Tax Book 2016-17 - Version 1.0a USB PDF

AUSTRALIA WIDE
TAXATION & PAYROLL TRAINING
2016/17
TAXATION & PAYROLL SEMINAR
Section 1 The Pay As You Go (PAYG) Withholding System
Section 2 Payment Summaries & other Reporting Requirements
Section 3 The National Industrial Relations System (Fair Work)
Section 4 When Employment Ends
Section 5 The Superannuation Guarantee
Section 6 Fringe Benefits Tax (FBT)
Section 7 Workers’ Compensation
Section 8 Payroll Tax
Section 9 Goods & Services Tax (GST)
Section 10 Reporting GST on the Business Activity Statement (BAS)
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EDITION 1
Table of Contents
1 THE PAY AS YOU GO (PAYG) WITHHOLDING SYSTEM ...................................................................... 5
1.1 How to Register for PAYG Withholding ............................................................................................ 5
1.2 Who is an employee ......................................................................................................................... 5
1.3 Tax File Number (TFN) and Withholding Declarations ..................................................................... 8
1.4 The Withholding Declaration (NAT 3093)....................................................................................... 14
1.5 Applying to the Tax Office to reduce tax withholding .................................................................... 16
1.6 Paying Salary and Wages ................................................................................................................ 17
1.7 General Rates of Income Tax (Incorporating Medicare Levy) ........................................................ 19
1.8 Treatment of Specific Payments ..................................................................................................... 29
2 PAYMENT SUMMARIES & OTHER REPORTING REQUIREMENTS ......................................................56
2.1 Interacting with the Tax Office online ............................................................................................ 56
2.2 Types of Payment Summaries ........................................................................................................ 60
2.3 Annual Reporting of PAYG Withholding Amounts ......................................................................... 70
2.4 Reporting PAYG Withholding on the BAS/IAS ................................................................................ 72
2.5 Taxable Payments Reporting — Building and Construction Industry............................................. 76
2.6 Reporting of Government Grants and Payments for Services – commencing 1/7/17 ................... 79
2.7 Workplace Gender Equality Reporting ........................................................................................... 81
2.8 Single Touch Payroll (STP) – commencement date 1/7/18 ............................................................ 83
2.9 Treatment of Employee Share Schemes (ESS)................................................................................ 86
2.10 Reporting PAYG Instalments on the BAS/IAS ................................................................................. 89
3 THE NATIONAL INDUSTRIAL RELATIONS SYSTEM (FAIR WORK) ......................................................93
3.1 Coverage ......................................................................................................................................... 93
3.2 Modern Awards .............................................................................................................................. 93
3.3 Status of Agreements and Contracts .............................................................................................. 99
3.4 National Minimum Wage (NMW)................................................................................................. 102
3.5 National Employment Standards (NES) ........................................................................................ 103
3.6 Maximum Weekly Hours .............................................................................................................. 103
3.7 Requests for Flexible Working Arrangements .............................................................................. 104
3.8 Parental Leave and Related Entitlements .................................................................................... 105
3.9 Annual Leave................................................................................................................................. 111
3.10 Personal Leave — Includes Sick Leave, Carer’s Leave, and Compassionate Leave ...................... 113
3.11 Community Service Leave............................................................................................................. 116
3.12 Long Service Leave ........................................................................................................................ 119
3.13 Public Holidays 2016/17 ............................................................................................................... 125
3.14 Fair Work Information Statement ................................................................................................ 127
3.15 Worker Records ............................................................................................................................ 129
3.16 Other Fair Work issues ................................................................................................................. 133
4 WHEN EMPLOYMENT ENDS ........................................................................................................ 142
4.2 Notice of Termination and Redundancy Pay.................................................................................143
4.3 Unfair dismissal .............................................................................................................................147
4.4 Ending employment – other issues ...............................................................................................150
4.5 No HELP or SFSS applied to lump sums on termination ...............................................................151
4.6 Taxing Annual Leave on termination.............................................................................................152
4.7 Taxing Long Service Leave on termination ....................................................................................159
4.8 Taxation of Redundancy and related payments ...........................................................................168
4.9 Genuine Redundancy ....................................................................................................................168
4.10 Employment Termination Payments (ETPS)..................................................................................176
4.11 Treatment of an ETP ......................................................................................................................178
4.12 ETP examples.................................................................................................................................182
4.13 Other issues –taxing termination pay ...........................................................................................190
4.14 Invalidity Payments .......................................................................................................................191
4.15 Lump Sum Payments on Death of an Employee ...........................................................................193
4.16 Summary of all Payments on Termination ....................................................................................194
5 THE SUPERANNUATION GUARANTEE .......................................................................................... 195
5.1 Types of Superannuation funds ....................................................................................................195
5.2 Minimum Level of Superannuation Guarantee Contributions......................................................196
5.3 Superannuation data and payment standards – Superstream .....................................................202
5.4 Superannuation Guarantee liability for Specific Workers / Payments .........................................205
5.5 Superannuation & Salary Sacrifice ................................................................................................215
5.6 Reportable Employer Superannuation Contributions (RESC) .......................................................218
5.7 Other Superannuation Information ..............................................................................................221
6 FRINGE BENEFITS TAX (FBT) ........................................................................................................ 225
6.1 Liability to FBT ...............................................................................................................................225
6.2 Calculating FBT in Summary ..........................................................................................................225
6.3 Classifying Fringe Benefits, Grossing-Up Fringe Benefits & Calculating of the FBT Payable.........226
6.4 Employee cash/expense contribution to fringe benefit ...............................................................228
6.5 Record Keeping .............................................................................................................................228
6.6 Specific Treatment of Cars & Related Fringe Benefits ..................................................................230
6.7 Specific Treatment of Other Fringe Benefits .................................................................................242
6.8 Living-away-from-home allowance (LAFHA) .................................................................................246
6.9 Exemptions, Reductions & Concessions........................................................................................252
6.10 ‘In-house’ fringe benefits ..............................................................................................................259
6.11 Salary Sacrifice...............................................................................................................................264
6.12 Employers who are exempt (or partly exempt) from FBT ............................................................267
6.13 Reportable Fringe Benefits ............................................................................................................272
6.14 The Fringe Benefits Tax Return .....................................................................................................276
7 WORKERS’ COMPENSATION ....................................................................................................... 282
7.1 Workcover National Harmonisation Plan ..................................................................................... 282
7.2 Cross Border Arrangements ......................................................................................................... 283
7.3 Defining Workers, Employees, and Contractors........................................................................... 285
7.4 What remuneration is included for Workers' Compensation purposes?..................................... 295
7.5 Other Issues .................................................................................................................................. 298
8 PAYROLL TAX .............................................................................................................................300
8.1 Exemptions and Rebates .............................................................................................................. 300
8.2 Where is Payroll Tax Payable ........................................................................................................ 307
8.3 Records ......................................................................................................................................... 308
8.4 Payroll Tax & GST .......................................................................................................................... 308
8.5 Grouping of Employers ................................................................................................................. 309
8.6 Thresholds & Rates ....................................................................................................................... 311
8.7 Payments to Contractors .............................................................................................................. 313
8.8 Payments to Contractors – Western Australia ............................................................................. 314
8.9 What are Wages ........................................................................................................................... 315
9 GOODS & SERVICES TAX (GST) .................................................................................................... 321
9.2 Registration................................................................................................................................... 321
9.3 How does the GST work? .............................................................................................................. 324
9.4 Attribution Rules........................................................................................................................... 327
9.5 Tax Invoices................................................................................................................................... 330
9.6 Making Adjustments ..................................................................................................................... 332
9.7 Supplies which are GST-free ......................................................................................................... 334
9.8 Supplies which are input taxed..................................................................................................... 335
9.9 Simplified Accounting ................................................................................................................... 338
9.10 Treatment of Imports ................................................................................................................... 338
9.11 Other Issues .................................................................................................................................. 341
10 REPORTING GST ON THE BUSINESS ACTIVITY STATEMENT (BAS) .............................................. 354
10.1 Instalment Activity Statement (IAS) ............................................................................................. 354
10.2 Business Activity Statement (BAS) ................................................................................................ 354
10.3 Due Dates...................................................................................................................................... 354
10.4 Individuals must be registered to provide BAS Services .............................................................. 357
10.5 Accounting for GST ....................................................................................................................... 358
10.6 BAS Reporting Options for GST (Not including Annual Reporting) .............................................. 360
10.7 Specific Issues ............................................................................................................................... 366
10.8 Payment Methods ........................................................................................................................ 371
1 THE PAY AS YOU GO (PAYG) WITHHOLDING SYSTEM
The Pay-As-You-Go (PAYG) withholding system is the way individuals pay their tax, Medicare levy, HELP
debt and other obligations by having tax withheld from payments they receive from their employers. The
business, for which they work, withholds tax from the worker's payments and sends it directly to the Tax
Office on the worker's behalf.
1.1 How to Register for PAYG Withholding

If you commence a business, in which you employ people, or you are already in business and you become
an employer, you should register with the Tax Office within 7 days.
Businesses with an ABN – If a business has already obtained an ABN, it can register for PAYG withholding
by completing an Add a new business account form or accessing the business portal.
Businesses that do not have an ABN but require one – If a business is already operating but has not
obtained an ABN, application for an ABN and registration for PAYG withholding can be carried out at the
same time.
Payers who do not have an ABN and do not require one – These payers still need to register for PAYG
withholding if they are paying workers. Payers in this situation are required to complete the Add a PAYG
withholding account form. All the above forms can be obtained by phoning 13 28 66, or can be
downloaded from the Tax Office site at www.ato.gov.au. If the business has an Auskey the business portal
can be used to add an account.
1.2 Who is an employee

Employee Contractor
An employee works in your business and is part of your A contractor is running their own business and provides
business. services to your business.
Characteristics of an employee include the following. Characteristics of a contractor include the following.
Ability to sub-contract/delegate: the worker cannot sub- Ability to sub-contract/delegate: the worker is free to sub-
contract/delegate the work - they cannot pay someone contract/delegate the work - they can pay someone else to
else to do the work. do the work.
Basis of payment: the worker is paid: Basis of payment: the worker is paid for a result achieved
• for the time worked based on the quote they provided.
• a price per item or activity
• a commission.
Equipment, tools and other assets: Equipment, tools and other assets: the worker provides all
• your business provides all or most of the equipment, or most of the equipment, tools and other assets required
tools and other assets required to complete the work, to complete the work. The worker does not receive an
or allowance or reimbursement for the cost of this equipment,
tools and other assets.
• the worker provides all or most of the equipment, tools
and other assets required to complete the work, but
your business provides them with an allowance or
reimburses them for the cost of the equipment, tools
and other assets.
Commercial risks: the worker takes no commercial risks. Commercial risks: the worker takes commercial risks, with
Your business is legally responsible for the work the worker being legally responsible for their work and
performed by the worker and liable for the cost of liable for the cost of rectifying any defect in their work.
rectifying any defect in the work.
Control over work: your business has the right to direct the Control over work: the worker has freedom in the way the
way in which the worker performs their work. work is done subject to the specific terms in any contract
or agreement.
Independence: the worker is not operating independently Independence: the worker is operating their own business
from your business. They work within and are considered independently from your business. The worker performs
part of your business. services as specified in their contract or agreement and is
free to accept or refuse additional work.
Taxation Seminar Section 1 – The Pay as You Go (PAYG) Withholding System Page 5
The factors stated in the table are used (amongst other tools) by the Tax Office in deciding whether a
Master/Servant relationship exists, in which case tax instalments must be withheld. It is up to the
payer/employer to decide whether a person is an employee or a contractor. If an independent contractor
relationship exists, tax does not need to be withheld; however tax must be withheld from the
remuneration of an employee. The existence of a right to control how, where, when and by whom
particular work is to be carried out, points very strongly and usually conclusively to the employee status. A
contract which is actually just an attempt to disguise what is really a Master and Servant relationship will
not avoid the requirement for tax to be withheld.
Tax Offices' Employee/contractor on-line decision tool – The on-line decision tool is at
http://www.ato.gov.au/Calculators-and-tools/Employee-or-contractor/
and is designed to help employers understand whether their individual workers are employees or
contractors in order to comply with their tax and superannuation obligations. It is not designed for
situations where an employer enters into an agreement with a company, partnership or trust, or obtains
workers through a labour hire firm.
1.2.1 Taxation of Independent Contractors: Alienation of Personal Services Income

Alienation of personal services income measures are aimed at preventing individuals reducing their tax
liability by diverting income generated by their personal services to a company, partnership or trust. The
measures apply where a person supplies labour or skills and works predominantly (80 per cent or more)
for the one person, with no other employee performing part of the work, and no separate business
premises.
These measures do not deem an independent contractor to be an employee, and they do not impose any
additional obligations on employers and other payers.
The Alienation of Personal Services Income measures do not apply to owner operator truck drivers or
couriers. For example, Sam owns and drives a truck that he uses to transport goods. The income is not
Sam's personal services income because it is produced mainly by the use of the truck and not as a reward
for his personal efforts or skills.
Additionally, a person is not generating personal services income if their skills and effort are secondary to
supplying goods or if their income is mainly generated by income-producing assets.
The consequences of personal services income being paid to an individual but not as an employee are that
there is a limit to the deductions that can be claimed against that income.
Self-assess or Apply for a Personal Services Business Determination

Affected entities (i.e. independent contractors) are allowed to self-assess their status. Alternatively, they
can apply for a determination. Either way, there are specific tests to determine whether the entity is
conducting a personal services business which is not affected by the legislation.
A legitimate personal services business is conducted where at least one of four tests is met. They are the
results test, the employment test, the business premises test or the unrelated clients test.
Affected entities can also refer to two tax rulings, TR 2001/7 Income tax: the meaning of personal services
income and TR 2001/8 Income tax: what is a personal services business.
Page 6 Section 1 – The Pay as You Go (PAYG) Withholding System Taxation Seminar
1.2.2 Forms and processes to be completed when a new employee commences
NEW EMPLOYEE CHECKLIST Tick when

completed
Check employee is legally able to work in your organisation
http://www.immi.gov.au/managing-australias-borders/compliance/working-legally/
Check to Determine what industrial relation instrument the employee will fall under – i.e. a
modern award, enterprise agreement and/or employment contract
http://awardfinder.fwo.gov.au/default.aspx
Provide TFN Declaration to employee
https://www.ato.gov.au/forms/tfn-declaration/
Ensure withholding declaration is completed by employee where they have answered ‘yes’
to question 9 or 10 on the TFN declaration
https://www.ato.gov.au/Forms/Withholding-declaration/
Provide Standard Choice Form (where applicable)
https://www.ato.gov.au/forms/superannuation-%28super%29-standard-choice-form/
Provide latest copy of Fair Work Information Statement and record how it is provided to the
employee
http://www.fairwork.gov.au/employment/fair-work-information-statement/pages/default.aspx
Provide the employee’s TFN on to their super fund or retirement savings account in which
you are contributing within 14 days of receiving the TFN declaration
Ensure the TFN declaration is lodged with the ATO within 14 days
Set up employee in payroll software and ensure correct PAYG withholding is being
calculated for the employee
Determine the state of connection for the employee for work cover purposes and ensure
they are covered under appropriate work cover policy
Ensure remuneration is included for payroll tax purposes
Provide a safety induction with the employers OHS representative
1.3 Tax File Number (TFN) and Withholding Declarations
A TFN declaration is a means by which an employee can provide an employer with a tax file number, tax
free threshold option, HELP debt information, rebate eligibility and residency status.
The withholding declaration is completed by an employee (payee) to claim rebates or as a means of

altering the information originally stated on the TFN declaration, in the case where an employee's
circumstances change. The information shown on both the TFN declaration and withholding declaration (if
applicable) should be used to work out the correct amount of tax to withhold from the employee’s pay.
Every employee should lodge a TFN declaration with his or her employer. If an employee has more than
one employer, then a TFN declaration should be lodged with each of those employers.
An employer must forward a completed TFN declaration to the Tax Office within 14 days. The withholding
declaration, on the other hand, is kept on file and not forwarded to the Tax Office.
1.3.1 49% withholding when no TFN is quoted

