Payroll tax wages webinar (FY 2016-17)

Payroll tax wages webinar (FY 2016-17)


Welcome everyone to this webinar, you are
about to learn some valuable information about payroll tax wages today. Here are the topics that we are going to cover
during today’s session. I will first introduce you to the definition
of wages in terms of payroll tax, and then briefly explain the key legislation affecting
payroll tax in WA. Our focus will then be on the diminishing
threshold which was introduced as of 1 July 2015. Next, I will provide you detailed information
on taxable and exempt wages. My name is Leah and I am accompanied by my
colleague David and we will be presenting this webinar today. I’m now going to hand over to my colleague
David and he’s going to talk to you about what legislation is behind payroll tax and
introduce wages in terms of payroll tax. Thanks Leah. I am going to briefly explain what legislation
affects payroll tax in WA. The slide shows three pieces payroll tax legislation
in WA. They should be read in conjunction with the
Taxation Administration Act 2003. This Act not only applies to payroll tax but
to Transfer duty and Land Tax. The slide on the screen shows the Acts that
affect payroll tax. Payroll tax is collected under the Pay-roll
Tax Act and Pay-roll Tax Assessment Act. The Pay-roll Tax Assessment Regulations cover
prescribed matters, exemptions and schedules. The Taxation Administration Act outlines the
administrative framework for all our taxation Acts. Moving on to second item on the agenda now,
introduction to wages. Wages are defined in Section 9AA of the Pay-roll
Tax Assessment Act. The definition of wages for payroll tax includes three phrases as you can see on the slide: paid or payable; to or in relation to an employee;
and whether in cash or in kind. We are going to look at these in turn. Under the Pay-roll Tax Assessment Act, wages
that are paid or payable are liable for payroll tax. So what’s the difference between ‘Paid’
and ‘Payable’? ‘Paid’ in relation to wages includes payments
that have been provided, conferred and assigned. Wages are said to be ‘payable’ when an
employer is under an obligation to pay them at a future date. An example of a payable wage is compulsory
employer superannuation contributions – they are due for payment on a quarterly basis. Even though the employer may not make the
actual contribution until the end of the quarter, those payments are said to be payable, as
the employer has a future obligation to credit the employee’s fund. Please note that the Commissioner of State
Revenue requires that whichever the method is chosen, it must be consistently used. The second phrase we look at in regards to
wages is ‘To or in relation to’. Generally when we think of wages, we imagine
a direct payment by the employer to their employee. The phrase ‘to or in relation to’ refers
to indirect payments. The slide on the screen shows an example of
fringe benefits, such as an entertainment allowance, that is provided to the employee’s
spouse. Another example is a health insurer providing
employees with health cover through an arrangement with the employer. The third component is, in cash or in kind
Wages include payments made to an employee in the form of goods, services or other benefits. Cash is fairly self-explanatory, we all understand
what it is. Payments ‘in kind’ incorporate fringe
benefits and other non monetary payments such as salary sacrificed super contributions. Do you think Super contributions and specified
taxable benefits would fall under the category of ‘in kind’? Yes they would be considered as payment in
kind. Please note that payroll tax is not payable
on any component of wages that is directly attributed to the Good and Services Tax
(GST) other than wages made up of fringe benefits. Let’s now do a few quick quiz questions
about payroll tax. Question 1: Each jurisdiction has its own
payroll tax rate and threshold amount. True or false? True – payroll tax is a state based tax. Question 2: GST component is taxable for payroll
tax. True or false? The answer for that one is false
Question 3: Each group member is entitled to their own threshold amount in a financial
year. True or false? False – Only the Designated Group Employer
can claim the tax free threshold throughout the financial year. Moving on to the third item on the agenda
which is an introduction to the diminishing threshold. Let’s have a look at this now. Who pays payroll tax? Employers are liable for payroll tax when
their total Australian wages exceed a certain level called the ‘tax-free threshold’. Wages in excess of $70,833 in any month or
$850,000 annually will be liable for payroll tax. Please be aware that on 1 July 2015, a payroll
tax diminishing threshold was introduced in WA. Payroll tax is now calculated on the difference
between the taxable wages paid by an employer in WA and the deductable amount of the tax-free
threshold to which the employer is entitled. Under the new arrangement, the benefit of
the tax-free threshold gradually phases out for employers or groups of employers with
annual taxable wages between $850,000 and $7.5 million. The deductable amount is calculated using
a tapering value formula. We will look at the tapering value formula
in a moment. Businesses with payrolls of $7.5 million or
