The definition of wages in the Payroll Tax Act 2007 (the Act) is very broad and requires employers to include various payments made to, or on behalf of, their employees or deemed employees.
A superannuation contribution is included as wages under s17 of the Act. This means that all employer superannuation contributions made for employees or deemed employees are taxable.
A superannuation contribution includes a contribution paid or payable by an employer in respect of an employee:
- to or as a superannuation fund, or
- as a superannuation guarantee charge, or
- to or as any other form of superannuation, provident or retirement fund or scheme including:
- the Superannuation Holding Accounts Special Account,
- a retirement savings account, and
- a wholly or partly unfunded fund or scheme.
A superannuation fund is a public sector superannuation scheme, or an indefinitely continuing fund that is a provident, benefit, superannuation or retirement fund.
The term 'indefinitely continuing' means the fund will not cease after a specified time.
Superannuation guarantee charge
The superannuation guarantee charge consists of the employer’s:
- total individual guarantee charge shortfalls for the year
- nominal interest component for the year, and
- administration component for the year.
A superannuation guarantee charge may also include a penalty component however this is not subject to payroll tax.
Superannuation Holding Accounts Special Account
This account was created in 1995 to hold small superannuation amounts until they could be transferred into a complying superannuation fund or retirement savings account. The account was closed as of 1 July 2006. For further details, please contact the Australian Taxation Office.
Retirement savings accounts
A retirement saving account is a capital guaranteed superannuation fund account provided by banks and other financial institutions.
Superannuation contributions and payroll tax
Payroll tax is payable on superannuation contributions (including non-monetary superannuation contributions) paid or payable in respect of:
- deemed employees, and
- company directors.
Superannuation contributions paid or payable in respect of services performed before 1 July 1997 are not taxable. This may be relevant for a 'top-up' contribution made to a defined benefit super fund where a portion of such a contribution may relate to services performed before 1 July 1997.
Employees and super contributions
Superannuation contributions made by an employer on behalf of their employees (that is, pre-tax contributions) are wages for payroll tax purposes.
Deemed employees and super contributions
Certain persons are deemed to be employees for payroll tax. These include a:
- service provider or on-hired worker who performs work in relation to services supplied to a client under an employment agency contract, and a
- contractor who performs work in relation to services supplied to another person under a relevant contract.
Any superannuation contributions made by an employer for a service provider/on-hired worker, or a contractor who is a 'deemed employee', are also subject to payroll tax.
Company directors and super contributions
Wages, for payroll tax purposes, includes payments (such as superannuation contributions) made to a company director irrespective of whether the director is a working or non-working director.
Non-monetary super contributions
Non-monetary employer-funded superannuation contributions are liable for payroll tax. The taxable value will be the agreed value or the value attributed to the contribution, whichever is greater.
Defined benefit fund contributions
As with other superannuation contributions, payments made to a defined benefit fund are liable for payroll tax.
Any superannuation contribution paid after 1 July 1997 that is alleged by an employer to be paid in respect of services performed by an employee before 1 July 1997 must be evidenced to the satisfaction of the Commissioner of State Revenue (the Commissioner) in the employer’s records and must show the method of calculation and any actuarial basis for it.
Employer contributions to a defined benefit fund are determined via regular actuarial valuations. These valuations include the calculation of the contribution required to meet the cost of providing for accruing future benefits for existing members of the fund, based on the actuarial assumptions adopted.
The contribution required to fund benefits accruing over the current year of service is often called the 'normal cost' or 'normal contribution' to the fund. The normal contribution is a reasonable estimate in any year of that component of an employer contribution that relates to benefits that accrue in that year. Hence, if a normal contribution is paid after 1 July 1997, then it is in respect of service post 1 July 1997.
If an actuary’s assumptions are borne out in practice, then the accumulation with investment return of the normal contributions will exactly fund the defined benefits. However, if the actual experience of the scheme is less favourable than the actuary’s assumptions, then additional contributions may be required. These are often referred to as 'top-up' contributions and can be one-off large contributions and/or relatively minor increases in the ongoing funding rate.
For employers who wish to identify contributions that relate to services performed by an employee (who is a defined member of the fund) before 1 July 1997, satisfactory evidence must be provided to the Commissioner. In particular, the Commissioner must be satisfied that an appropriate and clear distinction has been made between normal contributions (which were required to finance benefits that accrued in any year post 1 July 1997), and top-up contributions (which were paid in excess of the normal contributions in any year) which have been made to the fund. The pre-1 July 1997 component of any such top-up contributions will not be liable for payroll tax.
There are times that the actuary may recommend the fund to be in a 'contribution holiday' when the employer is not required to make contributions to that fund. As no contributions are being made, no payroll tax is payable until the employer resumes making contributions.