If an employee does not quote a TFN number on the TFN declaration, tax must be withheld at the highest
marginal rate plus Medicare levy (49%). A TFN declaration is invalid if:
 a TFN has not been quoted; or
 no exemption has been claimed; or
 the employee has not applied for a TFN.
If an employee does not submit a TFN declaration at all within 14 days of commencing employment, the
employer must complete the payee section with all the information known about the employee and send
the declaration to the Tax Office. Tax will need to be withheld at a rate of 49% (47% for non-residents)
from all payments.
1.3.2 Who can sign documents

Part B of the TFN Declaration is signed by an authorised signatory of the organisation. Under legislation the
person signing such documents should be:
 if the entity is an individual – the individual;
 if the entity is a trustee – the trustee;
 if the entity is a board of trustees – (i) the senior active trustee resident in Australia; or (ii) if there is no
active trustee resident in Australia, by the agent in Australia of the board of trustees;
 if the entity is a company - by the public officer of the company; and
 if the entity is the Commonwealth or a State or Territory agency or authority - by an officer appointed
or authorised for the purpose.
If it is not practicable for an individual, trustee, agent or officer to sign personally, the authorised person
can give authority for another individual to sign. This should be documented and kept on file. An
individual, trustee, agent or officer who authorises another individual must, as soon as practicable, give a
copy of the authority to the Tax Office. A document stating the Tax Office's guidelines for authorised
signatories is available from the Tax Office website by placing the words 'authorised signatories' in the
home page search engine.
Where a payment summary is produced by a computer software package, the name of the person
authorised to sign payment summaries will satisfy this requirement.
1.3.3 Who should complete a TFN declaration?
Various recipients of payments are required to submit a TFN declaration to an employer. Some of these
recipients include:
 employees;
 company directors;
 office holders;
 recipients working under a labour hire arrangement.
This declaration covers:
 payments for work and services, including payments to employees, company directors and office
holders; payments under return-to-work schemes and labour hire arrangements; and payments
specified by regulation
 benefit and compensation payments, and
 superannuation benefits.
1.3.4 Who is not required to include a TFN on the TFN declaration

Some employees/payees are not required to include a Tax File Number on the TFN declaration. The
employer/payer is not required to withhold tax at a rate of 49% for these particular employees/payees.
They are:
 recipients receiving payments under a voluntary agreement, where the recipient has quoted an ABN;
 children under 18 years of age who do not earn more than the tax free threshold ($18,200 in 2016/17);
and
 some employees who receive certain Centrelink pensions or a Department of Veteran Affairs service
pension. This does NOT apply to people who receive Newstart Allowance, Sickness Allowance, Special
Benefit, Partner Payment or Additional Parenting Payment.
Employees’ who do not have a TFN and do not meet any of the exemption requirements can apply for a
TFN online at
https://www.ato.gov.au/Individuals/Tax-file-number/Apply-for-a-TFN/
1.3.5 Items on the TFN Declaration
Tax File Number (TFN) (Item 1)

It is not compulsory for an employee to complete a TFN declaration; however, if a TFN declaration is not
completed, the employer is required to withhold tax from the employee’s pay at a flat rate equal to the
top marginal tax rate (47%) plus the Medicare levy (2%). This is a total of 49%.
If an employee does not have or does not know his or her tax file number, a Tax File Number Application /
Enquiry form should be sent to the Tax Office by the employee. The employer may then withhold tax at
normal rates for a period of up to 28 days. However, if the employee does not provide the file number by
the end of that time, the employer is required to withhold tax from the employee’s pay at the top marginal
rate plus Medicare levy. Note: Individual tax file numbers consist of nine (9) digits. Eight (8) digit tax file
numbers only apply to companies, partnerships and trusts.
Tax file number & superannuation funds – When an employee completes a tax file number declaration
form (NAT 3092), the employer must pass the TFN on to the super fund. The TFN must be passed on to the
employee's fund by whichever is the later of the following:
 for new employees – when the first contribution is made for them;
 for existing employees – when the next contribution is made for them; or
 within 14 days after receiving their Tax file number declaration (NAT 3092) form.
This does not apply if the employer does not make employer contributions, for example, where the
employee earns less than $450 in a calendar month.
Employers could face penalties if they do not pass an employee’s TFN within the required time frame.
Similarly, employees may face significant consequences, for example, their employer contributions will be
taxed an additional 34% once those contributions exceed $1,000 in an income year. This includes the first
$1,000. Additionally, super funds may not be able to accept personal contributions where a TFN is not
quoted. This means eligible employees could miss out on receiving a government super co-contribution.
This extra tax is calculated at the end of each year by the superannuation fund.
Residency status (Item 7)

Non-residents indicate their non-residency status by marking 'No' at this item. Non-residents are not
entitled to a tax-free threshold. The Australian Taxation Office criteria to determine residency status is not
the same as those used by the Department of Immigration and Multicultural Affairs. If an employee is
unsure of their residency status for tax purposes, we suggest the employee complete an on-line
questionnaire. To access the questionnaire go to
http://www.ato.gov.au/Calculators-and-tools/Are-you-a-resident/
The employee can answer the questions and the results are displayed immediately. Employees can also
access:
https://www.ato.gov.au/Individuals/International-tax-for-individuals/Work-out-your-tax-residency/
Determining residency status is usually only relevant in the case of migrants, academics teaching or
studying in Australia, students studying in Australia, visitors on holiday, and workers with prearranged
employment contracts.
Generally, the Tax Office considers an individual to be an Australian resident for tax purposes if they:
 have always lived in Australia or have come to Australia and now live here permanently
 are an overseas student doing a course that takes more than six months to complete
 have been in Australia continuously for six months or more and for most of that time they have
worked in the one job and lived in the same place, or
 will be or have been in Australia for more than half of the financial year (unless their usual home is
overseas and they do not intend to live in Australia).
If an employee goes overseas temporarily and does not set up a permanent home in another country, they
may continue to be regarded as an Australian resident for tax purposes. An employee can also refer to the
examples shown in ruling TR 98/17 which examines, for income tax purposes, the residency status of
individuals entering Australia.
Tax-Free Threshold (Item 8)

Employees who are residents of Australia for tax purposes are entitled to the tax-free threshold. This
means that the bottom slice of taxable income ($18,200 in 2016/17) is not taxed. If an employee has more
than one job, then he or she should submit a TFN declaration to each employer, but generally would only
claim the tax-free threshold on one of those forms. The tax-free threshold is usually claimed at the job
from which the highest amount of income is derived. However, if the employee is certain their total
income for the year will be less than $18,200, the employee can claim the tax-free threshold from each
employer.
If an employee wishes to claim, or stop claiming, the tax-free threshold at a point after commencing
employment, he/she should advise the employer by completing item 6 on the withholding declaration. The
employer will then vary the rate of withholding accordingly.
Claiming Tax Offsets (Items 9 & 10)

Some employees are entitled to rebates and offsets which reduce their tax liability. Eligible employees may
claim these rebates and offsets by having less tax withheld from their pay. The following can be claimed by
varying the amount of tax withheld from an employee's wage, they include:
 Invalid or invalid carer tax offset- An employee may be entitled to claim a tax offset if they maintained
an invalid who was their Spouse, child (or spouse’s child) aged 16 years or older, sibling (or spouse’s
sibling) aged 16 years or older, parent (or spouse’s parent) and they must have received one of the
following:
 a disability support pension under the Social Security Act 1991
 a special needs disability support pension under the Social Security Act 1991
 an invalidity service pension under the Veterans’ Entitlement Act 1986.
More information in relation to this offset can be found on the ATO website -
https://www.ato.gov.au/Individuals/Income-and-deductions/Offsets-and-rebates/If-you-maintained-
an-invalid-or-invalid-carer/
 Zone Tax Offset – for employees entitled to a zone tax offset for living in a remote or isolated area of
Australia. To be entitled the employee’s usual place of residence must be within a remote area. A list
of selected locations within the boundaries used to determine the remote zones and special areas is
shown in the withholding declaration booklet;
 Senior Australian Tax Offset – Aged pensioners and low income aged persons eligible for the senior
Australians tax offset are able to claim the offset through the PAYG withholding system by reducing
the amount of tax withheld from their regular income. Along with meeting income and residency tests,
eligible taxpayers must:
− be at least 65 years old for males and 64 years old for females at the end of the financial year; OR
− be Department of Veterans Affairs (DVA) veterans receiving a service pension or war
widows/widowers receiving an income support supplement who are at least 60 years of age or
more for males and 59 years old or more for females at the end of the financial year.
The amount of tax offset available to senior Australians will depend on the relationship status of
the eligible employee i.e. single, living with spouse or a member of a couple living apart due to
illness. The employee can refer to the withholding declaration booklet for more information.
Calculating the reduced tax for tax offsets – When a rebate figure is recorded on the withholding
declaration, employers need to reduce the amount of tax they deduct from the pay of the employee who
is claiming the rebate. Example: An employee, who is paid weekly, claims an annual rebate of $208 on
their withholding declaration. The tax instalment withheld from the weekly wage should be calculated as
per the tax schedule, minus the proportion of the rebate. In this case one weeks' rebate would be $4 (i.e.
$208 divided by 52 weeks). In cases where the employee is paid fortnightly or monthly, the rebate figure
would be divided by 26 or 12 respectively.
Employees wishing to claim a rebate will need to complete a withholding declaration to confirm and
calculate their eligibility for the rebate. Employees are responsible for investigating their rebate eligibility.
Worksheets are attached to the withholding declaration for this purpose.
HELP (Higher Education Loans Programme) (Item 11a)

HELP is how tertiary students defer payment of their education costs until after they are earning a
sufficient income. Employees must mark 'Yes' at item 11a if they have an outstanding HELP debt. Those
who choose to defer payment in this way eventually repay their accumulated HELP debt to the
government through the tax system. The increased rates of tax will be discussed shortly. HELP
encompasses:
 HECS-HELP – for eligible students enrolled in Commonwealth supported places. A HECS-HELP loan will
cover all or part of their student contribution;
 FEE-HELP – for eligible fee-paying students enrolled at an approved eligible higher education provider.
FEE-HELP provides students with a loan to cover up to the full amount of their tuition fees to a limit of
$99,389, and $124,238 for dentistry, medicine or veterinary science courses; and
 OS-HELP – for eligible Commonwealth supported students who wish to study overseas. OS-HELP
provides students with a cash loan to cover expenses such as accommodation and travel.
Student Financial Supplement Scheme – SFSS (Item 11b)
Under the Student Financial Supplement Scheme (SFSS) the Commonwealth Government provides certain
tertiary students with a financial supplement loan to assist with their living and education expenses while
studying. The scheme is administered by Centrelink for the first 5 years of each client’s loan. The Tax
Office takes over the debt on 1 June in the fifth year following commencement of the loan. Financial
Supplement loan repayments are in addition to any higher education loans programme HELP repayments.
Employees must mark 'Yes' at item 11b if they have an outstanding SFSS loan. Those employees who have
a SFSS loan will eventually repay their loan to the government through the tax system. The increased rates
of tax will be discussed shortly.
1.3.6 Obtaining and lodging a TFN Declaration

You can download the Tax file number declaration (NAT 3092) on-line and either:
 fill in the form on screen; or

 print the form and fill it in by hand
The form needs to be posted to the ATO if you don’t have the appropriate software allowing on-line
lodgement. Access the new downloadable form at:
https://www.ato.gov.au/Forms/TFN-declaration/
Other methods for lodging a TFN Declaration include:
 Lodge and transact using the Business Portal – see paragraph 2.1
 Lodge directly from your business software– see paragraph 2.1
The future for TFN Declaration lodgement - External lodgement of TFN Declarations – 1 July 2017
With the introduction of Single Touch Payroll (STP) from 1 July 2017, the Tax Office has delayed bringing
new technologies into the TFN declaration lodgement arena. Under STP it is proposed that employees will
lodge their TFN Declaration on line through the myGov system. This will allow the form to be lodged
directly with the ATO.
1.4 The Withholding Declaration (NAT 3093)
1.4.1 When is an Employee Required to Complete a Withholding Declaration

The withholding declaration is completed by an employee (payee) to claim tax offsets or as a means of
altering the information originally stated on the TFN declaration, when an employee's circumstances
change. Generally, this means that an employee will only be required to complete one TFN declaration for
each employer for the duration of their employment. Any changes will be altered by way of a withholding
declaration, not by completing a new TFN declaration.
Employees will complete a withholding declaration in order to confirm and calculate entitlement to
rebates such as family tax benefit and zone tax offset. Change of circumstances in relation to a higher
education loans programme (HELP) debt is also recorded on a withholding declaration.
An individual may only give a withholding declaration the their employer if they have previously given the
payer a TFN declaration or have entered into a voluntary agreement with the payer. Employers are not
required to send withholding declarations to the Tax Office.
NOTE – NO UPWARD VARIATION FORM: Previously an employee who wanted to increase the tax withheld
from their pay requested it using the Withholding Declaration. The Withholding Declaration is no longer
used to increase withholding and the upward variation section has been deleted from the form.
Employees’ can request increased withholding using another format if necessary.
Obtaining and lodging a Withholding Declaration

Withholding Declarations can be downloaded at:
https://www.ato.gov.au/Forms/Withholding-declaration/
Limitations on Withholding Declarations

