Fact Sheet - Employment Taxes

There are several “taxes” that are involved with employing people:

• Fringe Benefits Tax
• Payroll Tax
• Pay As You Go withholding tax
• Superannuation
• Workcover

Fringe Benefits Tax

A fringe benefit is a 'payment' to an employee, but in a different form to salary or wages.

According to the fringe benefits tax (FBT) legislation, a fringe benefit is a benefit provided in respect of employment. This effectively means a benefit is provided to somebody because they are an employee.

The terms benefit and fringe benefit have broad meanings for FBT purposes. Benefits include rights, privileges or services. For example, a fringe benefit may be provided when an employer:

• allows an employee to use a work car for private purposes
• gives an employee a cheap loan
• pays an employee’s gym membership
• provides entertainment by the way of free tickets to concerts
• reimburses an expense incurred by an employee, such as school fees
• gives benefits under a salary sacrifice arrangement with an employee

As an employer, you pay FBT irrespective of whether you are a sole trader, partnership, trustee, corporation, unincorporated association, government or government authority.

Click here for more information.

(Source: ato.gov.au)

Payroll Tax

• Payroll Tax is a State tax calculated on wages paid or payable by an employer to its employees and deemed employees and applies in all States and Territories of Australia.
• In Victoria, it is currently payable at the rate of 4.90 per cent. 

Who has to pay payroll tax?

• Payroll tax is payable when an employer's (or 'group of employers') total Australian wages exceeds the general deduction threshold level. An employer's Australian wages comprise its Victorian wages and all interstate wages. In Victoria, payroll tax is payable on the Victorian wages component.
  
• Most employers are required to self-assess their liability on a monthly basis, and all perform an annual reconciliation at the end of each financial year (by 21 July).
  
• Employers who pay wages in Victoria must register for payroll tax if during any one month, their total Australian wages exceed the relevant monthly deduction threshold level. If an employer is a member of a group, it must register for payroll tax if during any one month, the group's total Australian wages exceed the relevant monthly deduction threshold level.

When is payroll tax payable?

• Employers must register with the State Revenue Office and pay tax by the seventh day of the month following the month in which their wages exceeded the deduction threshold level. Penalty tax and interest may be payable on any unpaid tax if an employer who is liable for payroll tax fails to register. Registration must be completed electronically.
  Once your registration has been submitted, the SRO will confirm your registration and provide information on how to access 'PTX Express'.

What payments are included as wages?

The definition of wages is broad - encompassing everything from bonuses to termination payments. Wages can be divided into two groups: taxable or exempt wage components.

A superannuation contribution is included as wages under the Payroll Tax Act 2007. This means that all employer superannuation contributions made for employees or deemed employees are taxable.

 (Source: sro.vic.gov.au)

Pay as you go (PAYG) Withholding 

If you have employees or pay employees of another business, you must withhold an amount from payments you make to them. If you operate your business as a company, you also need to withhold amounts from payments to company directors, for their services, this also includes payments to other workers such as contractors.

You must also withhold an amount from payments you make to other businesses if they don't quote their ABN to you on an invoice or other document if required.

Under PAYG withholding, if you are an employer or you operate a business and you make payments subject to withholding you must:

·         register for PAYG withholding

·         work out the status of your workers (if applicable)

·         become familiar with the types of payments you need to withhold from

·         work out the amount to withhold

·         report and pay withheld amounts to the Australian Taxation Office

·         provide payment summaries and lodge an annual report after the end of each income year.

(Source: ato.gov.au)

Superannuation

(Source: ato.gov.au)

Workcover

If you engage workers or contractors deemed to be workers and you pay, or expect to pay, more than $7,500 a year in rateable remuneration* or if you engage apprentices or trainees, you must take out a worksafe insurance policy to cover the cost of entitlements to employees if they become ill or injured because of their work. 

If a worker is injured because of their work, they may be entitled to weekly payments, medical treatment and rehabilitation costs, legal costs or, in the event of a serious injury, lump sum compensation. The cost of providing these entitlements to a seriously injured worker can be significant.

Worksafe policies are offered by the following insurers (or WorkSafe agents) (as at March 2011):

·         QBE Workers’ Compensation (Vic) Limited (www.qbe.com/australia)

·         Allianz Australia Workers’ Compensation (Victoria) Limited (www.allianz.com.au)

·         GCU Workers’ Compensation (Vic) Limited (www.cgu.com.au)

·         Gallagher Bassett Services Workers’ Compensation Vic Pty Ltd (www.gallagherbassett.com.au)

·         GIO Workser’ Compensation (Victoria) Limited (www.gio.com.au)

·         Xchanging (www.xchangingaustralia.com)

It doesn’t really matter which insurer you select; premiums are set centrally by WorkSafe and all agents have to abide by these rates.

There are severe penalties for failing to hold an appropriate policy.

To apply for a policy, you need to complete an “Application for a Workcover Insurance Policy” which can be obtained from www.worksafe.vic.gov.au , complete it and send it to the WorkSafe agent of your choice.

Your agent will strike a premium based upon the remuneration estimates you provide in your Application for Workcover Insurance Policy.  After the close of the financial year you will receive a “Declaration of Rateable Remuneration” which is due to be lodged by 31 July.  On this form you will declare the actual remuneration.  If this is different to what you estimated, you may have to pay a premium adjustment. 

Premiums can be paid in full or in quarterly or monthly payments if they exceed $1000.

*Rateable Remuneration Checklist

• salaries

• wages

• gross pay before tax

• allowances, including but not limited to:

– the non-exempt component of motor vehicle and

accommodation allowances

– clothing

– cost of living

– dirt money

– dry cleaning

– entertainment

– footwear

– meal

– overtime

– site

– tool

– travelling

– representation allowance

– uniform

• annual leave payments (including leave loading)

• long service leave

• paid parental leave

• make-up pay

• back pay

• bonuses

• directors’ fees and all remuneration to directors or members

of a governing body of a company

• fees for work performed by a worker or deemed worker

(Source: worksafe.vic.gov.au)

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