more will not receive any tax-free threshold. Your payroll tax liability is calculated by
the Office of State Revenue (OSR) after you have declared your taxable wages through Revenue
Online. You can use the online payroll tax calculator
to estimate your payroll tax liability. The deductable amount is the amount employers
are entitled to deduct from their WA taxable wages and is calculated by using the tapering
value formula. As you can see on the graph on the slide,
the deductable amount will gradually diminish as the taxable wages paid or payable increase. At the point of the upper threshold, there
is no longer a payroll tax threshold available. We’ve used the term ‘tapering value formula’
a couple of times, so let’s look at what this is now:
The tapering value is a formula that is used to calculate the gradual reduction in the
deductable amount that employers may claim against their taxable wages. The tapering value equals 17/133 and results
from the formula as per the slide on screen now. So how do we calculate the payroll tax liability? Payroll tax is calculated by applying the
current payroll tax rate of 5.5% to the difference between the total taxable wages paid by an
employer in WA, and the deductable amount of the tax free threshold the employer is
entitled to. Remember, the payroll tax rate in WA is 5.5%. The deductable amount calculation can be confusing,
so we’ve compiled different fact sheets for you to better understand this. For more information about your deductable
amount, refer to the fact sheet relevant to your employer type. You can also use our online calculator or
refer to our YouTube videos. We have created a number of videos outlining
different types of employers who lodge their returns monthly or annually. There are four fact sheets available about
the diminishing threshold, depending on whether you’re grouped or have interstate wages. Have a look at the four options listed now
to decide which fact sheet would be applicable to you. The options are: Local non-group (WA taxable wages only, not grouped with any other wage-paying entity); Local group (WA taxable wages
only, grouped with another wage-paying entity); Interstate non-group (WA and interstate taxable wages
but not grouped); or Interstate group (WA and interstate taxable wages, grouped with
other wage-paying entities). That’s it from me for the moment so I’ll
hand back to Leah to take you through the next part of the session. Thanks Leah. Thanks David. We’re now going to do an activity and that
is using the online calculators on our website to calculate an estimated payroll tax amount
payable by Steel Iron. So you can see on the slide – Steel Iron Pty
Ltd pays wages only in Western Australia. For the financial year 2016/17, the total
wages paid by Steel Iron are estimated to be $5,000,000. Navigate to the calculator on our website
to establish what their expected payroll tax liability will be. Talk through when entering values. First we choose the frequency, which is annual. Then we select the type of the employer, in
this example, it’s a local non group employer. We enter the start date and the end date,
so if you are calculating the estimate of the payroll tax liability for the financial
year, that would be 1 July and 30 June. Then the next step is to enter the amount
of Wages, in this example that’s $5 million and then hit ‘Estimate’ to get the answer. So Steel Iron’s payroll tax liability for
the 2016/17 financial year is estimated to be $257,424.80. Let’s look at another activity now, which
is similar to the previous one. We’re going to use the online calculators
again to calculate an estimate of the payroll tax payable for Fast-way. Fast-way Pty Ltd pays total Australian taxable
wages of $1,600,000, consisting of $570,000 in WA and the rest in NT, for the entire financial
year beginning 1 July 2016. Ok, so back to the calculator. The difference here is Fastway is an interstate
group employer. We can click on ‘Clear’ to clear the previous
figures there and then enter the values. So the frequency is annual, the type of employer
this time is an interstate group, input the start and end dates, and then also enter the
amount that is WA wages, and then we enter the total Australian taxable wages; and then
click ‘estimate’. So the payroll tax liability for this employer
is estimated at $16,573.64. Moving on to next item on the agenda now,
which is introduction to wages. We are going to look at taxable wages in detail
now. Taxable wages include any remuneration made
to employees in respect of services provided. The list on the slide shows taxable wages
for payroll tax purposes. Refer to our wages fact sheet on our website
anytime for more information about what we cover today. We are now going to look at each of these wage types in turn. Payroll tax is payable on the total gross
amount paid to an employee, and this includes any leave payments (annual leave, sick leave,
long service leave and leave loading). It also includes any pay-as-you-go withholding
amounts and other deductions made on behalf of an employee. On the slide is a payslip of an employee,
please have a look at this and decide, what is the figure that would be liable to payroll
tax? The answer is the gross salary of $2755.69. Both commissions and bonuses are taxable for