There are limitations on withholding declarations. Withholding declarations regarding offsets cannot be in
force with more than one payer at a time. A withholding declaration changing details about residency
status, HELP debt, tax-free threshold etc. can be in force with more than one payer at a time.
The withholding declaration can only be used to reduce the amount of withholding where the employee is
entitled to a particular government offset or benefit. When an employee wants to reduce their
withholding for any reason, the PAYG withholding variation application (NAT 2036) must be completed by
the employee (see further on).
1.5 Applying to the Tax Office to reduce tax withholding
An employee may apply to the Tax Office for a reduction in the tax being withheld from their pay. This can
be facilitated by completing a PAYG withholding variation form. If the variation application is approved, the
Tax Office will send written confirmation to the employer. At no time may the employer withhold a lesser
amount than shown on the table without the express written approval of the Tax Office.
The main purpose of varying the rate of withholding is to ensure that the amounts withheld during the
income year meet the payee's end of year tax liability. This would be the case if the regular rate of
withholding would lead to a large credit at the end of the income year, because the payee's deductible
expenses are higher than normal. For example, Joe is a salary and wage earner who uses his own vehicle
for work purposes. His employer pays him a yearly car allowance of $10,000. Joe estimates that his annual
tax deductible car expenses will be $9,000. He can apply for a variation so that his employer will withhold
tax from only $1,000 of his allowance.
1.5.1 Types of PAYG withholding variation forms

 PAYG withholding variation application (NAT 2036) – This application form should be used when the
employee wants to reduce their PAYG withholding rate for the year. If the payee has business income
or non-commercial business losses, the PAYG withholding variation supplement (NAT 5423) must also
be completed.
 PAYG withholding variation application (e-variation) – The PAYG withholding variation application
(e-variation) can be completed and lodged online. Access the e-variation application at:
https://www.ato.gov.au/forms/payg-withholding-e-variation/
 The e-variation is not compatible with Apple Mac and is not supported by Firefox or Google Chrome.
The e-variation can be completed on line or printed and sent to the Tax Office.
 PAYG withholding variation short application (NAT 2525) – This application should be used when the
employee wants to reduce their PAYG withholding rate on their allowances, director’s fees, HELP/SFSS
over payments or HELP/SFSS deferral.
 PAYG withholding variation application - Senior Australians tax offset (SATO) – To be used when the
employee wants to reduce their PAYG withholding rate to claim the Senior Australian Tax Offset
(SATO), or is receiving payments from multiple payers.
How the employee accesses and lodges the variation form

If an employee cannot order and lodge online will need to order a paper application by:
 visiting Online ordering and searching for relevant ‘NAT’ number; or
 contacting the Tax Office’s automated self-help ordering service on 13 28 65.
Most e-variations are processed within 14 days however the ATO have advised to allow a 28 day
processing time. Paper application can take up to 56 days.
Start date of variation

When an employee's application is approved the varied rate or amount of withholding will start from the
next available payday after the employer has received the notice of withholding variation from the Tax
Office. Note- the letter the employee receives from the ATO is not the official notice. The employer cannot
implement a variation until they have received correspondence from the Tax office.
Finishing date of variation

The variation finishes on the expiry date shown on the notice of withholding variation from the Tax Office.
To continue to have reduced tax withheld from payments after this date, the employee must lodge
another PAYG withholding variation application – at least six weeks before the expiry date.
Note: variations for allowances may now be issued for more than one year. The expiry date on the notice
of withholding variation the Tax Office sends to the employer will show whether the employee's variation
has been issued for more than one year.
1.6 Paying Salary and Wages
Where payments of salary and wages are made, a master/servant relationship exists between the payer
and the payee. Salary and wages are the main forms of payments made to an employee. Salary is a fixed
periodical payment paid to a person for regular work or services, whereas a wage is usually paid by the day
or week for work or services which are of a more irregular nature. Payments of salary and wages are
excluded from the GST base. Both salary and wages are generally considered to be payments made:
 to an individual;
 as remuneration for services; and
 provided under a contract of service (that may be under an employment contract, award, enterprise
bargaining agreement or any other instrument).
1.6.1 At which time is salary and wage income taxable?

All salary and wage income is taxable in the financial year in which it is actually received, regardless of
when it was earned. Tax should be withheld at the time when the payment is made to the employee.
End of financial year payments to employees

There is confusion regarding the treatment of salary and wages accrued in the current financial year (prior
to 30 June) where the actual payment is made in the following financial year (usually early July).
Where a payment is made on or after 1 July, the full amount of the payment will be included in the later
year's payment summary. Withholding for the whole amount will be based on the later year's tax rates.
Where payment is made on or before the 30 June, the full amount will be included in the current year’s
payment summary and withholding for the whole amount will be based on the current year’s tax rates.
Example – XYZ Company pays their employees fortnightly, one week in arrears and one week in advance.
The final pay day for 2016/17 will occur on Friday 30 June and cover the pay period 24 June 2017 – 7 July
2017. The payment is made to employees before midnight on 30 June 2017. The whole amount will be
included on the 2016/17 payment summary and taxed at the 2016/17 rates.
Electronic payments
When payments are made electronically, the date for payment is either the date stipulated in the
electronic transaction or, if no date is stipulated, the date on which the payment is intended to be made
into that bank account.
Example – XYZ Company instructs their bank to pay their employees' salary by EFT on 30 June 2016. The
company specifies that the payments should be credited to the employees' bank account on 1 July. As the
payment is instructed to be made on 1 July, these payments must be included in the 2017/18 payment
summary and withholding on the whole amount will be at the rates that apply for that year.
1.6.2 Payments from which tax must be withheld
A payer must withhold tax from all payments of salary, wages, bonuses, commissions and, in most cases,
allowances (all of which will be discussed in detail later in this section). Tax should also be withheld from
certain lump sum payments made to employees on the termination of employment or on retirement.
These will be discussed in section 4. Payments made under a contract wholly or principally for labour are
covered by various types of PAYG withholding, for example, payments made under a labour hire
agreement or a voluntary agreement. These are discussed shortly.
Payments of salary and wages include:
 ordinary salary or wages paid to full-time, part-time and casual employees, including overtime,
penalties, shift and other allowances;
 commissions, retainers and performance incentive or bonus payments;
 severance, termination and redundancy payments;
 directors fees and remuneration;
 payments to office holders in any Federal, State, Territory or eligible local government body;
 payments for unused annual or long service leave;
 employment termination payments and superannuation type payments (such as pensions and
annuities).
Payments from which tax is not withheld include:

 Daily travel allowances which meet the criteria set out in TD 2016/13;
 Cents per kilometre car allowance paid within the prescribed limits.
Some payments which do not form a part of salary and wages are:
 payments to a person to enter into a restraint of trade;
 reimbursements of expenses;
 pension payments and social security benefits;
 partnership and trust distributions;
 dividends;
 payments of a living away from home allowance which meet the criteria.
1.6.3 Subscribe to Tax Office emails

Access the following Tax Office link to subscribe and receive emails which update you on changes to rates
and rules:
https://www.ato.gov.au/subscription.aspx
1.7 General Rates of Income Tax (Incorporating Medicare Levy)
Marginal tax with Medicare levy plus Budget repair levy and
Annual Income Thresholds 2016/17
Medicare levy increase for DisabilityCare
$1 - $18,200 0.00%
$18,201 - $37,000 21.0%
$37,001 - $80,000 34.5%
1
$80,001 - $180,000 39.0%
$180,001 + 49.0%
1
Proposed Annual Income Thresholds Marginal tax with Medicare levy plus Budget repair levy and
2016/17 Medicare levy increase for DisabilityCare
$1 - $18,200 0.00%
$18,201 - $37,000 21.0%
$37,001 - $87,000 34.5%
$87,001 - $180,000 39.0%
$180,001 + 49.0%
1
Once the Government moves out of caretaker mode, more information will become available about whether legislation will be
introduced that will facilitate the proposed tax threshold change as stated in the May 2016 budget.
Tax calculator on-line and tax tables in paper form

Employers can use the Tax Withheld Calculator to calculate the correct amount of tax to withhold from
employees'. Follow link:
https://www.ato.gov.au/Calculators-and-tools/Tax-withheld-calculator/Individual-Non-business-
Calculator.aspx
Alternatively, the Tax Office publishes schedules/tax tables which show the amount of tax that should be
withheld from salary or wage payments. These can be picked up at local Tax Offices, newsagents or
downloaded by following the link: https://www.ato.gov.au/Rates/Tax-tables/
Low income tax offset

Taxpayers that earn an income of less than $66,667, get the low income tax offset. The maximum tax
offset of $445 applies for taxable income of $37,000 or less. This amount is reduced by 1.5 cents for each
dollar over $37,000. The low income tax offset can only reduce the amount of tax payable and does not
reduce the Medicare levy.
Budget repair levy

The government have introduced a three year temporary levy (i.e. the Temporary Budget Repair Levy) on
high income individuals from 1 July 2014 until 30 June 2017. The Temporary Budget Repair Levy applies at
a rate of 2% on individuals’ taxable income in excess of $180,000 pa.
A number of other tax rates that are currently based on calculations that include the top personal tax rate
will also be increased. These tax rates will be increased for the same period that the Temporary Budget
Repair Levy is in place. The exception to this will be the FBT rate. The effect of this levy on FBT is discussed
in section 6.
1.7.1 Medicare levy
The percentage of Medicare levy imposed on an individual taxpayer is subject to an individual’s
circumstances. For example, a rate of 0% applies to defence force employees and Medicare exempt
taxpayers, 3% applies to high income earners without private health insurance, and 2% applies in most
other cases. The notes in this manual refer to rates of income tax including the general Medicare levy rate
of 2%. Medicare levy is calculated on taxable income only. The 2% medicare levy incorporates the 0.5% for
Disability Care. Medicare levy is not calculated on reportable amounts for superannuation and fringe
benefits.
Reduction for people on low incomes (Medicare levy low income threshold)
A taxpayers Medicare levy is reduced if their income is below a certain threshold and in some cases there
may be no levy payable. The thresholds for 2015/16 are as follows.
 individuals $21,335
 families $36,001. The child-student component of the family income threshold is $3,306
 single taxpayers eligible for the seniors and pensioners tax offset is $33,738, and
 families eligible for the seniors and pensioners tax offset is $46,966.
The thresholds for 2016/17 will be released in the May 2017 Budget.
Medicare levy variations

Increased Medicare levy – Some payees may be liable for the Medicare levy surcharge. Payees can ask the
employer to increase the amount to be withheld by lodging a Medicare levy variation declaration.
Decreased Medicare levy – Medicare levy may need to be decreased for some low income earners with
dependants. These payees must complete an ‘Application for a Medicare Entitlement Statement (MS015)
form which can be accessed at:
http://www.humanservices.gov.au/customer/forms/ms015
These include:
 people not entitled to Medicare benefits and who have obtained a Medicare Entitlement Statement
from the Department of Human Services – including employees on temporary visas who are residents
for tax purposes;
 those with medical reasons, which applies to people such as blind pensioners.
The Medicare levy surcharge due to no private hospital health insurance cover
A Medicare levy surcharge in addition to the normal Medicare levy applies to single people and families
who do not have private health cover. The additional percentage depends on their income.
Individuals not holding private health insurance in Families not holding private health insurance in
2016/17 2016/17
Additional Medicare Levy Additional Medicare Levy
Annual Income Annual Income
Surcharge Surcharge
$90,000 or less 0.00% $180,000 or less 0.00%
$90,001 - $105,000 1.00% $180,001 - $210,000 1.00%
$105,001 - $140,000 1.25% $210,001 - $280,000 1.25%
$140,001 + 1.50% $280,001 + 1.50%
Important: Those who take out private patient hospital insurance cover with a high excess will still be
required to pay the Medicare levy surcharge where the excess on their health insurance policy is:
 more than $500 where only one person is covered by the policy (single contributor); or
 more than $1,000 where more than one person is covered by the policy (family contributors).
The Tax Office calculates a person's Medicare levy surcharge liability when they lodge their tax return at
the end of the financial year. Note: Income is more than just ordinary taxable income and will also include
the reportable fringe benefits amount and the reportable employer superannuation contributions amount.
The Private health insurance rebate
Most people with private health insurance receive a rebate from the Government to help cover the cost of
private health insurance premiums. The private health insurance rebate is income tested. The table below
details the different rebate amounts available.
2016/17 Private Health

Individuals (annual income) Families (annual income) Insurance Rebate
Under 65 years old 27.791%

$90,000 or less $180,000 or less 65-69 years old 31.256%
Over 70 years old 35.722%
Under 65 years old 17.861
$90,001 - $105,000 $180,001 - $210,000 65-69 years old 22.326%
Under 65 years old 8.930%
$105,001 - $140,000 $210,001 - $280,000 65-69 years old 13.395%
$140,001 + $280,001 + Nil
Pausing indexation of Medicare levy surcharge and private health insurance rebate thresholds — extension
The Government will continue the pause on indexation of the income thresholds for the Medicare Levy
Surcharge and Private Health Insurance Rebate for a further three years.
1.7.2 Foreign Employees/Non-residents

Only Australian citizens, permanent residents of Australia and New Zealand citizens who have entered
Australia on a valid passport are allowed to stay and work in Australia without restriction. Where a
business is employing a worker who is not one of the above they must ensure the worker is on a visa that
gives them permission to work and that the restrictions of work under that visa (if any) is understood and
adhered to. Businesses that employ illegal workers can face significant penalties.
NOTE - Department of immigration expect employers to take reasonable steps, at reasonable times, to
confirm that a non-citizen is allowed to work.If an employer has reason to believe a worker is a non-citizen,
they need to check the non-citizen’s visa does not have work restrictions. The below link has useful
information for employers to ensure they are employing legal workers.
https://www.border.gov.au/Busi/Empl/Empl/employing-legal-workers/legal-workers-a-guide-for-
employers
The department of immigration works with the Fair Work Ombudsman, Australian Taxation Office, Human
Services, Australian Federal Police and state police authorities to locate and identify illegal workers.
Penalties for employing an illegal worker

It is a criminal offence to employ a non-citizen who is not allowed to work in Australia. These offences
apply to employers, labour hire companies, employment agencies and anyone who allows illegal workers
to work, or refers illegal workers for work.
The department of immigration works with the Fair Work Ombudsman, Australian Taxation Office, Human
Services, Australian Federal Police and state police authorities to locate and identify illegal workers.
The penalties for employing illegal workers are shown in the table below.
Sanction category Maximum penalty
Illegal Worker Warning Notice (IWWN) Administrative warning
Infringement AUD 3240 fine for individuals
AUD 16 200 fine for bodies corporate
Civil penalty AUD 16 200 fine for individuals
Sanction category Maximum penalty
Criminal offence AUD 21 600 fine and/or two years imprisonment for individuals
Aggravated criminal offence AUD 54 000 fine and/or five years imprisonment for individuals
Visa Entitlement Verification Online (VEVO) for Organisations

