What if gst and payroll tax are unconstitutional

The nexus provisions only affect circumstances where employees provide services in more than one Australian jurisdiction or partly in more than one Australian jurisdiction and partly overseas in a calendar month.

Where an employee provides services wholly in one Australian jurisdiction, payroll tax will continue to be paid in the jurisdiction where those services are performed. This test is as follows:.

Where an employee is working in another country or countries for a period of six months or less, a payroll tax liability arises in South Australia if the wages are paid or payable in South Australia.

If an employee is working in another country or countries for a continuous period of more than six months, then the wages paid or payable to that employee for the whole period will be exempt from payroll tax. In these circumstances, the six month period need not be within the same financial year, but must be a continuous period. Should an employee that is working in another country return to Australia, it will not be considered to be a break in continuity of their overseas employment if the employee returns to Australia under the following circumstances:.

In either case, the employee must immediately return to that country or another country to continue their overseas employment. Where an employee is working outside all Australian jurisdictions, but not in another country, the wages are taxable in the Australian jurisdiction in which the wages are paid or payable. The exemption available for employees working in another country or countries would not apply in this circumstance. Where wages comprise the grant of a share or option, the payroll tax liability for the grant of a share or option is also governed by the new nexus rules.

For further information on shares and options, refer to definition of wages. However, certain circumstances relating to shares and options attract different nexus rules. These are outlined as follows:. In these situations, where the grant of a share or option constitutes wages, the shares or options are taken to be paid or payable in the jurisdiction where the Australian company is registered.

Please refer to the checklist of taxable items for further guidance on the types of payments that are subject to payroll tax. For further information see contractors and employment agency contracts. If you are uncertain on whether a particular class of worker or payments made to them is subject to payroll tax please contact RevenueSA. Taxable wages and salaries are the gross wages and salaries paid including any Pay-As-You-Go PAYG withholding amounts or other deductions made by an employer on behalf of an employee.

Taxable wages include such payments as overtime pay, penalty payments, sick pay, holiday pay and leave loadings. Payroll tax is not payable on the Goods and Services Tax GST component that may arise in payments to employees or deemed employees.

Annual leave, sick leave and long service leave payments made to an employee who will be continuing in the service of their employer and payments made in lieu of accrued annual, sick, long service or pro-rata leave at termination of employment, are liable to payroll tax where any such payment represents a reward for service to which the employee has a pre-existing enforceable right. Similarly, any payment of deferred or accrued wages, salaries, commissions, bonuses, allowances, etc.

As a general rule, allowances are taxable in full even if they are paid to compensate an employee for an expense which may be or has been incurred in relation to work for example, uniform allowances. This is the case even if an allowance is paid under an award or employment agreement for example, overtime meal allowances. The only exceptions to the general rule that allowances are taxable in full are motor vehicle allowances, accommodation allowances and living away from home allowances.

A motor vehicle allowance paid or payable to an employee is taxable only to the extent that it exceeds the exempt rate per kilometre, or an amount calculated as the exempt component. The exempt component is calculated as follows:. If the number of business kilometres is not recorded via one of the methods described above, the full allowance will be taxable.

The exempt rate is aligned with the rate determined by the Federal Commissioner of Taxation for the previous financial year the rate used in is the ATO rate.

Previous exempt rates can be located on the Rates and Thresholds page. Where a motor vehicle allowance is paid as a set allowance rather than on a cents per kilometre basis , the taxable amount is the amount by which the set allowance exceeds the amount calculated by multiplying the actual kilometres travelled by the prescribed rate.

The exemption of a prescribed portion of a motor vehicle allowance payment applies only where the travelling allowance is paid or payable for business travel purposes using a motor vehicle supplied by the employee. An accommodation allowance paid or payable to an employee is taxable only to the extent that the allowance exceeds the exempt rate. Wages do not include an accommodation allowance that does not exceed the exempt rate.

The exempt rate for payroll tax purposes is based on the related ATO figure, and is the total reasonable amount for daily travel allowances using the lowest capital city for the lowest salary band for the financial year. The exemption applies only where the accommodation allowance is designed to compensate an employee for accommodation and directly related meal expenses necessarily incurred where an employee is required, in the course of employment, to be absent overnight from their usual place of residence.

A living away from home allowance is paid to compensate an employee for additional expenses they may incur as a result of being required to temporarily live away from home in order to perform their duties of employment. This usually occurs where the employee has been required to work temporarily at another location, which necessitates a temporary change in residence. The allowance will include components designed to compensate for additional food and accommodation costs.