payroll tax. A commission is a fee or percentage made to
an employee based on sales. Some employees may be paid commission only,
for example some real estate agents. A bonus is a sum of money over and above someone’s
regular pay, for example a Christmas bonus. I have given you an example on the slide for
you to understand the difference between commissions and bonuses. Looking at commissions, the employee receives
$25 per hour plus 5% commission of sales, whereas in the ‘bonuses’ example, the
employee receives $76,000/year plus a bonus based on the year’s performance. An allowance is a set amount provided to employees
for a variety of reasons: they can be to cover work-related expenses (e.g. uniform, laundry,
tool allowances), they can be to comply with award requirements (e.g. meal, travel, accommodation
allowances), they can be to compensate for unfavourable working conditions (dirt, height
allowances) or they can be in recognition of special duties (first aid allowance). Exemptions provided for reasonable motor vehicle
and overnight accommodation allowances. We’ll look at those later on. Allowances are often confused with reimbursements. So let’s have a look at reimbursements now. A reimbursement of an expense is not subject
to payroll tax if it has all of the following characteristics: At the time of payment, the
expense has already been incurred by the employee; The expenditure by the employee was incurred
in the course of the employer’s business; The precise amount is reimbursed; and it’s not
subject to fringe benefits tax. We have got a Revenue Ruling PTA 011 where
you can find more information about reimbursements. Directors are to be treated as ‘employees’
for payroll tax purposes, and as such, all amounts paid or payable by a company (the
‘employer’) as remuneration for the appointment or services of a director constitute wages. This applies to working, non-working, non-executive,
and non-employee directors. Directors’ remuneration includes directors’
fees , allowances, taxable fringe benefits, superannuation contributions, the grant of
shares or options, employment termination payments, and also third party payments relating
to directors. However, distribution of profits awarded to
a director in their capacity as a shareholder are not taxable. Let’s have a look at an example. Design Builders Pty Ltd pays its director
Brad White $50,000 a year in directors fees and $250,000 consultancy fee to his consulting
firm Brad White Consulting Pty Ltd. What amount should be declared for payroll
tax? The correct answer is $300,000 (it is the
directors remuneration plus remuneration paid to a third party, as I was mentioning on the
previous slide. All pre-tax contributions to a superannuation
fund are liable to payroll tax. The contributions can be made in a number
of ways. The Superannuation Guarantee amount is the
9.5% that employers are obliged to contribute on the behalf of employees. Remember, paid or payable? If for some reason the employer has not paid
the full SG amount they are still liable for payroll tax on the unpaid amount, minus any
penalties imposed by the ATO. Defined benefit superannuation schemes provide
their members with a fixed retirement benefit which is calculated using a formula based
on a member’s salary, length of service, and years of fund membership. Investment in property and art are non monetary
contributions, but are still liable for payroll tax. Additional super payments deducted from an
employee’s gross wages at the employee’s request are taxable for payroll tax. Moving on to Fringe benefits, some tax payers
make mistakes in the fringe benefits component in their payroll tax return. Before we look at Fringe benefits, do you
know when the fringe benefits tax year starts and finishes? The answer is 1 April – 31 March. Please note that these dates are set by the
Australian Taxation Office. A fringe benefit is, broadly speaking, non-cash
remuneration that an employer provides in respect of employment. The Fringe Benefits Tax Assessment Act 1986,
is piece of Federal legislation that determines what is taxable, the value of the fringe benefits
and what is exempt/or not assessable. If you need more information, please refer
to our fringe benefits video on YouTube or the fringe benefits factsheet on our website. Here are some common examples of fringe benefits:
Allowing an employee to use a work car for private use; Giving an employee a cheap loan;
Paying an employee’s private health insurance costs; Providing cleaning services for an
employee’s private residence; Reimbursing a non-business expense incurred by their employee
(so something like school fees); Providing entertainment by way of food, drink and recreation. How do you calculate fringe benefits in your
payroll tax return? The taxable value of fringe benefits is the
‘grossed up value’. This is determined by adding the Type1 and
Type 2 aggregate amounts from your fringe benefits tax return and multiplying by the
lower (type 2) grossed up factor. Please note that since 1 April 2015, the type
2 rate has been 1.9608. So for example, let’s assume that an employer’s
annual fringe benefits tax return information for the year ending March 2016 shows a Type 1 aggregate
