weeks at half pay.
Maternity leave is available for women only. Adoption leave is available for both men and women.
Substantiation for this may be doctors’ certificates or a letter from a doctor or government agency.
The revenue ruling for maternity and adoption leave is PTA-012.
The paid parental leave scheme is not taxable for payroll tax purposes as the employer just acts as a conduit between the employee and the Federal Government to make the payment. There is a revenue ruling for this too, which is PTA-037.
When a valid WorkCover claim has been lodged and approved by WorkSafe, the compensation amounts are exempt from payroll tax. Any amounts paid over and above the compensation amount will need to be included.
For many WorkCover claims, the compensation amounts won’t be reimbursed for up to two weeks. For payroll tax, we deem that those compensation amounts have been received. Therefore the amount of the compensation paid is exempt in these first two weeks, even though the employer has not received any compensation payments from WorkSafe.
Let’s have a look at an example of this.
So we have a valid WorkCover claim lodged and approved by WorkSafe. In weeks 1 and 2, there is no reimbursement from WorkSafe. The compensation of $950 kicks in in week 3.
The employee is receiving a wage of $1000 which includes the $950 compensation amount and $50 of top-up pay to return them to their pre-injury earnings.
As the compensation is deemed to have been received in weeks 1 and 2, the taxable component for each week is the $50 top-up pay.
The revenue ruling for workers compensation is PTA-015 if you’d like some more information about this.
Let’s have a look now at what you should do to prepare for your annual reconciliation.
There are six steps to completing the annual reconciliation:
- Review your details such as customer information or user access rights
- Enter your wages for the financial year
- Review the payments you have made throughout the year
- The system will calculate any further tax payable or any refund due, and finally
- You must lodge your AR by 21 July, and finally
- You must also pay any liability in full by 21 July
You should gather, or confirm the following information before you start:
- PTX Express login details or AUSkey
- Customer number
- Employer type
- Victorian and interstate reconciliation periods
- A break down of your Victorian wages into taxable components for the 2015-16 financial year
- The amount of interstate wages for the 2015-16 financial year
- Details of all payroll tax liability payments made during the financial year
- An estimate of your Victorian and interstate wages for 2016-17 financial year, and
- Your most recent fringe benefits tax return
If you are a designated group employer, you also require each of the other group member’s annual taxable wages and the total Victorian payroll tax payments made for the year.
Now, let’s finish off the presentation today with some key reminders.
Your annual reconciliation will not be complete until you select the "Lodge" button at the end of the process. Please remember to select "Lodge".
Your annual reconciliation must be lodged and payment made by 21 July to avoid possible late payment interest or penalties.
You can re-lodge your annual reconciliation as many times as you like, bearing in mind the 21 July lodgement date. We take your latest lodgement as being true and correct.
We also have a comprehensive library of instructional videos covering various aspects of payroll tax at www.sro.vic.gov.au/videos.
Ok, that brings us to the end of our content for today.
Thank you for watching our On Demand presentation that introduces you to payroll tax.
If you are interested in accessing any of our other On Demand presentations related to completing your payroll tax returns, please visit www.sro.vic.gov.au.
If you have specific questions about payroll tax or about any other taxes, duties or levies that we administer, please give us a call on 13 21 61.
Thanks for listening.