If the allowance falls within the definition of a living away from home allowance under Section 30 of the FBT Act, the taxable value of the benefit under the FBT Act, grossed-up by the Type 2 factor as shown on the FBT Act return is subject to payroll tax. However, if the allowance is not considered a living away from home allowance under the FBT Act, the treatment of the allowance for payroll tax purposes will be the same as the treatment of an accommodation allowance see above.

Reimbursements of expenses incurred by employees on behalf of their employers are not taxable unless they have a taxable value under the FBT Act.

If a payment does not have both characteristics, it is not considered a reimbursement and is generally taxable in full. The Act provides that certain payments made to an employee on termination of employment are subject to payroll tax. Specifically, the following payments are taxable:. It should be noted that leave payments paid to a continuing employee are also subject to payroll tax.

The amount subject to payroll tax is the whole of the ETP paid by the employer whether paid to the employee or to a roll-over fund , less any component, which is exempt income when received by the employee. ETPs paid by employers may include payments for:. The definition of wages for payroll tax purposes includes any fringe benefits as defined in the FBT Act. Therefore, as a general rule, benefits that are taxable under the FBT Act are also taxable under the Act and must be declared as wages for payroll tax purposes.

The only exception to this general rule is a tax-exempt body entertainment fringe benefit as defined in the FBT Act. Although tax-exempt body entertainment fringe benefits are subject to FBT, they are specifically exempt for payroll tax purposes. If a benefit is exempt under the FBT Act e. In addition, if a fringe benefit has a nil taxable value for FBT purposes for example, the taxable value is reduced to nil under the otherwise deductible rule , it also has a nil taxable value for payroll tax purposes.

The fringe benefit taxable value for payroll tax purposes is determined by grossing up all fringe benefits by using only the Type 2 factor. Gross-up rates for fringe benefits are available on the ATO website. These reportable fringe benefits may not include the value of all fringe benefits provided to employees and is not necessarily the amount to be used for payroll tax purposes.

Employers are required to declare in their monthly returns the actual value of fringe benefits provided in each month. However, for administrative ease, past and present payroll tax legislation allows employers to formally elect to adopt an alternative method, whereby the amounts declared are based on the FBT returns submitted to the ATO.

Where such an election is made, employers must include in each monthly payroll tax return from July to May, one-twelfth of the taxable value for payroll tax purposes of fringe benefits using the FBT return for the year ending 31 March immediately preceding the start of each financial year. The annual reconciliation for each financial year will include the taxable value for payroll tax purposes of fringe benefits declared in the FBT return ending 31 March immediately before the annual reconciliation.

Where an employer had made an election to adopt the alternative method of declaring fringe benefits under the old Act, the election remains in force and the employer is not required to make a further election under the Act.

Once an election is made, an employer will not be permitted to revert to declaring the actual value of fringe benefits in monthly payroll tax returns, unless the Commissioner gives approval in writing.

The granting of a share or an option occurs if a person acquires a share or, in the case of an option, a right to the share. From 1 July , the vesting date for a share is the earlier of either the date as defined above or the date at the end of 7 years from the date on which the share is granted to the employee.

The vesting date for an option is the earlier of either one of two dates and from 1 July , one of the three dates. The dates are:. If the granting of a share or option constitutes wages, the amount of the wages is the value of the share or option on the relevant day, less any consideration paid or given by the employee for the grant excluding consideration in the form of services rendered.

If an employer does not include the value of a grant of a share or option in its taxable wages for the financial year in which the grant occurred, the wages constituted by the grant are taken to have been paid or payable on the vesting date of the share or option. Therefore, where a share or option granted after 1 July has not been declared for payroll tax purposes before 1 July , that is, the employer elects the relevant date as the vesting date, the 7 year vesting date is the latest date for vesting unless the other specified vesting events occur before the end of the 7 years.

The employer may reduce the taxable wages declared by the value of any previously declared share or option value, if the grant of a share or option was rescinded because the vesting conditions have not been met. However, this reduction in the taxable wages would not apply in circumstances where the employee decided not to exercise the option. If the grant of a share or option is withdrawn, cancelled or exchanged before the vesting date for some valuable consideration other than the grant of other shares or options , the date on which that occurs is deemed to be the vesting date and the taxable amount is taken to be the value of the consideration.

The 7 year vesting date still applies to shares and options that have been forfeited or lapsed prior to seven years from the grant date if the other specified events have not occurred for those cases where the employer has elected the vesting date as the relevant date. In respect of contribution holidays, where it is determined that an employer is on a contribution holiday, as a result of a superannuation fund being in surplus, and the trustee s during that period nonetheless credit amounts to accounts of individual members of the fund, such crediting will be considered a superannuation benefit, and therefore will constitute wages liable to payroll tax.