The department of immigration has an online checking system for employers, referred to as VEVO. It’s a
free online facility that allows Australian employers, education providers, financial institutions and
government agencies to check the visa status and entitlements of a visa holder.
Under the ‘work entitlements’ category, Australian educational institutions, employers, labour suppliers or
back ground screening companies can register to check the work entitlements of prospective employees.
VEVO will display whether a person has unlimited work rights, limited work entitlement including work
conditions, or no work entitlement. This facility cannot be used to check the status of Australian citizens
who were born in Australia.
To register, employers should access

http://www.immi.gov.au/managing-australias-borders/compliance/info-employers/evo-orgs.htm
and do the following:
 complete the registration details including your business and contact details,
 if your business has an ABN, ACN or ARBN you need to enter one,
 select the VEVO category you wish to register for (see table below),
 select the industry type of the business,
 choose a secret question and answer which are known only to you and are easy to remember,
 the secret question and answer will be used by the Department to identify you when you receive your
VEVO Logon ID,
 once you have submitted the registration request you will receive an e-mail in the next few days,
 you will be required to enter the answer to your secret question before you obtain your Logon ID, and
 you need to remember your Logon ID and password.
Client Group Category Description

Employers and labour Work Employers, labour suppliers or background screening companies can
suppliers Entitlements register for the work entitlements category.
This category enables organisations to check the work entitlements of
prospective employees. VEVO will display whether a person has
unlimited work entitlements, limited work entitlements including a
description of work conditions, or no work entitlements.
Educational institutions Study Only authorised education providers can register for the study rights
Entitlements category.
Authorised institutions can also select the work entitlements category if
required.
Licensing authorities Licensing Only authorised licensing authorities that issue work related licences
Eligibility can register for the licensing eligibility category.
This category enables authorised licensing authorities to check the
residence status and work entitlements of a person applying for a
licence.
Commercial or Residence Only organisations that need to know a person's residence status in
government Status Australia can register for the residence status category. This category
organisations enables organisations to check the residence status of a person.
Government Immigration Only Australian government departments or agencies that need to
organisations Status know a person's permanent residence or citizenship status in Australia
can register for the immigration status category.
This category enables government departments and agencies to check
whether a person is a temporary resident, New Zealand citizen in
Australia or whether a person is a permanent resident or has acquired
Australian citizenship.
Visa Holders Self Serve Individual visa holders can check their visa conditions online.
Eligibility
Foreign resident employees working in Australia
Most working holidaymakers are tourists or travelers visiting Australia and may not be Australian residents
for tax purposes. An employee will indicate their residency status on their TFN Declaration form. As non-
residents, they pay tax on every dollar of income they earn in Australia. Non-residents are not entitled to
claim the tax-free threshold and they do not pay the Medicare levy. Non-residents who do not quote a TFN
have tax withheld at a rate of 47%. Non-residents who quote a TFN are taxed as follows:
Annual income 2016/17 Marginal rate

$1 - $80,000 32.5%
$80,001 - $180,000 37.0%
$180,001 + 47.0%
An employer wanting to employ an overseas visitor in Australia should ensure that this person is able to
work legally in Australia. Visitors, other than New Zealand citizens, must hold a current visa which allows
them to work in Australia. A Tax File Number, driver’s licence, bank account, Medicare card or referral
from Centrelink is not evidence that a person is entitled to work in Australia.
Paying foreign residents in specific industries who are not employees – Special rates apply to payments in
relation to non-residents who are workers in:
 entertainment or sports activities involving theatre companies; orchestras; rock groups; sporting
teams; individual sports (for example, golf or tennis) or television commentators; or
 construction and related activities involving natural resource infrastructure; shopping centres; resort
developments or residential real estate; or
 casino gaming junket activities involving contracting with casinos; contracting with players or
translating or interpreting services. Withholding at a rate of 3% applies to these payments.
This withholding can be varied by completing a PAYG foreign resident withholding variation (NAT 11097).
Australian Resident Employees Working in a Foreign Country

Where a worker is an Australian resident for tax purposes, PAYG Withholding will need to be deducted
from their pay on their employment income, such as salary, wages, commissions, bonuses and allowances
earned from foreign service – unless it's exempt from Australian tax.
One exemption available is where a resident of Australia is engaged in Foreign Service for more than 91
days and their foreign service is directly attributable to any of the following:
 delivery of Australian official development assistance (ODA) by the employer (except if the employer is
an Australian government agency) – From 1 July 2016 this category is no longer exempt.
 activities of the employer in operating a public fund declared by the Treasurer to be a developing
country relief fund
 activities of the employer in operating a public fund established and maintained to provide monetary
relief to people in a developing foreign country impacted by a disaster (a public disaster relief fund)
 activities of the employer as a prescribed charitable or religious institution exempt from Australian
income tax because it's located outside Australia, or the institution is pursuing objectives outside
Australia
 deployment outside Australia by an Australian government (or an authority thereof) as a member of a
disciplined force
More detailed information in relation to this exemption can be found on the Tax Office website at:
https://www.ato.gov.au/Individuals/International-tax-for-individuals/In-detail/Foreign-income-of-
Australian-residents/Exempt-foreign-employment-income/#Developingcountryrelieffund
The income of foreign workers that do not meet these criteria will be subject to pay as you go (PAYG)
withholding requirements. The foreign earnings will need to be included in the employee’s income tax
return as assessable income and they may be entitled to a non-refundable foreign income tax offset for
amounts of foreign tax paid. An employer may also give consideration to whether there is a double tax
agreement that may apply (see below for further information)
Foreign employees will need to receive a foreign employment income payment summary if the earnings
are not exempt and any of the following conditions apply:
 foreign tax has been withheld and paid to a foreign government on behalf of your employee; or
 the employee is in any foreign country for a consecutive period of at least 60 days; or
 the earnings have a foreign source.
See section 2.2.4 for further information in relation to the payment summary required.
Reduction of PAYG withholding amounts to take into account foreign tax – Where the employee’s foreign
earnings are not exempt from tax in Australia, you should reduce the amount that would normally be
withheld in Australia under the relevant PAYG withholding tax table by the Australian dollar equivalent of
the amount of tax to be withheld and paid to the foreign country. If the resulting Australian withholding
amount is zero or negative, there is no amount to withhold.
Example – Norman is an Australian resident who has been sent to work in Papua New Guinea for four
months from July 2016. He is to be paid K3,850 weekly by his Australian employer. The tax system in Papua
New Guinea requires that K462 is withheld and paid to cover the individual’s Papua New Guinea income
tax liability. For the purposes of this example, the exchange rate that applies for converting Papua New
Guinean Kina to Australian Dollars is 2.36.
1. Convert the Papua New Guinean Kina earnings to Australian dollars – K3,850 / 2.36 = $1,631
2. Calculate the Australian amount to be withheld from the amount $1,631, in accordance with the
relevant tax table (NAT 1005) – Amount to be withheld from $1,631 = $405
3. Convert the amount withheld and paid to the foreign country to Australian dollars – K462 / 2.36 =
$195.00
4. Reduce the amount calculated at step 2 by the amount calculated at step 3 – $405 - $195 = $210.00
5. Round to the nearest dollar – AU$210 is withheld from the payment of K3,850.
Double Tax Agreements

Australia has entered into taxation agreements with more than 40 countries. Tax treaties are also referred
to as tax conventions or double tax agreements (DTA). They prevent double taxation and foster
cooperation between Australia and other international tax authorities by enforcing their respective tax
laws. Double tax agreements can be accessed on the website www.treasury.gov.au.
Australian Non-residents in a Foreign Country (not in Australia)

There is no requirement to withhold from payments made to workers who are not Australian residents
and who are carrying out their work in a foreign country.
1.7.3 Higher education debts – Employees with HELP and/or SFSS or TSL
The Higher Education Loan Program (HELP) and the Student Financial Supplement Scheme (SFSS) are how
tertiary students defer payment of their education costs until after they are earning a sufficient income. If
an employee has a HELP and/or SFSS debt and their annual income is likely to exceed the repayment
income thresholds, the employer regularly withholds extra tax to cover the compulsory repayment
amount. The rates are a percentage of taxable income. The taxable income thresholds change annually.
HELP repayment thresholds and rates 2016/17
HELP repayment HELP repayment
Repayment rate Repayment rate
income (HRI*) income (HRI*)
Below $54,869 Nil $76,223-$82,550 6% of HRI
$54,869-$61,119 4% of HRI $82,551-$86,894 6.5% of HRI
$61,120-$67,368 4.5% of HRI $86,895-$95,626 7% of HRI
$67,369-$70,909 5% of HRI $95,627-$101,899 7.5% of HRI
$70,910-$76,222 5.5% of HRI $101,900 and above 8% of HRI
SFSS Repayment income thresholds 2016/17 Repayment rate (% of RI*)

Below $54,869 Nil
$54,869 – $67,368 2% of repayment income
$67,369 – $95,626 3% of repayment income
$95,627 and above 4% of repayment income
Access coefficients online at:

https://www.ato.gov.au/Rates/HELP,-TSL-and-SFSS-repayment-thresholds-and-rates/
Trade Support Loans (TSL)

Trade Support Loans are loans paid in instalments totalling up to $20,000 over life of Australian
Apprenticeship. These loans are intended to assist apprentices with everyday costs while they complete
their apprenticeship. Eligible trade Australian Apprentices may apply (opt-in) for regular instalments
according to their needs.
The repayment plan is the same as that shown above for HELP.
Important information about taxation of employees with HELP/SFSS /TSL

 HELP/SFSS is to be withheld from all earnings – including taxable allowances, bonuses and
commissions.
 Change in Circumstances – Employees who repay their HELP/SFSS debt will need to complete item 6
on a withholding declaration to authorise the employer to reduce the amount of tax withheld.
 Total Tax Withheld – The additional amounts withheld are an estimate of their compulsory HELP/SFSS
repayment for the year. Those amounts are not credited to the employee's HELP account during the
year but form part of the total amount shown on their annual payment summary at tax withheld.
 HRI (Help repayment income)* and RI (Repayment income)*– Taxable income plus any total net
investment loss (which includes net rental losses), total reportable fringe benefits amounts, reportable
super contributions and exempt foreign employment income.
 Impact of the RESC/ Reportable FBT fields on HELP and SFSS debts – Employers withhold tax as per
the relevant HELP table, however, at the end of the year when the tax return is assessed, the Tax
Office calculates the repayment on the taxable income as well as net rental losses, the reportable
fringe benefits amount and the reportable employer superannuation contributions (RESC) fields on the
payment summary. Employees who are likely to have a shortfall may increase the amount withheld by
the employer.
 HELP debtors living overseas – From 1 January 2016, debtors going overseas for more than six months
(183 days) will be required to register with the ATO, while those already living overseas will have until
1 July 2017 to register. Repayment obligations will commence from 1 July 2017, for worldwide income
earned in the 2016/17 year. The debtor will need to self-assess their worldwide income and submit
details to the ATO by 31 October each year.
Additional HELP payments – Voluntary Repayments

Making a voluntary repayment reduces the HELP balance immediately. A person with a HELP debt can
make voluntary repayments at any time but these can’t be facilitated by increasing the PAYG withholding
through the employer. Voluntary repayments must be made directly to the Tax Office. They are in addition
to compulsory repayments and are not refundable.
Bonus for voluntary HELP payment – voluntary HELP repayments of $500 or more will result in a 5%
bonus. If the HELP debt balance is less than $500 and a voluntary repayment is made to payout the debt,
the 5% bonus will also be applied. You can use our HELP voluntary repayment calculator to estimate your
bonus and the remaining balance on your loan. Access it at:
https://www.ato.gov.au/Calculators-and-tools/HELP-voluntary-repayment/
Optimum time for making voluntary payments – Taxpayers who are planning to pay off a HELP loan may
be advantaged by making the repayment before they lodge their tax return. If the tax return has been
lodged before the voluntary repayment is credited to your account, a compulsory repayment may be
included on the person’s notice of assessment and they therefore may not receive the bonus on the
voluntary repayment. There may also be a benefit in making the repayment before indexation is applied
on 1 June each year. Find out how to make a voluntary payment by accessing:
https://www.ato.gov.au/About-ATO/About-us/Contact-us/Phone-us/
NOTE: From 1 January 2017, the Government will remove the upfront HECS-HELP discount of 10% for
eligible students that pay their student contributions upfront and the voluntary HELP repayment bonus of
5%.
1.7.4 Additional withholding when financial year contains extra pay day
A financial year may contain one additional pay period when the first pay day of the year falls within the
first couple of days of July. This may result in employees being under taxed for that year. The table below
shows the required additional amount to be withheld each pay period to cover the shortfall.
The Tax Office has requested that employer’s make employees aware of a possible shortfall in tax withheld
resulting from the additional pay. It is not compulsory for employees to have an additional amount
withheld; however, employees are entitled to ask their employer to withhold additional amounts.
Employees can request additional withholding in writing, including by email. For 2016/17 the amounts are:
Weekly wage Additional withholding Fortnightly wage Additional withholding

$725 – $1,524 $3.00 $1,400 – $3,049 $12.00
$1,525 – $3,449 $4.00 $3,050 – $6,799 $17.00
$3,450 or more $10.00 $6,800 or more $42.00
1.7.5 Short Term or Seasonal Workers
The Tax Office permits a flat 13% rate of tax to be withheld from the earnings of resident short‑term or
seasonal employees who complete a TFN declaration (claiming the tax-free threshold) and who work in
any process associated with the production, cultivation or harvest of a horticultural crop. The worker must
be employed by that employer for less than 6 months and working on the employer's property. This also
applies to employees in the shearing industry, including shearers, wool classers and shed hands. A flat rate
of 32.5% is to be withheld from the earnings of non-resident short-term or seasonal employees (except
those employed under the seasonal labour mobility program pilot scheme which is 15%). Tax is withheld at
a rate of 47% for non-residents who don't provide a tax file number and at a rate of 49% for residents who
fail to provide a tax file number.
1.7.6 Performing Artists

If you make a payment to an individual engaged as a performing artist, to perform in a promotional
activity, you will have a PAYG withholding obligation. A performing artist includes a singer, dancer, actor,
model, or a similar individual who is engaged to use his or her intellectual, artistic, musical, physical or
other personal skills. Sports persons are not regarded as performing artists.
Irrespective of whether the individual is an employee or independent contractor performing in a

promotional activity, payers are required to withhold from a payment to performing artists that are:
 conducted in the presence of an audience, or
 intended to be communicated to an audience by print or electronic media, or
 for a film or tape, or
 for a television or radio broadcast.
Promotional activities include endorsement or promotion of goods or services, or appearances or

participation in an advertisement. If the artist is not engaged in a promotional activity there is no PAYG
withholding obligation e.g. performer in a hotel or club.
The Tax Office has stated that payers are required to withhold 20% from payments made to performing
artists to whom the above criteria apply. Payers will need to determine the nature of the contractual
relationship for superannuation guarantee purposes.
1.7.7 Actors, Variety Artists and other Entertainers