amount of $11,000 and a Type 2 aggregate amount of $9,000. What would the actual value of fringe benefits
for payroll tax purposes be? We’re assuming in this example that there
are no fringe benefits that are eligible for a remote area exemption. Remember, if applicable, you can deduct any
fringe benefits that are eligible for a remote area exemption. We add the two amounts together, which equals
to $20,000 and then multiply this by the type 2 factor, 1.9608, to get an answer of $39,216. There are two methods of declaring fringe
benefits in your payroll tax returns. Employers can declare the actual taxable value
of fringe benefits provided to employees in each return period, or
employers can elect to declare fringe benefits using the estimated method. If you are using the estimated method, employers
who are required to lodge their payroll tax return on a monthly basis, would declare 1/12
of the grossed up values of fringe benefits from the previous FBT return in each monthly
return, from July – May. The variance between the estimated value and
the actual amount is reconciled in the June return, as a part of the annual reconciliation,
after the 2016/17 fringe benefits tax return has been done. Specified taxable benefits are prescribed
benefits under the Payroll Tax Assessment Regulations 2003. These are employer contributions to an industry
redundancy fund, or to a portable long service leave fund. These are common in the construction industry,
where an employee may not remain with one employer for an extended period of time. The payroll tax liability arises when an employer
makes the contributions to the funds but not when the employee is entitled to claim those
amounts from the fund , for example, when the employee takes long service leave, it
wouldn’t be taxable then – it’s taxed on the way in in these instances, not on the
way out. Let’s look at what termination payments
are liable for payroll tax purposes. The amount of a termination payment made by
an employer to an employee, or by a company to a director, as a result of retirement or
termination, is liable for payroll tax. A voluntary redundancy does not count as a
genuine redundancy and payments made to an employee as a consequence of their voluntary
redundancy would be liable for payroll tax. Components that are not taxable under income
tax such as redundancy, or early retirement payments, compensation for loss of job or
wrongful dismissal are not liable wages. We have got Harmonisation Ruling PTA 004,
and this outlines what termination payments are taxable for payroll tax purposes. Let’s now look at an example. Adam received $120,000 employee termination
payment in the form of a voluntary redundancy in July 2015. Adam’s employer also paid him $25,000 in
accrued leave and $4,500 in salary. What would be the liable amount for payroll
tax? The taxable termination payments would be
$145,000 ($120,000 + $25,000). Voluntary redundancy is not a genuine redundancy
and therefore not an exempt payment, also the $4,500 paid in salary would constitute
wages under the payroll tax legislation. Therefore both termination payments and the
wages components of Adam’s payout are liable for payroll tax, so the answer is $149,500. The last component of wages on the list is
shares and options. Employer contributions to an employee by way
of shares or options under an employee share scheme are liable to payroll tax. This may be as a reward for expected future
productivity or as a way of retention of the employee’s services or as an incentive to
join the employer. Shares or options are taxable when they are
granted to employees (including their associates) or company directors (past, present or future). The employer may elect to choose either the
date the share or option is granted to the employee, or the date the share or option
vests in the employee as the date for the payment of the payroll tax liability. If the employer does not choose the grant
day as the relevant day, by including the value of the shares/options in a return during
the year which the grant was made, then the default position is that the relevant day
is the vesting day. Please note that the value of the share/option
is the value on the relevant day, which is the market value, minus any payment made by
the employee. Let’s look at an example. Maria purchases discounted shares through
her employer’s Employee Share Scheme. The total market value of the shares is $5,000,
but Maria pays only $4,500. What would the payroll tax liability be for
Maria’s employer? It would be $500, which is the market value,
minus the payment made by Maria. So that in a nutshell, is the various payments
deemed to be wages for payroll tax purposes. As I mentioned earlier, please refer to the
wages fact sheet on our website for more information. Ok, I’m now going to hand you back over
to David, thanks David. Thanks Leah. We’ve now looked at the taxable components
and now we are going to explore the exempt components. The slide on the screen shows the exemptions,
they can be categorised into four sections: employers, employees, Leave types and Allowances. Let’s look at these in detail now. The first exempt category is Employer type
exemptions, and they are fairly self explanatory. If you need more information on charitable