A salary sacrifice arrangement refers to an arrangement between an employer and the employee whereby the employee agrees to forego part of their future salary or wage in return for some other form of non-cash benefits of equivalent cost to the employer. The non-cash benefits provided may include pre-tax superannuation contributions, the provision of a motor vehicle, a laptop computer or similar portable computer, car parking fees, payment of school fees or the payment of membership fees and subscriptions.

If the benefit provided to the employee is exempt from FBT e. Payroll tax is payable only on the reduced salary on which the employee pays income tax. Payroll tax is payable on the normal gross salary.

The following examples outline the payroll tax treatment of various salary sacrifice arrangements. The employee negotiates with the employer for the provision of a car under a salary sacrifice arrangement.

The laptop is exempt from FBT. The employee negotiates with the employer to replace the after-tax superannuation contributions with salary sacrifice pre-tax contributions. Remuneration to directors or members of the governing body, such as director fees, superannuation, allowances, fringe benefits and shares and options, are subject to payroll tax. This applies to both directors or members of the government body whether working or non-working.

Under certain circumstances, payments to contractors are taxable. Generally, those circumstances are where the contractor:. The provisions apply regardless of whether the contractor provides services via a company, trust, partnership or as a sole trader. In practical terms, the contractor provisions initially capture all contracts for the performance of work.

However, the provisions contain several exemptions and if any one exemption applies to a particular contract, the payments under that contract are not taxable. These provisions also allow the Commissioner to disregard, and treat as taxable, an arrangement that exists only to reduce or avoid payroll tax.

Two contractor decision tools are available to assist you in determining whether any payments made to contractors are liable for payroll tax. The employment agency provisions in Division 8, Part 3 apply to a labour hire arrangement where a person the employment agent contracts with another the client for the provision of labour where there is no agreement between the service provider i.

Employment agencies who engage persons to provide services to their clients under an employment agency contract are liable to payroll tax. Payroll tax is calculated on any amount paid to the contract worker from any source in relation to that contract and the value of any fringe benefits and superannuation contributions provided for the contract worker. Section 38 deems an employment agent under an employment agency contract to be the employer, and the contract worker under an employment agency contract to be an employee of the employment agent.

Any payments made by the employment agent to or on behalf of the contract worker, including fringe benefits and superannuation, are deemed to be wages for payroll tax purposes and are subject to payroll tax. Care should be taken in determining if the employment agency provisions contained in Section 37 apply to your organisation. Please note that the relevant contractor provisions are not applicable where a contract worker is provided under an employment agency contract.

In relation to self-insurers, all compensation made pursuant to the provisions of the R2W Act is exempt from payroll tax, regardless of whether the compensation is paid by the employer or their insurer or ReturnToWorkSA. A genuine redundancy payment or early retirement payment paid to an employee on termination is exempt from payroll tax if it is exempt from income tax.

However, the exemption applies only to the income-tax-free component of such a payment. Any amount of a genuine redundancy payment or early retirement payment, paid in excess of the income-tax-free limit, is subject to payroll tax. Wages paid to employees on maternity or adoption leave are exempt from payroll tax. The exemption applies as follows:. Employers who claim the exemption for maternity leave must obtain a medical certificate or statutory declaration from the employee in relation to the pregnancy or birth of the child.

Payments made by an employer to an employee under the Commonwealth Paid Parental Scheme are not taxable for payroll tax as they are not payments for services performed by the employee. Payments to employees who are absent from work due to being a member of the Defence Force of the Commonwealth or the armed forces of any part of the Commonwealth of Nations are exempt from payroll tax.

It does not apply to employees who are on official leave for example, recreation or long service leave. Payments to employees who are absent from work to volunteer as fire fighters, or to respond to other emergencies, are exempt from payroll tax.

This exemption may apply to emergency workers volunteering for organisations such as the South Australian:. Construction Industry Long Service Leave Contributions made under the Construction Industry Long Service Leave Act are exempt from all taxes and other charges imposed under the law of South Australia and therefore not taxable for payroll tax purposes.

JobKeeper payments are not subject to payroll tax. The amount payable does not need to be included in the total salaries and wages declared in your monthly return for July and August , However, your business will need to report the JobKeeper Payment amount separately in RevenueSA Online.

Note if you only pay part of the JobKeeper subsidy amount to an employee, the partial subsidy amount paid would be classed as exempt wages. The grouping provisions have the effect of adding together the wages paid by group employers and allowing only the designated group employer to claim the deduction. Let me therefore offer an alternative solution that gets rid of payroll tax and reduces or eliminates vertical fiscal imbalance.

One advantage of a retail tax is that the absence of input credits makes it easy to have different rates on a uniform base in different States.

In this context the "States" will be taken to include the Territories. So let the retail tax rate in each State be set annually by the Federal Parliament at the "request and consent" of the State Parliament, and let the revenue so raised in each State be refunded to the State on the condition that the State refrains from imposing certain other taxes e. Does this arrangement amount to a State excise tax in violation of s.