Employers making payments to employees who are actors, variety artists and other entertainers who
receive daily payments, but who do not fall into the 'Performing Artists' category above, should refer to
the separate tax table 'Special tax table for actors, variety artists and other entertainers' (NAT 1023).
1.7.8 Volunteers and Respite Workers Paid by Non-profit Organisations

Non-profit organisations often require the help of volunteers or respite workers. The tax treatment of
monies (or benefits) paid to volunteers by non-profit organisations are as follows:
 People who are genuine volunteers, will not be treated as employees for tax purposes;
 Where volunteers are provided with a non-cash benefit (e.g. a motor vehicle which has incidental
private use) the non-profit organisation providing the benefit will have no FBT liability. This would be
the case where a volunteer renders services to an organisation, does not receive cash payments, but is
provided with a motor vehicle, to carry out the organisation’s activities;
 If a volunteer uses a personal asset or incurs expenses while carrying out the organisation’s activities
and is reimbursed by the organisation, the reimbursement is not assessable to the volunteer provided
the payment from the non-profit organisation does no more than reimburse the volunteer for
expenses incurred;
 If a volunteer incurs expenses while carrying out the organisation’s activities, and is reimbursed by the
organisation, the organisation can only claim an input tax credit for the reimbursement if it is a
charitable institution, a trustee of a charitable fund, a gift-deductible entity or a government school. To
enable the organisation to claim the input tax credit, the volunteer will need to provide the
organisation with the tax invoice for the acquisition they have made. Other types of organisations will
have no entitlement to claim the input tax credits when reimbursing volunteers for expenses they
incur in carrying out their activities as volunteers.
1.7.9 Religious Practitioners

Payments made to a Religious Practitioner for an activity, or a series of activities, are subject to
withholding where:
 the activity, or a series of activities, is done by the religious practitioner in pursuit of his or her vocation
as a religious practitioner;
 the activity, or series of activities, is done by the religious practitioner as a member of a religious
institution; and
 the payment is made by the entity in the furtherance of an enterprise that the entity carries on.
Withholding from payments for these activities is determined according to the relevant tax table.
Withholding for religious practitioners not required in some situations

A non-religious institution is not required to withhold amounts from payments to a religious practitioner:
 for work or services performed by the religious practitioner (e.g. payment for funeral or wedding
services). This does not include the performance of chaplaincy and/or counseling services; and
 for the performance of chaplaincy and/or counseling services where the payment does not exceed
$100 for those paid weekly, $200 for those paid fortnightly or $433 for those paid monthly.
A religious institution is not required to withhold amounts from payments to a religious practitioner for the
provision of locum services performed for a period that does not exceed 2 days in a quarter. Previous
services performed in a quarter count in determining whether the religious practitioner has performed
locum services for a period of not greater than 2 days in a quarter. Payment summaries must be issued in
respect of these payments to the locum. Payments from one religious institution to another for services
performed by the other religious institution will not be subject to PAYG withholding provided the
institution has quoted its ABN, or is exempt from doing so.
1.8 Treatment of Specific Payments
1.8.1 Taxing Annual Leave & Long Service Leave (for continuing employment)
The tax withheld from holiday pay (annual leave) is based on the number of weeks leave taken by the
employee. For example, an employee who is paid $900 per week normally has tax withheld of $148 per
week. If the employee takes four weeks holidays, the tax withheld from the employee's gross wage of
$3,600 (4 weeks × $900) would be equal to (4 weeks × $148) which amounts to $592.
The tax withheld from long service leave is calculated in the same manner. For example, if the employee
takes twelve weeks long service leave, the tax to be withheld from the employee's gross wage of $10,800
(12 weeks × $900) would be equal to (12 weeks × $148) which amounts to $1,776.
Leave Loading
Depending on the award, various rules exist in relation to whether or not leave loading is paid. Many
employers who pay employees under a salary packaging agreement or over the award wage do not pay
their employees leave loading.
Leave loading paid as a lump sum is taxed at the employee’s marginal rate like a bonus. If leave loading is
paid on a pro rata basis, (that is, as an increase in each pay during the leave period), the loading will be
added to the earnings for the period and taxed using the standard tax tables.
Pay–outs of untaken Leave

Under industrial law and legislation, employees may be entitled to cash out annual leave or long service
leave subject to meeting certain conditions.
When able to do so, such payments are taxable in the year they are received. Payments for untaken long
service or annual leave are a one-off payment and should be taxed in the same way as a bonus. Super
guarantee is payable on such payments, however leave entitlements are not accrued on cashed out
payments of annual leave or long service leave. Before allowing an employee to cash-out any leave
entitlements, carefully check any applicable industrial instrument or legislation.
1.8.2 Taxing Bonuses, Commissions & Back Payments (Marginal Rate Calculation)
When paying bonuses, commissions, back payments or any other one-off payment it is important not to
simply add the amount to the normal pay for the pay period as this will, generally, overtax the employee.
By doing a marginal rate calculation, as shown here, the amount will be apportioned over the whole year
and therefore taxed correctly.
Slightly different outcomes from different methods

The Tax Office acknowledges that the results obtained using Method B (the method usually used in
software programmes) may differ slightly from the results obtained using Method A (as shown here).
Calculations made in accordance with either method are acceptable to calculate the withholding amount.
How to work out withholding amounts

The Tax Office suggests one of two methods for calculating tax on these payments Method A or Method B.
Method B requires the splitting of the payment into the portion which applied to a previous financial year
and the portion which applies to the current financial year. This method is generally built into most payroll
software packages.
When calculating manually however, Method A should be used. This simpler method requires no splitting
of the payment into relative financial years and can be used for all payments of bonuses, back payments
and commissions. The calculation is as follows:
1. If it is a once-off annual bonus, back payment, or commission, divide the bonus by 52, 26 or 12, i.e.
depending on the amount of pay periods per year. If there has already been a bonus, back payment or
commission paid earlier in the financial year, divide the payment by the number of pay periods since
the last bonus, back payment or commission payment.
2. Add the result to the normal gross earnings for a pay period.
3. Calculate the tax withheld on the result of Step 2.
4. Calculate the tax withheld on the normal gross earnings for a pay period.
5. Subtract the result of Step 4 from the result of Step 3.
6. Multiply the result of Step 5 by the number of pay periods used in the calculation in Step 1.
Example: An employee is paid a once-off $1,520 Christmas bonus on December 31st. The normal gross
earnings are $1,100 per week.
Step 1: $1,520 divided by 52 weeks = $29 per week
Step 2: $1,100 + $29 = $1,129.00
Step 3: Tax withheld on $1,129 per week = $227.00
Step 4: Tax withheld on $1,100 per week = $217.00
Step 5: $227 – $217 = $10.00
Step 6: $10.00 x 52 weeks = $520.00
The tax to be withheld from the bonus payment of $1,520.00 is $520.00.
Employees’ normal earnings change

Normal earnings are gross earnings and include all salary and wages, taxable allowances, additional
payments and overtime earnings for the current financial year. Therefore, a payee’s normal earnings are
those earnings relating to the last full pay period worked. Where a payee’s pay fluctuates significantly over
a number of pay periods, use an average of gross taxable earnings for the financial year to date over the
number of pays received
Withholding variation in place

Where an employee has a withholding variation in place for the current financial year the varied rate can
be used but only if the employee included the income from the additional payment in their variation
application. If the employee did not include the income from the additional payment in their variation
application the above method must be used.
If an employee had a withholding variation in place at the time the additional payment accrued, but the
withholding variation is no longer in effect when the additional payment is made, it does not apply when
working out the amount to withhold.
Employee has taken leave without pay

Any periods where an employee has taken leave without pay does not affect the calculations. For example,
the payment is required to be apportioned by the total number of pay periods in a year (that is, 52 weekly
pay periods, 26 fortnightly pay periods or 12 monthly pay periods).
Payments relating to a single pay period

Where the commission, bonus or similar payment relates to work performed in a single pay period (for
example one week or one month) the amount is added to all other earnings for the current period. An
amount should then be withheld in accordance with the normal PAYG withholding tax tables.
Effect of HELP and SFSS on the payment of bonuses, commissions and back payments
If an employee has a Higher Education Loan Program (HELP) or Student Financial Supplement Scheme
(SFSS) debt on their Tax file number declaration (NAT 3092) or withholding declaration (NAT 3093), you are
required to withhold an extra amount from the additional payment using the relevant HELP/SFSS tax
tables. The amounts that are required to be withheld from additional payments for HELP and SFSS should
be calculated using the same method used to calculate the PAYG withholding amount from the original
payment. The calculation would be as follows:
Example: An employee is paid a once-off $1,520 Christmas bonus on December 31st. The normal gross
earnings are $1,100 per week. The employee has a HELP debt, therefore an additional calculation of tax
must be applied to cover the HELP liability.
Step 1: $1,520 divided by 52 weeks = $29 per week

Step 2: $1,100 + $29 = $1,129.00
Step 3: HELP withheld on $1,129 per week = $45.00 (Use HELP tax table)
Step 4: HELP withheld on $1,100 per week = $44.00 (Use HELP tax table)
Step 5: $45 – $44 = $1.00
Step 6: 52 weeks x $1.00 = $52.00
Extra tax of $52.00 must be withheld for HELP component.
Maximum tax rate of 49%

A maximum rate of 49% applies to all payments calculated using the annualised method. Previously a
higher rate could be calculated where the payment was being made to an employee with a HELP/SFSS
debt.
Recording back payments, bonuses and other payments on the payment summary
Where to record these amounts on the payment summary
Prior Financial year but Prior financial year but

Current Financial Year
less than 12 months old more than 12 months old
Salary & wages – Less than $1,200

including bonuses, – Gross payments
Gross payments Gross payments
back pay, $1,200 or more
commission etc. – Lump Sum E
Less than $1,200 Less than $1,200
Workers' – Gross payments – Gross payments
compensation Gross payments
payments $1,200 or more $1,200 or more
– Lump Sum E – Lump Sum E
Other documentation required – for lump sum E back payments only

The employer must also provide the employee with a letter specifying the financial years over which the
amount accrued and the gross amount that accrued each year.
1.8.3 Grossing up a net amount

When an employer is required to calculate the gross amount to pay to an employee to ensure they receive
a particular net amount of pay (either bonus, allowance of similar), the net payment will need to be
grossed. The gross up figure used will depend on the employee’s annual income as follows:
Annual Salary 2016/17 income tax rates Gross up figure

$18,200 or less 0.0% 0.0
$18,201 - $37,000 21.0% 1.2658
$37,001 - $80,000 34.5% 1.5267
$80,001 - $180,000 39.0% 1.6393
$180,001 and over 49.0% 1.9608
Example: Employee receives net bonus of $400
Sample Co. is required to pay an employee a referral fee. It is agreed that the net amount of the fee is
$400.00. This amount needs to be paid through payroll. To ensure the employee receives the net amount
of $400.00, the employer must gross up the payment. The employee receives an annual income of
$123,000.
$400.00 x 1.6393 = $655.72
The employee will receive a gross amount of $655.72 which will equate to $400.00 in net earnings.
1.8.4 Making Adjustments for Repayment of Overpaid Amounts

If an employee has been overpaid, it is up to the employer to firstly decide if the employee will be required
to repay the overpaid amount. If the employee is not required to repay the overpaid amount, then nothing
more needs to be done by the employer. Where the employee is required to pay back the overpayment,
the following instructions should be followed.
The process of recovery

Overpayments can happen when an employer mistakenly believes an employee is entitled to the pay or
because of a payroll error. Employers can’t take money out of an employee’s pay to fix up a mistake or
overpayment. Instead, the employer and employee should discuss and agree on a repayment
arrangement. If the employee agrees to repay the money, a written agreement has to be made and has to
set out:
 the reason for the overpayment

 the amount of money overpaid
 the way repayments will be made (e.g. cash, cheque or electronic transfer) and how often (this has to
be reasonable).
If the repayment can’t be agreed an employer should get legal advice. A deduction can be made to get
back an overpayment if it’s allowed under a registered agreement, award, legislation or court order.
Example: Reasonable arrangement to repay
Tony was overpaid $2,000 over 3 years because of a payroll error. His award does not allow a deduction to
be made when an employee is overpaid. Tony and his employer, Alice, meet to discuss the overpayment.
Tony agrees to repay the money and they come up with a solution.
Alice says Tony can choose how the money is paid back and the amount and frequency of the payments.
Tony tells Alice that he’d prefer if $20 was deducted from his pay each week until the $2,000 is repaid. This
arrangement is put in writing and both sign.
This repayment is reasonable because Tony had a choice about how the money was paid back, and the
amount and frequency of each payment.
Treatment where overpayment is identified within the same financial year

Where an overpayment is identified in the same financial year as it is paid, the employee will only need to
repay the net amount of the overpayment. The net amount is the amount actually received by the payee.
The employer will immediately reduce gross and tax to reflect what the employee should have received,
even if the employee has not repaid the funds. Any repayment of an overpayment will be deducted from
the employee’s after-tax income (i.e. net income).
Reporting on payment summary – Where the overpayment is identified within the same financial year,
details of the overpayment should not be included on the employee’s PAYG payment summary. Both the
'gross payments' and 'tax withheld' fields should be reduced to reflect what the employee should have
received. The employee will need to repay the employer the net overpaid amount from after-tax income.
The overpaid amount may be repaid in the same financial year or a subsequent financial year.
Example (overpayment identified and repaid in the same financial year) – An employee normally receives
wages of $3,200 per month. In October 2016 the employer discovers that the employee was incorrectly
paid an amount of $4,200 in the September 2016 pay period, which is an overpayment of $1,000. An
amount of $200 was withheld from the overpayment amount with the employee receiving the remaining
$800. If the employee agreed to repay the overpayment by 30 June 2017, the employee is only required to
repay the net amount of $800.
Example (overpayment identified in same financial year but repaid in a subsequent financial year) – An
employee normally receives wages of $3,200 per month but was incorrectly paid an amount of $4,200 in
the March 2017, which is an overpayment of $1,000. An amount of $200 was withheld from the
overpayment with the employee receiving the remaining $800. The employer and the employee agreed
that the amount was to be repaid over two instalments, being June 2017 and September 2017. The
employer ensures that the 2016/17 financial year payment summary does not reflect the overpaid
amount. The gross and tax reflect what the employee should have received. The employee is only required
to repay $800.
Treatment where overpayment identified and repaid in subsequent financial year