institutions, please refer to the bottom right of the slide (Payroll Tax Circular 9, Revenue
Ruling DA PT LT 18 ‘Charitable Exemptions’ and the Application form). Here are the exemptions available for employee
types. We are going to look at the first employee
based exemption, wages paid to an apprentice or trainee. Wages paid to apprentices and/or trainees
are exempt from payroll tax. In order to qualify for the exemption, the
following three criteria must be met. The employee must be an apprentice/trainee. There must be a training contract in place
between the employer and the employee and the contract must be registered with the Department
of Training and Workforce Development. If the arrangement meets all of the above
criteria, then all wages, including superannuation, allowances and fringe benefits, will be exempt
from payroll tax. Overseas employees: This exemption applies to employees who work in another country/countries for a continuous
period of more than six months. The exemption includes wages paid for the
first six months. That is, if the employee works overseas for
seven months, the full seven months wages are exempt. If you are uncertain whether the duration
will be greater than six months, include the wages in your return and you can apply for
a refund at the annual reconciliation. Next we’ve got employees with a disability. Section 41C of the Payroll Tax Assessment
Act provides a payroll tax exemption for new employees with a disability. The exemption applies to wages paid in the
first two years of employment. To be eligible for the exemption, the following
criteria must be satisfied: the employee is a new employee hired on or after 1 July 2012
(Eligibility is restricted to new employees who have not previously been employed by the
employer (or group of employers); the employer is in receipt of a disability wages subsidy
or form of Disability Services Commission support for the applicable employee; and the
employee is employed and remunerated in accordance with the minimum standards established under
industrial law. Next we’ve got workers compensation. Payments in accordance with workers’ compensation
legislation are exempt from payroll tax. However, ‘make up pay’ is not exempt. Make up pay is the extra payments made by
the employer, which is the difference between employees regular pay and the workers compensation
payment. So for example if the workers compensation
amount was 80% of the worker’s normal pay and the employer decided to top up their wage,
then the extra 20% is liable for payroll tax. So on screen now you can see the leave exemptions. Let’s have a look at these in a bit more
detail. Parental leave includes parental leave, maternity
leave, and adoption leave. Up to 14 weeks at full pay or 28 weeks at
half pay is exempt from payroll tax. Other leave types such as sick leave, personal
leave, long service leave etc, taken at the same time, are not exempt from payroll tax. A statutory declaration or medical certificate
stating that the employee is or was pregnant; or that the employee has given birth and the
date of birth, or date of adoption are required as an evidence to claim this exemption. Please note that Commonwealth paid parental
leave scheme payments are not taxable. The fire and emergency services exemption
applies to wages paid to emergency services workers while performing volunteer activities. The exemption covers volunteer fire-fighters,
emergency services workers such as State Emergency Service volunteers and volunteer marine rescue
services, where the employee is released in good faith. Defence force leave includes training camps
for reservists. This exemption does not apply to wages provided
in the form of annual leave, long service leave, recreation or sick leave for the period
of absence. The employer needs to provide substantiation
to receive this exemption. Let’s look at an activity:
Star Pty Ltd has a policy of providing 12 weeks paid parental leave. Full time employee, Mark, elects to take parental
leave over 24 weeks at half pay when their baby is born. Do you think the wages relating to this period
of parental leave are exempt from payroll tax? The answer is yes – up to 14 weeks full
pay is exempt so Mark falls within that criteria. Moving on to the last category of the exemptions:
allowances. Most allowances are liable for payroll tax
but motor vehicle and overnight accommodation allowances are exempt up to certain limits. These rates are determined by the ATO. The slide on the screen shows the rates for
the 2016/2017 financial year. Allowances are taxable only to the extent
that the allowance exceeds these prescribed rates. Business kilometres must be recorded, or a
record of the stay is required for this to occur. We are going to look at the motor vehicle
allowance. The exempt component of the motor vehicle allowance is calculated by using the formula
on the screen: E=K x R. So this is: E is the exempt component; K is
the number of business kilometres travelled during the period and; R is the exempt rate,
which is currently 66 cents per kilometre. Please note that records must be kept to claim
this allowance. Let’s look at an example of calculating
the motor vehicle allowance. Martin travelled a total of 500km in July
2016 for work and he was paid an allowance of $600 by his employer.