No, because it's imposed under Federal legislation. Does the variation in the rate amount to discrimination between the States in violation of s. The Commonwealth invites each State to pass a "request and consent" act. The States respond as they see fit and the Commonwealth meekly accepts their responses.

Where's the discrimination? In the unlikely event that "discrimination" is an issue, there's another way to legitimise the same arrangement. According to the "minority" definition of an excise, the States can impose their own retail taxes, in which case they can refer the collection power to the Commonwealth under s. The enabling Federal and State legislation could cover both constitutional options, so that different High Court judges could approve the arrangement for different reasons.

As long as a majority of judges agree that the arrangement is constitutional, it doesn't matter if they disagree on the reasons! In proposing a retail tax as a constitutional fix, I have not been wearing my Prosper Australia hat. But now let me put it on to answer just one question: if we must have a retail tax, and if the need to replace payroll tax provides some wriggle-room concerning the rate and the base, how should the retail tax treat real estate?

My answer has four parts. A retail tax implemented in this way would improve housing affordability and provide a stimulus for construction and related industries. And regardless of how it treated real estate, it would reduce vertical fiscal imbalance, eliminate payroll tax, improve international competitiveness, create jobs, and reduce compliance costs that feed into the cost of living.

Anyone who can bring this about through a constitutional attack on the existing system will do the country a great service. Gavin R. This work is licensed under a Creative Commons License.

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About the Author Gavin R. All rights reserved. ISSN Web Design Brisbane by Internet Thinking. The National Forum. Your Account. March - In the face of strong opposition, the three Atlantic provinces applying the HST and the federal government abandoned the idea of including the HST in advertising prices. The following documents were used to prepare this study. Bird, M. Richard and Jack Mintz eds. Taxation to and Beyond. Canadian Tax Paper No.

Toronto: Canadian Tax Foundation, Richard, Davis B. Perry and Thomas A. Discussion Paper No. Boadway, Robin W. Canadian Tax Policy. Ottawa: November Budget The Goods and Services Tax.

Ottawa: April Ottawa: Economic and Fiscal Statement. Ottawa: 2 December Goods and Services Tax: Technical Paper. Ottawa: August Ottawa: 30 August Ottawa: 14 October Tax Reform Sales Tax Reform.

Ottawa: 18 June Tax Reform Proposals [White Paper]. Dean, James. Ottawa: May Hill, Roderick and Michael Rushton. House of Commons. Ip, Irene and Jack Mintz. Toronto: C. Howe Institute, April Toronto: Canadian Tax Foundation, Vol. Ministry of Finance. Fair Tax Commission. Fair Taxation in a Changing World. Toronto: 1 December Perry, J. Taxation in Canada , 5th ed. Royal Commission on Taxation [Carter Commission].

Report , Vol. Report to the Minister of Finance. Regina: 20 February Eleventh Report. Minutes of Proceedings and Testimony , Issue no. Ottawa: House of Commons. Sixteenth Report. Minutes of Proceedings and Evidence , Issue no. June November March Statistics Canada. The Size of the Underground Economy in Canada. Study in National Accounting, No. Ottawa: June The following documents are more recent, and are accessible online.

They are cited in, or added here to, the references contained in the text and provide more up-to-date information on certain aspects of the GST. A more detailed breakdown is provided in Chapter 3. GST rules are enforced by the Canada Customs and Revenue Agency, formerly Revenue Canada, which regularly publishes interpretation bulletins for corporations.

Accounting firms are a useful source of information. The Canadian Tax Foundation is a think tank on taxation in Canada. Its newsletter, Canadian Tax Highlights , 32 succinctly reports the latest news in the field of taxation and occasionally judgements pertaining to GST interpretation. The Foundation also publishes the Canadian Tax Journal. Many countries have long since adopted this type of taxation, with the notable exception of the United States, which does not have a general federal sales tax.

Australia also has its own version of the GST. The University of New South Wales offers an advanced taxation program with a particular focus on this issue. It publishes a GST researchers guide 33 containing a number of hypertext links to sites in Australia and the rest of the world, in particular Canada, to facilitate research on the GST in various contexts.

The International Bureau of Fiscal Documentation 34 is a well-known research institute which employs international tax experts; the Bureau produces high-quality publications, including a periodical providing updates on the VAT around the world.

These publications are not free of charge. This estimate for includes activities not measured in GDP and not reported to tax authorities 2.

However, this is not the case in all provinces. See also J. Taxing Mechanism B. Some Figures D. Compensation for Declining Revenues C. Current Situation D. Business Transfer Tax B. Federal Payroll Tax C.