Where an overpayment occurs in one financial year and the overpaid amounts are discovered in a
following financial year, the employee will be required to repay the gross amount. The gross amount will
be the overpaid amount actually received by the employee plus any tax amount withheld. The employee
will need to repay the gross amount from after-tax income.
Reporting on payment summary – At the time when an overpayment has been discovered the employer
should issue an amended payment summary to the employee. It should detail the amounts that the
employee should have received in the relevant income year. Do not adjust the amount of tax withheld on
the amended payment summary. If the overpayment occurred in more than one year, you should issue
amended payment summaries for each relevant financial year.
Example (Overpayment identified and repaid in subsequent financial year) – An employee is normally
paid $50,000 salary per year. However, the employee received $70,000, which is an overpayment of
$20,000. An amount of $3,000 was withheld from the overpayment amount resulting in the employee
receiving $17,000. The employee is required to repay $20,000 from after-tax income. The employee will
receive a credit in their income tax assessment for the $3,000 that the employer withheld from the
payment.
1.8.5 Withholding Tax from Allowances

Broadly speaking, there are three categories of allowances:
1. Allowances which compensate for specific working conditions, such as wet weather, remote locality,
excessive dirt or height.
2. These allowances should always be included with the normal salary and wages in order to calculate the
correct amount of tax to be withheld.
3. Allowances which are paid for special qualifications, such as higher duties or first aid certificate.
4. These amounts should also be included with the normal salary and wages to calculate the correct
amount of tax to be withheld.
5. Allowances which are paid to cover expenses which are expected to be incurred by an employee in the
course of work, such as motor vehicle allowance, tool allowance, uniform allowance.
6. With a few exceptions or subject to any approval from the Tax Office to the contrary, these amounts
should generally be included with the normal salary and wages to calculate the correct amount of tax
to be withheld. They will, however, in most cases still be shown in the Allowances box on a payment
summary.
Tax Office Guidelines for Taxing of Allowances
If you are considering making an application to the Tax Office to vary tax withheld, before you do so, refer
to the information below and opposite which is taken from the Tax Office's PAYG Bulletin Number 1 –
Taxing of Allowances for 2000/2001 and future income years. The guidelines specifically address whether
or not tax should be withheld from the allowance, and whether or not the amount paid should be shown
on the payment summary. Workers being paid under a labour hire arrangement should refer to PAYG
Bulletin - Number 4 - Taxing of allowances and reimbursements paid to workers under a labour hire
arrangement for the 2000/01 and future income years. Generally, under a labour hire arrangement, all
allowances are recorded in the 'gross payments' field on the labour hire payment summary. Employers
paying religious practitioners should also refer to the document – Allowances paid to religious
practitioners PAYG withholding for the 2002/03 and future years.
Allowance type Tax On Payment summary Super

Allowances for qualifications, conditions or special duties
Crib Yes Yes - Gross payments Yes
Danger Yes Yes - Gross payments Yes
Dirt Yes Yes - Gross payments Yes
Height Yes Yes - Gross payments Yes
Site Yes Yes - Gross payments Yes
Shift Yes Yes - Gross payments Yes
Trade Yes Yes - Gross payments Yes
First aid Yes Yes - Gross payments Yes
Safety Officer Yes Yes - Gross payments Yes
Part day travel Yes Yes - Gross payments Yes
Allowances for deductible expenses
Tool Yes Yes - Allowance box No
Compulsory uniform Yes Yes - Allowance box No
Dry cleaning Yes Yes - Allowance box No
Award overtime meal allowance up to $29.40 (per day) No No No
Award overtime meal allowance in excess of $29.40 (per day) Yes Yes - Allowance box No
Laundry allowance up to $150 (per year) No Yes - Allowance box No
Laundry allowance in excess of $150 (per year) Yes Yes - Allowance box No
Mobile Phone Allowance Yes Yes - Allowance box No
Motor vehicle and travel allowances
Cents per kilometre car allowance up to 5000 business
kilometres per annum within the ATO specified limit (66 cents) No Yes - Allowance box No
– Only the excess above 66 cents per km is taxable
Cents per kilometre car allowance in excess of 5000 business
Yes Yes - Allowance box No
kilometres per annum
Motor vehicle allowance paid as a fixed amount per pay period
Yes Yes - Allowance box No
for work related travel
Motor vehicle allowance paid as a fixed amount per pay period
Yes Yes - Gross payments Yes
for private travel e.g. travel to and from work
Travelling time during ordinary hours Yes Yes - Gross payments Yes
Travelling time outside of ordinary hours Yes Yes - Gross payments No
Award transport payments - An award transport payment is a
transport payment covering particular travel that was paid
under an industrial instrument (that is, an award, order,
determination or industrial agreement) that was in force under No Yes – Allowance box No
Australian law on 29 October 1986
Allowance type Tax On Payment summary Super
Award transport payments for non-deductible transport
expenses - An award transport payment is a transport payment
covering particular travel that was paid under an industrial
Yes Yes – Gross payments Yes
instrument (that is, an award, order, determination or industrial
agreement) that was in force under Australian law on 29
October 1986
Domestic or overseas travel allowance paid under the
reasonable daily travel allowance ruling for business travel of No No No
less than 21 days within the limits (see below)
Domestic or overseas travel allowance paid over the
reasonable daily travel allowance ruling for business travel of Yes Yes - Allowance box No
less than 21 days in excess of the limits (see below)
Overseas accommodation for business trip Yes Yes - Allowance box No
Car expense rates for motor vehicle allowance paid on a cents per kilometre basis for 2016/17
The car expense rate per kilometre for 2016/17 is 66 cents.
Note: It is not compulsory to pay the rate specified by the Tax Office. The rate an employer is required to
pay will be shown in the employee’s agreement or award. The rate specified by the Tax Office is the rate
over which the car allowance becomes taxable. The rate however can be used as a guide where there is no
rate shown in an industrial instrument.
Employers are not required to withhold tax from a car allowance paid at a rate of 66 cents per kilometre or
less where the business kilometres travelled by an employee in the employee's own car do not exceed
5000 kilometres per annum. Where the rate paid is higher than 66 cents per kilometre, the employer is
only required to withhold from the amount in excess of 66 cents per kilometre.
Example – Employee paid within Tax Office rate
Susan’s agreement states that her employer is required to pay her 65 cents per kilometre for work related
travel in her own vehicle. In 2016/17 Susan travels a total of 2,694 business kilometres. Susan’s employer
is not required to tax any portion of the car allowance as the amount paid is within the Tax Office specified
rate. The whole amount of the cents per kilometre car allowance is shown in the allowance field on the
employee’s payment summary.
Example – Employee paid in excess of Tax Office rate

John’s agreement states that his employer is required to pay him 77 cents per kilometre for work related
travel in his own vehicle. In 2016/17 John travels 4,889 kilometres in total. John’s employer taxes 11 cents
(77c – 66c) of the car allowance for each kilometre travelled. The whole amount of the cents per kilometre
car allowance is shown in the allowance field on the employee’s payment summary.
Example – Employee paid in excess of Tax Office rate and travels more than 5,000 km in one year.
Brett’s award states that his employer is required to pay him 78 cents for each kilometre he travels in his
own vehicle for work purposes. This is above the 66 cents prescribed rate specified by the Tax Office.
Brett’s employer taxes 12 cents (78c – 66c) of the car allowance for each kilometre travelled. Brett travels
a total of 11,425 business kilometres during 2016/17. All kilometres in excess of 5,000 are taxed by Brett’s
employer in full. The whole amount of the cents per kilometre car allowance is shown in the allowance
field on the employee’s payment summary. There is no requirement to separate the taxed and untaxed
portions of the allowance.
The rate can be found on the ATO website under Table 2, Note (1) of the link below:
https://www.ato.gov.au/Business/PAYG-withholding/In-detail/Allowances,-leave-payments-and-
repayments/Withholding-from-allowances/?page=1#approvedrate
Daily Travel Allowance 2016/17 – Ruling TD 2016/13
Daily travel allowance can be paid to an employee where travel for employment purposes involves an
overnight stay. Tax does not have to be withheld from this allowance which is paid to an employee to
cover “travel expenses” incurred in the course of employment, provided that the rate of allowance is
within what the Tax Office considers to be reasonable (see table). Amounts within the reasonable limits
are not shown on the employee's payment summary.
Additionally, there is no requirement for the employee to keep written evidence or a travel diary in
relation to any domestic allowance received, that is within the reasonable limit. It is important however,
that the employer keeps a comprehensive record of who is paid this type of travel allowance and the dates
etc. to which the payments relate. “Travel expenses” for these purposes means expenses in respect of
accommodation, food, drink and incidentals in respect of travel within Australia but away from the
employee’s ordinary place of residence, where the travel is undertaken in the course of performing duties
as an employee or for the purposes of producing any other assessable income. The levels of allowance
which the Tax Office will consider to be reasonable depend on the employee’s salary and the location to
which the employee has travelled. The Tax Office has stated that travel expenses will be considered to be
“reasonable” provided that they do not exceed the levels shown here.
Please note: Employees who receive daily travel allowance covering accommodation and/or food and/or
incidentals are required to fund the cost of the relevant component/s themselves, from the reasonable
allowance they receive.
The accommodation rates shown for domestic travel apply only for stays in commercial establishments like
hotels, motels and serviced apartments. If a different type of accommodation is used the rates do not
apply. The reasonable amount for meals only applies to meals (that is breakfast, lunch, dinner) that fall
within the time of day from the commencement of travel to the end of travel covered by the allowance.
The incidental expense amount applies in full to each day of travel covered by the allowance, without the
need to apportion for any part-day travel on the first and last day.
Table 1: Employee's annual salary - $117,450 and below

Place Accomm. $ Food and drink $ Incidentals $ Total $
B'fast 26.45
Lunch 29.75
Dinner 50.70
Adelaide 157 106.90 19.05 282.95
Brisbane 205 106.90 19.05 330.95
Canberra 168 106.90 19.05 293.95
Darwin 216 106.90 19.05 341.95
Hobart 132 106.90 19.05 257.95
Melbourne 173 106.90 19.05 298.95
Perth 203 106.90 19.05 328.95
Sydney 185 106.90 19.05 310.95
High cost country See Table 4 106.90 19.05 Variable - see Table
centres 4
Tier 2 country centres 132 B'fast 23.70 19.05 248.45
(see Table 5) Lunch 27.05
Dinner 46.65
Other country centres 110 B'fast 23.70 19.05 226.45
Lunch 27.05
Dinner 46.65
Table 2: Employee's annual salary - $117,451 to $209,000
Place Accomm.$ Food and drink $ Incidentals $ Total $
B'fast 28.80
Lunch 40.75
Dinner 57.05
Adelaide 208 126.60 27.25 361.85
Brisbane 257 126.60 27.25 410.85
Canberra 223 126.60 27.25 376.85
Darwin 287 126.60 27.25 440.85
Hobart 176 126.60 27.25 329.85
Melbourne 228 126.60 27.25 381.85
Perth 245 126.60 27.25 398.85
Sydney 246 126.60 27.25 399.85
High cost country See Table 4 126.60 27.25 Variable - see Table
centres 4
Tier 2 country centres 152 B'fast 26.45 27.25 285.45
(see Table 5) Lunch 27.05
Dinner 52.70
Other country centres 134 B'fast 26.45 27.25 267.45
Lunch 27.05
Dinner 52.70
Table 3: Employee's annual salary - $209,001 and above

Place Accomm. $ Food and drink $ Incidentals $ Total $
B'fast 34.00
Lunch 48.00
Dinner 67.30
Adelaide 209 149.30 27.25 385.55
Brisbane 257 149.30 27.25 433.55
Canberra 246 149.30 27.25 422.55
Darwin 287 149.30 27.25 463.55
Hobart 195 149.30 27.25 371.55
Melbourne 265 149.30 27.25 441.55
Perth 265 149.30 27.25 441.55
Sydney 265 149.30 27.25 441.55
Country centres $195, or the relevant 149.30 27.25 Variable - see Table
amount in Table 4 if 4 if applicable
higher
Table 4: High cost country centres - accommodation expenses

Country centre $ Country centre $
Albany (WA) 179 Jabiru (NT) 200
Alice Springs (NT) 150 Kalgoorlie (WA) 159
Bordertown (SA) 135 Karratha (WA) 300
Bourke (NSW) 165 Katherine (NT) 134
Bright (VIC) 152 Kingaroy (QLD) 134
Broome (WA) 260 Kununurra (WA) 202
Bunbury (WA) 155 Mackay (QLD) 161
Burnie (TAS) 160 Maitland (NSW) 152
Table 4: High cost country centres - accommodation expenses
Cairns (QLD) 153 Mount Isa (QLD) 160
Carnarvon (WA) 151 Mudgee (NSW) 135
Castlemaine (VIC) 146 Newcastle (NSW) 165
Chinchilla (QLD) 143 Newman (WA) 195
Christmas Island (WA) 180 Norfolk Island (NSW) 329
Cocos (Keeling) Islands (WA) 285 Northam (WA) 163
Colac (VIC) 138 Orange (NSW) 155
Dalby (QLD) 150 Port Hedland (WA) 260
Dampier (WA) 175 Port Lincoln (SA) 170
Derby (WA) 190 Port Macquarie (NSW) 140
Devonport (TAS) 145 Port Pirie (SA) 150
Emerald (QLD) 156 Roma (QLD) 139
Esperance (WA) 141 Thursday Island (QLD) 200
Exmouth (WA) 255 Townsville (QLD) 143
Geraldton (WA) 175 Wagga Wagga (NSW) 144
Gladstone (QLD) 187 Weipa (QLD) 138
Gold Coast (QLD) 200 Whyalla (SA) 163
Gosford (NSW) 140 Wilpena-Pound (SA) 167
Halls Creek (WA) 199 Wollongong (NSW) 136
Hervey Bay (QLD) 157 Wonthaggi (VIC) 138
Horn Island (QLD) 200 Yulara (NT) 300
Table 5: Tier 2 country centres

Country centre Country centre
Albury (NSW) Innisfail (QLD)
Ararat (VIC) Lismore (NSW)
Armidale (NSW) Mildura (VIC)
Ayr (QLD) Mount Gambier (SA)
Bairnsdale (VIC) Muswellbrook (NSW)
Ballarat (VIC) Naracoorte (SA)
Bathurst (NSW) Nowra (NSW)
Bega (NSW) Port Augusta (SA)
Benalla (VIC) Portland (VIC)
Bendigo (VIC) Queanbeyan (NSW)
Broken Hill (NSW) Queenstown (TAS)
Bundaberg (QLD) Renmark (SA)
Ceduna (SA) Rockhampton (QLD)
Charters Towers (QLD) Sale (VIC)
Coffs Harbour (NSW) Seymour (VIC)
Cooma (NSW) Shepparton (VIC)
Dubbo (NSW) Swan Hill (VIC)
Echuca (VIC) Tamworth (NSW)
Geelong (VIC) Tennant Creek (NT)
Goulburn (NSW) Toowoomba (QLD)
Table 5: Tier 2 country centres
Griffith (NSW) Tumut (NSW)
Gunnedah (NSW) Wangaratta (VIC)
Hamilton (VIC) Warrnambool (VIC)
Horsham (VIC) Wodonga (VIC)
Reasonable Overseas Travel Allowance Amounts