What is the taxable amount the employer needs to declare?
Martin received $600 for July 2016. The exempt component is the number of kilometres, which
is 500km, multiplied by the exempt rate, of 66 cents, which gives us $330.
If we deduct the exempt component from the monthly allowance of $600, we get the taxable
amount. So $600 – $330 is $270. Martin’s employer needs to declare this $270 in the
payroll tax return. The overnight accommodation allowance is again
determined by the ATO, and consists of room, food, and incidental components. For the exemption
to apply overnight accommodation must be included. The reasonable exemption rate for the 2016/17
financial year is $257.95 per day. Any amount paid over this allowance will be deemed as
taxable. This allowance is different to the Living
Away From Home Allowance. An indigenous rebate was introduced in the
2012/2013 budget. Small to medium businesses will be eligible
for a 100% payroll tax rebate for wages paid in the first two years of employment to new
indigenous employees; hired on or after 1 July 2012 who also receive a Commonwealth
Indigenous Wage Subsidy. Eligible employers must have Australian taxable wages annually
of $15 million or less. During the payroll tax reconciliation process,
employers are asked to provide the Office of State Revenue with details of wages paid
to new indigenous employees, and the rebate is then paid after the reconciliation process
is completed. You must keep records relating to any indigenous wage rebates claimed.
That’s it for the exemptions so I’ll hand back to Leah now for the rest of the presentation.
Thanks Leah. Thanks David for letting us know all about
exempt wage components. I am going to briefly go through nexus provisions
now. This is particularly important for anyone
who has employees that who work in multiple jurisdictions in one calendar month.
If you have any employee who works in two or more states or territories in any given
month, the nexus provisions are used to determine where payroll tax is to be paid.
These provisions are uniform across all jurisdictions and provide a four tiered test. The tests
are listed on the slide. Please note that these tests should be applied
in sequence, and once you find the test that applies to your situation, you stop there
and apply payroll tax in that jurisdiction. We are not going to go in to detail on this
topic today, we are cover this in our ‘payroll tax overview’ sessions, so if you need more
information, please register to attend one of our payroll tax overview sessions, or check
out the recorded payroll tax overview webinar on the YouTube channel.
Let’s have a look now at where to get more information on payroll tax.
You can access our website at www.osr.wa.gov.au. Then if you go to ‘State Revenue’, ‘Payroll
Tax’, ‘Forms and Publications’, you’ll find all of the payroll tax forms and publications
there. The first thing you can see up the top of the page there is our payroll tax employer
guide. This is a comprehensive resource about all things payroll so I recommend starting
there. There’s also the payroll tax Australia website.
If you need more information on any harmonised payroll tax measure, please visit this website.
The other help methods available are to submit a web enquiry form; to call our payroll tax
enquiries hotline; also to visit our YouTube channel and see an instructional video there.
We have got playlists about payroll tax gradual diminishing threshold and how to use Revenue
Online as well as general information about fringe benefits and contractors.
We encourage you to subscribe to our eNewsletter to keep you up to date with any changes in
the legislation, any new or amended publications and all of our customer education training
sessions and the link to subscribe is there on the slide for you.
At the same website you can find out about and sign up for any of our upcoming customer
education sessions. These notes have been prepared by the Office
of State Revenue as a guide to understanding the legislation. The relevant legislation
remains the ultimate source of authority on any matter.
That brings us to the end of today’s webinar. To contact us with any questions about payroll
tax wages, you can: see our website: www.osr.wa.gov.au/payrolltax; you can lodge a web enquiry at: www.osr.wa.gov.au/payrollenquiry;
or you can call 08 9262 1300 or 1300 368 364 for WA country callers.
Thank you very much for joining us today and see you next time.

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