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Newsletter September 2009

Employers, or a group of related businesses, whose Australian wages exceed the current NSW monthly threshold, are required to pay NSW payroll tax. From 1 July 2009 to 30 June 2010, the yearly ‘wages’ threshold is $638,000. From 1 July 2009 to 31 December 2009 the rate is 5.75% on wages above the threshold and from 1 January 2010 to 30 June 2010 the rate will decreased to 5.65%. The monthly ‘wages’ thresholds are as follows;

• 28 day month - $48,942
• 30 day month - $52,438
• 31 day month - $54,186

As an employer you must register with OSR within seven days after the month in which your wages first exceed the current NSW monthly threshold.

Payroll tax is a tax on wages. The term ‘wages’ for payroll tax purposes includes a number of different types of payments. These include salary and wages, superannuation payments, allowances, bonuses, director fees, ETPs, fringe benefits tax. golden handshakes, salary sacrifice payments, and payments to certain contractors or consultants.

For fringe benefits tax, the calculation of total ‘wages’ for payroll tax purposes will include the  total value of all benefits provided multiplied by the gross up rate of 1.8692.

The inclusion of contractor or consultant’s payments often causes confusion amongst businesses. Many businesses use contractors instead of employees. The contractor provisions were introduced specifically to tax those contracts where the worker is hired as an independent contractor, but works and operates exactly like an employee. The ‘results’ test has three criteria and accepts that when all three are met, the worker can regard themselves as a contractor, and therefore not be included for payroll tax purposes;

1. the worker must be paid to produce a result,
2. the worker must provide their own tools and equipment,
3. the worker is responsible for their own work and must fix errors.  

The control test is another criteria to be reviewed. With a task to be completed, who has the authority to determine who, when, where and how the task is to be done and when and how the worker will be paid. If the worker has control, it is more likely that the worker will be deemed a contractor, if the employer has the control the worker is more likely to be deemed an employee.

Following the May 2009 Budget, there have been changes to the taxation treatment of shares or rights acquired under employee share schemes, effective from 1 July 2009. Recent modifications to the Budget changes have been announced.

The main adjustment is that the upfront tax deferrals will be means tested, increasing the income tax threshold for eligibility for the upfront tax concessions to $180,000, aligning it with the top marginal tax rate threshold.

A further adjustment is that tax deferral will only be accessible where there is a real risk that the shares or rights may be forfeited, such as due to performance hurdles or employment conditions.

The ATO is warning SMSF trustees to be careful about people offering to set up an arrangement between their SMSF and a related party to purchase assets, particular properties. These arrangements may breach the in-house asset rules that the SMSF must follow to be considered a complying superannuation fund.

The arrangements sometimes use a third party to set up an arrangement (sometimes referred to as a ‘joint venture agreement’) between the fund and a related trust to purchase an asset that provides income for the trust and the fund.

The ATO believes that these arrangements are an attempt to circumvent the in-house asset rules, as the related party transaction is really an investment in the related trust by the SMSF.

In the 2009-10 Federal Budget, the government announced changes to the exemption rules for foreign employment income derived by Australian residents who are engaged in foreign service for a continuous period of 91 days or more. The exemption is provided under section 23AG of the Income Tax Assessment Act 1936.

From 1 July 2009, an exemption from income tax on foreign employment income will only be available if your foreign service is directly attributable to any of the following:

• the delivery of Australian official development assistance by your employer
• the activities of your employer in operating a public fund declared by the Treasurer to be a developing country relief fund; or a public fund established and maintained to provide monetary relief to people in a developing foreign country that has experienced a disaster
• the activities of your employer as a prescribed institution that is exempt from Australian income tax
• deployment outside Australia by an Australian government (or an authority thereof) as a member of a disciplined force
• an activity of a kind specified in the regulations.

If the foreign service is not directly attributable to the activities mentioned above, you do not qualify for the exemption.

If you do not qualify for the exemption, the foreign employment income will need to be included in your tax return as assessable income and you may be entitled to a foreign income tax offset for amounts of foreign tax paid.