A list of amounts are available from ato.gov.au (request TD 2016/13), or by calling 1800 803 337. Note:
The overseas allowances reasonable amounts stated in the ruling do not include an accommodation
component (only meals and incidentals components are included). Allowances for overseas
accommodation must always be taxed and included on the employee's payment summary. Employee's
claiming a deduction for overseas accommodation must substantiate expenses.
Overtime meal allowance

Tax does not have to be withheld from an overtime meal allowance which is paid under an industrial
award, provided that the amount is not more than what the Tax Office considers to be reasonable. That
amount is $29.40 for meal allowance expenses for the 2016/17 financial year ($28.80 in 2015/16). A
deduction is not allowable for non-award overtime meal allowance.
Reasonable travel allowance for truck drivers

Amounts claimed up to the food and drink component only are to be considered reasonable for meal
expenses of employee truck drivers who are required to sleep away from home. For the 2015/16 income
year, the relevant amounts are listed here.
Food and drink – Employee truck drivers – $97.40 per day

B'fast $23.70 Lunch $27.05 Dinner $46.65
Living-Away-From-Home Allowances LAFHA (FBT Item)

LAFHA is a fringe benefits tax (FBT) item. FBT items are not subject to income tax in the hands of the
employee, therefore, tax should not be withheld from it, and it should not be shown on an employee’s
payment summary.
Living Away from Home Allowances Travelling Allowances

Paid where employee has taken up temporary residence Paid because employee is travelling in the course of
away from their usual place of residence in order to carry performing his/her job
out duties at new, but temporary, work place.
There is a change of job location in relation to payment of No change of job location in relation to payment of
allowance allowance
Where an employee is living away from home, it is more Where an employee is travelling, they are generally not
common for employee to be accompanied by spouse and accompanied by spouse and family
family
Paid for longer periods Paid for short periods
Change of residence (temporarily) in relation to payment No change of residence
of allowance
A living-away-from-home allowance is an allowance paid to an employee to help cover the additional costs
incurred through having to live temporarily away from home so as to perform the required duties of
employment. The accommodation portion of a living-away-from-home allowance can be FBT exempt if the
amount paid is considered reasonable and the employee qualifies for A LAFHA. The food component of a
living-away-from-home allowance is only partially exempt.
There can be circumstances when an employee is away from his home base for a brief period in which it
may be difficult to conclude whether the employee is living away from home or travelling. Where travelling
allowance is concerned, the Tax Office's practical rule is that the allowance can be treated as a travelling
allowance where the period away does not exceed 3 weeks. In the case of living-away-from-home
allowance, there is no set or maximum period that a person can be living away from their usual place of
residence to perform their duties of employment for the purposes of LAFHA however, a LAFHA can only be
paid for a maximum period of 12 months.
In determining whether an employee is paid travelling allowance or LAFHA, each case depends on its own
particular circumstances, and will be assessed on this basis.
See Section 6 for more information about LAHFA
Part Day Travel Allowances

Part day travel allowance (PDTA) is paid for travel when an employee is required to carry out official work
business away from their normal work place for 10 hours or more, but where the travel does not involve
an overnight stay. Part day travel allowances are subject to withholding tax. Employers must show the
allowances as part of gross payments on a payment summary. To claim a tax deduction for expenses
covered against a PDTA, an employee would be bound by normal substantiation rules. The Tax Office's
view is that expenses on food and drink (other than award overtime meal expenses) are deductible only
when an overnight stay is involved.
1.8.6 Treatment of reimbursements

A payment is a reimbursement when the employee is compensated exactly (meaning precisely, as opposed
to approximately) for an expense already incurred although not necessarily disbursed. In general, the
employer considers the expense to be their own and the employee incurs the expenditure on behalf of the
employer.
A payment is an allowance when an employee is paid a definite predetermined amount to cover an
estimated expense. It is paid regardless of whether the employee incurs the expected expense. The
recipient has the discretion whether or not to expend the allowance.
It is important to be aware of the difference between an allowance and a reimbursement. Generally, an
allowance is assessable as income for the employee, and is therefore subject to tax being withheld,
whereas a reimbursement is not assessable to the employee, but may be subject to fringe benefits tax.
The Tax Office has ruled that the meaning of the word “reimburse” includes payments made in advance of
expenditure as long as those payments possess the characteristics outlined in the preceding paragraph.
The ordinary meaning of the word “reimburse” implies that the employee is to be compensated exactly for
an expense already incurred although not necessarily disbursed. The definition of “reimburse” in the fringe
benefits tax legislation is wide enough to include payments made before expenses are incurred. However,
whether payment is made before or after expenses are incurred by the employee, it qualifies as a
reimbursement when the employer considers the expense to be its own and the employee incurs the
expense on behalf of the employer.
Allowances vs. Reimbursements

Danielle and Thomas are both employees of Faraway Investments Pty. Ltd. Apart from her usual salary,
Danielle, an investment consultant, is paid $500 per month to cover expenses she is expected to incur
while entertaining clients. Under an industrial award, Danielle also receives $50 per fortnight to cover
medical insurance premiums for herself and her family. To be entitled to the $50 per fortnight, Danielle is
required to produce a letter from the health fund certifying that she is a member. Apart from that, she is
not required to verify any of the expenses incurred in relation to both payments.
Thomas, a bookkeeper, is entitled to payment for medical insurance premiums for himself and his family
up to a limit of $300 per year. To claim the amount from his employer, he is required to produce his
insurance premium statements to his employer verifying the amount incurred by him in relation to those
premiums.
The payments made to Danielle for entertaining clients and for medical insurance are allowances. Danielle
is paid regardless of whether she spends the $500 on clients and whether she spends the whole $50 on
medical insurance. On the other hand, the payments made to Thomas are reimbursements. He is
compensated exactly for his medical insurance and would not be entitled to payment if he is unable to
vouch his claim. The upper limit of $300 per year does not alter the character of the payment. The
payment is based on the precise accounting of actual expenditure. Both allowances paid to Danielle should
be shown on her payment summary at the end of the year. The reimbursement paid to Thomas should not
be shown on his payment summary, but it is subject to fringe benefits tax.
1.8.7 Treatment of Workplace Giving amounts

As an employer, you can invite your employees to enter into a workplace giving program. Under the
program, employees nominate their preferred charity from a selection the employer provides and then
specifies the amount they wish to donate. Generally, the donation amount will be a fixed amount that will
be deducted from their salary or wages on each pay day. The employer then pays the donation directly to
the charity. The Work place giving arrangement does not affect an employee’s gross income or other
calculations, such as superannuation guarantee payments or fringe benefits (FBT).
Before a work place giving agreement is entered into, the employer must decide whether it will reduce the
amount of tax withheld from the employees’ salary to account for the total amount donated each pay
period. There is no obligation on the employer to reduce the amount of tax withheld from the employees’
salary. The employer should be aware of and inform employees that in some circumstances small donation
amounts will produce nominal change in the tax withheld per pay. The Tax Office provides an indicative tax
table showing the tax savings resulting from work place giving.
If the amount of tax withheld each pay period is not reduced, employees may receive a refund or lower tax
bill at the end of the year when they lodge their tax return. Employers must ensure records are kept of the
amount donated on behalf of each employee. At the end of the financial year, the employer should show
the normal gross salary (including the donated amount) and total tax withheld on each employee’s
payment summary. In addition to this, each employee should be informed of their total donations for the
year in the Work place giving field on the payment summary. Businesses who print their own payment
summaries can show donations the same way. The employee’s total donations should be shown. There is
no need to list each organisation separately.
Donations made through a salary sacrifice agreement – Employees may also arrange for donations to be
made through their employer under salary sacrifice arrangements. In this situation the donation will come
out of the employees’ pre-tax gross earnings and the employee’s PAYG withholding will be based on the
reduced salary and wages. The employer will claim the tax deduction for the donation, not the employee
and the donation will NOT be shown separately on the payment summary. Access more information at:
https://www.ato.gov.au/non-profit/gifts-and-fundraising/working-with-other-organisations/workplace-
giving-and-salary-sacrifice-arrangements/
1.8.8 Taxation of Return to Work Payments

A return to work payment is an amount paid to an individual as a means of inducing the individual to
resume work. Tax should be withheld from these amounts at a rate of 34.5% and the gross amount
recorded at gross payments on the individual non-business payment summary.
1.8.9 The Paid Parental Leave Scheme
All employers are required to facilitate the making of paid parental payments to eligible employees with
more than 12 months service.
Proposed - Responsibility for administration of the government’s Paid Parental Leave (PPL) scheme to be
returned to Human Services (THIS BILL HAS LAPSED)
From 1 July 2016 it was proposed that the administration of the paid parental leave scheme be returned to
the government. If this bill is passed, employees will receive their PPL payments directly from Human
Services. Employers will no longer be the intermediary and therefore will no longer be required to register
for PPL.
Overview of employer's role in the paid parental leave scheme

Employers providing Parental Leave Pay to eligible employees, follow these steps.
1. The employee discusses their leave intentions with the employer.

2. The employee lodges a claim with the Family Assistance Office, up to 3 months before the expected
date of the birth or adoption.
3. The employer registers for Centrelink Business Online Services and pre-registers for the Paid Parental
Leave scheme.
4. The employer opts in to provide government funded Parental Leave Pay to eligible employees.
5. Centrelink decide if the employee is eligible.
6. The employer accepts the decision of Centrelink requiring them to provide Parental Leave Pay.
7. The employer provides or confirms details with Centrelink.
8. Centrelink will provide Paid Parental Leave funds to employer before the employer is required to
provide Parental Leave Pay to the employee.
9. The employer will provide Parental Leave Pay to the employee in accordance with their usual pay cycle
throughout their Paid Parental Leave period.
10. The employer withholds tax from Parental Leave Pay under the usual PAYG withholding arrangements
and includes Parental Leave Pay at Gross Payments on the employee’s payment summary.
11. The employer provides a record of Parental Leave Pay for their employee - usually a payslip - no later
than 1 working day after the pay has been transferred and keeps written financial records of receipt of
Paid Parental Leave funds received from Centrelink and of the Parental Leave Pay provided to the
employee.
12. The employer is obligated to notify Centrelink when:
− the employee returns to work before or during their Paid Parental Leave period
− when an employees’ employment is terminated by either party
− if the employer’s bank account details or the employee’s pay cycle change
− if the employer receives an incorrect Paid Parental Leave funding amount, or
− if the employers business ceases (in advance if possible)
The employer returns any unpaid Paid Parental Leave funds to Centrelink.
Eligibility
It is not the employer’s obligation to determine whether an employee is eligible to receive this payment. It
is the responsibility of the employee to contact the Family Assistance Office in relation to their eligibility.
Employee’s they can lodge claims with the Family Assistance Office up to three months before the
expected date of birth or adoption. To be eligible for Paid Parental Leave, an employee must:
 be the primary carer of a child born or adopted on or after 1 January 2011;
 be in paid work and have been engaged in work continuously for at least 10 out of the 13 months
prior to the birth or adoption of the child and worked at least 330 hours in the 10 month period (an
average of around one day of paid work per week);
 not have worked between the date of birth or adoption of the child and their nominated start date for
Paid Parental Leave; and
 have an adjusted taxable income of $150,000 or less in the financial year prior to the date of birth or
adoption of the child or the date of their claim, whichever is earlier.
If a primary carer returns to work before they have received all of their Paid Parental Leave entitlement,
they may be able to transfer the unused part of their entitlement to another primary carer (usually the
father) who meets eligibility requirements. For more information access:
https://www.humanservices.gov.au/customer/services/centrelink/parental-leave-pay
How much is paid

A parent eligible for Paid Parental Leave will receive taxable payments at the Federal Minimum Wage,
currently $672.60 a week, for a continuous period of up to 18 weeks (a total of $12,106.80). Paid Parental
Leave payments will be taxable income and will affect entitlement to family assistance payments. Income
from Paid Parental Leave will not be treated as income for Parenting Payment (partnered and single), or
other income support payments, such as the Disability Support Pension and Newstart Allowance.
When can employees nominate to take their paid parental leave

Eligible parents nominate the period they are paid their paid parental leave. The nominated period can be
anywhere from the birth date up until the time that the child turns 12 months of age. The nominated
period can start from the date the child was born or adopted or at a later date. It cannot start before the
birth or adoption of a child.
Full payment must be received within 52 weeks from the date of birth or adoption. The parental leave pay
can be received before, after, or at the same time as employer-provided paid leave such as annual leave,
long service leave and/or employer funded maternity leave.
The employee's application

Employees must make leave and pay arrangements with their employers before they start leave, including
intentions to take unpaid parental leave. It is important for the employee to organise their leave from
employment at least 10 weeks before they intend to take the leave.
The employee’s application form will seek details such as:

 the expected confinement date;
 the employment status and details on the current employer;
 the work history (to establish eligibility); and
 the proposed start and end dates for the Paid Parental Leave payments.
The employee will need to produce sufficient evidence to establish eligibility. This may consist of copies of
tax assessment notices, payment summaries issued by employers, payslips or other similar forms of
evidence. The Family Assistance Office who administers the scheme will communicate with both the
employee and the employer. It will confirm with the employer that it has:
 appropriate details to properly identify the employer;
 the bank account details necessary to pay the employer;
 accurate information on the employer’s usual pay cycle to ensure that payments are made in advance.
Employer registration for paid parental leave

When an employee is eligible to receive paid parental leave, the employer must provide their bank
account details and their employee’s usual pay cycle details to Human Services so payment of Paid
Parental Leave funds can be received by the employer ahead of the employee’s pay cycle.
Employer’s can register online at:

http://www.humanservices.gov.au/business/services/centrelink/paid-parental-leave-scheme-for-
employers/
To register for the paid parental leave scheme and to deal with the Department of Human Services online,
an employer will need:
 an ABN
 an Auskey, employers who don’t have an Auskey should access
https://abr.gov.au/AUSkey/Registering-for-AUSkey/Register-for-an-AUSkey/
 the organisation’s name and business address details;
 the name and contact details of your organisation’s primary business contact/User (i.e. the main
contact and main user of the service)
 the name and contact details of the Authorised Person that the organisation designates to accept the
Terms and Conditions on the organisation’s behalf.
Keeping in touch with the workplace

Employees can keep in touch with the workplace whilst on paid parental leave subject to certain
conditions. A day of work is a keeping in touch day if the purpose of performing the work is to enable the
person to keep in touch with his or her employment or engagement in order to facilitate a return to that
employment or engagement after the period of leave. Activities such as training days, planning days and
conferences would meet this requirement.
Additionally, both the person and the entity must have consented freely to the person performing work for
the entity on that day, and the day must not be within 14 days after the day the child was born. Where an
employee and employer agree to a keeping in touch day, the employee will continue to be eligible for the
PPL scheme.
Employer makes payments to employee

Parents who claim Paid Parental Leave must receive their payments through their employer where they
are eligible to do so. Employers will only be required to make payments to employees who have 12 months
continuous service prior to the date of birth or adoption and are expecting to receive more than eight
weeks Parental Leave Pay.
Child Support payments and other deductions can be made from Parental Leave Pay if there is a
requirement to do so. Additionally, employees may salary sacrifice some or all of their Parental Leave Pay.
As with other salary sacrifice arrangements, an effective salary sacrifice agreement will need to be entered
into.
Human Services makes payments directly to employee

If requested, human services will pay the employee directly in the case where the employee has been
employed for less than 12 months with the current employer. When Human Services pays the employee:
 Human Services will withhold PAYG at the rate of 15% unless the employee requests another rate.
 The employee will not be able to salary sacrifice Parental Leave Pay.
 The employee can voluntarily request a Family Assistance and/or Human Services debt to be deducted.
Other important issues

 How Paid Parental Leave funding amounts will be provided to employers – Paid Parental Leave
funding amounts will be advanced to employers before the employer is required to provide Parental
Leave pay to an employee. These funds will be direct deposited into the employer’s nominated bank
account. There will be no obligation on an employer to provide Parental Leave pay until it has received
the required funds from the Family Assistance Office.
 Accounting for Paid Parental Leave funds in business accounts – In relation to financial reporting in
accordance with Australian Accounting Standards, employers will not need to account for Paid
Parental Leave funds as revenue or Parental Leave Pay as an expense in their financial statements.
However, they will need to include the cash receipts and cash payments in their statement of cash
flows. Accounts will need to show Paid Parental Leave funds received as a liability until an employer
provides Parental Leave Pay to their employee.
 Effect on PAYG withholdings – Parental Leave pay is taxable. Employers are required to withhold tax
from an employee’s Parental Leave pay at the appropriate rate for the employee, consistent with
other withholding obligations for pay and allowances paid to the employee.
 Effect on Payroll tax – Paid Parental Leave is not subject to payroll tax. Amounts of Parental Leave pay
will need to be identifiable from other amounts that attract a payroll tax liability.
 Effect on Workers compensation premiums – Paid Parental Leave will not give rise to additional
workers compensation premium liabilities. Amounts of Parental Leave pay will need to be identifiable
from amounts that attract a workers’ compensation premium.
 Effect on Superannuation – Employers will not be required to make superannuation payments for Paid
Parental Leave.
 Interaction with other leave – An employee may receive Parental Leave pay before, after or at the
same time as other employer-provided paid leave, such as annual leave and paid maternity leave, and
employer-provided unpaid leave. If an employee receives Parental Leave pay at the same time as
receiving other taxable entitlements such as paid leave, the employer will be required to withhold
PAYG amounts from the total amount of taxable entitlement for the relevant pay period. Employers
who already provide Paid Parental Leave through an industrial instrument cannot withdraw that
entitlement for the life of that instrument. However, during bargaining for a new agreement,
employers and employees will be able to agree to modify existing employer Paid Parental Leave
provisions in the light of the new Government scheme.
Proposed Removal of Double-Dipping from Parental Leave Pay (THIS BILL HAS LAPSED)
From 1 July 2016 it is proposed that primary carers will no longer have the ability to access the
government PPL scheme, in addition to any employer-provided parental leave entitlements. The
government will only pay the difference between the employer scheme and what the employee would
have received under the PPL scheme. If the employer scheme is more generous than the government
PPL scheme, no payment will be received from the government.
 Effect on accrual of leave entitlements – Employees will not accrue annual leave or personal leave
entitlements during a period of Government Paid Parental Leave.
 Replacement worker must be informed of parental leave – An employer must notify any employee
replacing someone on parental leave that his or her work is of a temporary nature before he or she is
officially engaged in the role. Additionally, employers must notify them of the rights of the employee
that they are replacing, and that the employer has the ability to cancel the leave in the event of
miscarriage, stillbirth, the child dying after birth or if an employee taking unpaid parental leave ceases
to have responsibility for the care of the child.
Dad and Partner Pay

Paid parental leave is available to eligible fathers and partners caring for a child born or adopted from
1 January 2013. This provides eligible working fathers or partners, including adopting parents and parents
in same-sex couples, with two weeks of dad and partner pay at the rate of the National Minimum Wage
(currently $672.60 a week before tax).
A father or partner can be eligible for Dad and Partner Pay even if a mother is not receiving Paid Parental
Leave. To be eligible for Dad and Partner Pay, a father or partner will need to:
 be caring for a child born or adopted from 1 January 2013
 be an Australian resident
 meet the Paid Parental Leave work test
− have worked for at least 10 of the 13 months prior to the start date of their Dad and Partner Pay
− have worked for at least 330 hours in that 10 month period (just over one day a week), with no
more than an eight week gap between two consecutive working days
 have an individual adjusted taxable income of $150,000 or less in the previous financial year
 be on unpaid leave or not working during the Dad and Partner Pay period.
Note: This is paid directly by the Government and there is no requirement for employers to be involved in
facilitating the payment.
Full-time, part-time, casual, seasonal, contract and self-employed workers may be eligible for dad and
partner pay. A person claiming dad and partner pay will need to nominate the date they want their
payment to start. The earliest day for which dad and partner pay can be paid is the date of birth of the
child or the date of placement of an adopted child. The nominated start date for dad and partner pay must
be before the child’s first birthday. Claims for dad and partner pay can be lodged now through the
Department of Human Services.
1.8.10 Treatment of Child Support Deductions
To benefit and support children of separated parents, the Tax Office set up the Child Support Agency (CSA)
to administer what is referred to as the Child Support Scheme. The agency collects child support from the
liable parent (the payer) directly, or through salary and wage deduction.
In this situation, the CSA contacts the employer. The employer is then required to complete a
questionnaire in relation to the relevant employee, disclosing information about the employee’s salary,
pay cycle and other details. On confirmation of these details the CSA writes a letter to the employer to
inform them of how much child support to withhold from the employee’s wages. The employer is required
to withhold child support from, salary/wages, commission, bonuses, allowances, some retirement or
termination payments, and other remuneration. It is withheld at the same time as PAYG instalments. The
child support should be sent to the CSA by the 7th day of the following month.
Child support deductions are taken from the employee's net pay and are not shown on the employee's
payment summary.
Protected Earnings Amount (PEA)

Child support payments can only be varied on advice from the CSA or if the child support deduction leaves
the employee with a wage that will not service a basic standard of living. The wage an employee receives
after all monies are deducted must be at least equal to what is referred to as the “protected earnings
amount”. The protected earnings amount for the 2016 calendar year is $354.45 per week. If the
employee’s wage is below this level after all withholdings are made, the child support withheld must be
altered to ensure the employee receives at least $354.45 per week.
Processing child support deductions

The procedure for processing employer deductions is as follows:
 Calculate the gross payment for the current pay/payment cycle.
 Make the tax-withheld deductions from the gross pay/payment amount.
 Set aside the Protected Earnings Amount.
 Make the employer deduction (or as much of the specified amount as can be deducted after the PEA
has been set aside).
 Add the PEA to the remaining pay/payment.
 Make any voluntary deductions. If there are no voluntary deductions, this amount is the net
pay/payment to be paid to the employee.
 Remit the employer deduction amount of child support.
If the full amount of the employer deductions cannot be made at step 4 due to the PEA, the employer
must deduct the maximum amount possible, remit the reduced deduction and advise the reason for the
variation. Employers who are registered with CSAonline Business Services can report the variations online.
For other employers this can be done via phone, or by mailing or faxing a Child Support Deductions Report
which is available at:
http://www.humanservices.gov.au/business/forms/cs4964
Example – Stewart earns $710 per week. His employer receives a child support deduction notice
requesting $290 per week. The employer processes the deduction as follows:
Gross weekly pay $710.00

Less tax $82.00
Net wage $628.00
Less PEA (the amount the employee must be left with) $354.45
Amount remaining (this will be the child support deduction) $273.55
The employer is only able to deduct $273.55 of the requested $290.00 for the child support payment. The tax and
the protected earnings amount are taken into account before the child support deduction.
Salary sacrifice and child support deductions
A salary sacrificing arrangement is when an employee agrees to forego part of their salary or wages, in
return for employer provided benefits of a similar value. If a salary sacrificing arrangement is in place, the
employee’s obligations in relation to child support deductions remain, however the child support is only
deducted after the salary sacrifice arrangement has been deducted.
Example – Bruce earns $1,000 per week and has a salary sacrifice arrangement in place. He salary
sacrifices $500 per week to a superannuation fund. His employer receives a child support deduction notice
requesting $250 per week. The employer processes the deduction as follows:
Gross weekly pay $1,000.00

Less Salary sacrifice $500.00
Less tax $38.00
Net wage $462.00
Less PEA (the amount the employee must be left with) $354.45
Amount remaining (this will be the child support deduction) $107.55
The employer is only able to deduct $107.55 of the requested $250.00 for the child support payment. The salary
sacrifice arrangement, tax and the protected earnings amount are taken into account before the child support
deduction.
Child support employer calculator

The Child support agency has an employer calculator which can be accessed by employers at:
https://processing.csa.gov.au/calculator/employer.aspx#basic
1.8.11 Treatment of pay with purchased leave

Purchased leave is a scheme whereby employees enter into an arrangement in order to buy and access
leave in addition to their normal entitlement to paid annual leave. Employers can set their own policy in
relation to purchased leave, for example, requiring a 12 months’ participation, whereby an employee can
agree to take a reduced salary spread over 12 months and receives up to 4 weeks’ additional leave.
Effectively, purchasing leave is equivalent to taking leave without pay. However, in order to receive pay
whilst you’re on that leave you organise to receive less pay every pay period of the year.
Annual projection – Comparison between no purchased leave and purchase of an additional 4 weeks leave
No purchased leave Employee opts to purchase 4 weeks leave
Gross wage $52,000.00 $48,000.00

Tax $9,516.00 $8,112.00
Net $42,484.00 $39,888.00
Superannuation guarantee $4,940.00 $4,560.00
Annual leave accrual (4 weeks) 152 hours 140.3 hours
Purchased leave accrual 0 hours 140.3 hours
Weekly projection (This is what is paid to employee for all 52 weeks including the 4 weeks of purchased
leave)
No purchased leave Employee opts to purchase 4 weeks leave
Gross wage $1,000.00 $923.07
Tax $183.00 $156.00
Net $817.00 $767.07
Superannuation guarantee $95.00 $ 87.70
Annual leave accrual 2.923 hours 2.698 hours
Purchased leave accrual 0 hours 2.698 hours
1.9 Treatment of payments made under a Labour Hire arrangement
Under a labour hire arrangement, a user of labour (the client) typically contracts with a labour hire firm for
the provision of labour of a specified kind. The labour hire firm does not contract to perform the work; it
contracts to provide labour to work under the direction of the client. The labour hire firm then contracts
with the worker under a labour hire arrangement. The worker is not an employee of the labour hire firm or
the client and there is no contract between the worker and the client.
There is a specific requirement for tax to be withheld by the ‘labour hire firm’ from any payments made to
individuals which are for work or services, made under a labour hire arrangement.
Please note: Labour hire firms can only withhold under PAYG labour hire arrangements or individual or in
accordance with the rules which apply to normal employees. Where labour hire firms choose to use the
rules that apply to normal employees, they will not be affected by the labour hire arrangement rules.
1.9.1 Withholding under a Labour Hire arrangement:

1. ABC Hire keeps the records of workers on file who are contacted when their services are required.
2. Law firm requests that ABC Hire provide them with a clerk for an agreed period.
3. ABC Hire invoices law firm for the whole contract price.
4. ABC Hire contracts with Julie to do the work for the law firm.
5. ABC Hire withholds tax from the payments it makes to Julie under its arrangement with her.
6. Mrs Smith wants her house cleaned and contacts House Cleaners Pty Ltd.
7. House Cleaners Pty Ltd invoices Mrs Smith for the whole contract price.
8. House Cleaners Pty Ltd sends Mary Jones to carry out the work.
9. House Cleaners Pty Ltd pays Mary Jones under the labour hire arrangement.
Even if a business is only partially involved in arranging for people to perform work or services for that
business' clients, then under the PAYG law, a labour-hire business is being carried on.
Rates of withholding under a Labour Hire arrangement

Workers employed under a labour hire arrangement must complete a TFN declaration. They are paid
under the same tax rate system that applies to normal employees; however, there is no provision for
annual leave and the like.
Withholding is not required in all cases

Withholding is not required in certain situations, including when:
 the activity is incidental to the organisations other business activities. For example, a solicitor
arranging for a barrister to perform work for the solicitor’s client would be incidental to the solicitor’s
other business activities. Withholding would not be required in relation to the payments the solicitor
makes to the barrister;
 the payment made by a contractor to a subcontractor. For example, John is a builder and contracts
with Sharon to build her a house. He subcontracts Brian for the electrical work. John does not have to
withhold amounts, under labour hire arrangements, from his payments to Brian because Brian is not
performing the work directly for Sharon;
 the arrangement involves a recruitment or placement agency where a contractual relationship arises
between the business and the worker. In this case, the business requiring staff will usually pay the
employment/recruiting agency a one off payment. This payment is not connected with any work
performed by the recruited worker, but rather, it is a fee for recruiting a worker suited to a specific
position.
 the worker is not an individual. The labour hire firm is only required to withhold tax from payments it
makes to individual workers under a labour hire arrangement. When paying a company, the labour
hire firm will require an invoice with an ABN from the company carrying out the work. GST will be
included on the invoice if the company carrying out the work is registered for GST.
GST implications of a Labour Hire arrangement
There is no GST on payments made to workers by the labour hire firm. GST is not payable on the invoice by
the worker to the labour hire firm. Nor can the worker claim input tax credits for any GST paid for goods or
services bought and used in performing the work or services provided to the client of the labour hire firm.
If the labour hire firm is required to be registered for GST, then GST will be payable on the firm’s supply to
the end user. In other words, the labour hire firm will include GST in the amount charged to their client.
Treatment of reimbursements made under a Labour Hire arrangement

There is no requirement to withhold tax from payments of reimbursements made to individual workers
under a labour hire arrangement, provided:
 the expense that the payee incurs is related directly to the payee’s work or services performed under
the labour hire arrangement;
 the expenses that the payee incurred may be able to be claimed as a tax deduction at least equal to
the amount of the reimbursement;
 the payee is advised that they will need to keep the necessary written evidence to substantiate the
deduction claimed for the expenses; and
 the amount and nature of the reimbursement is shown separately in the accounting records of the
payer.
All reimbursements must be recorded at the 'gross payments' field on the Business and Personal Services
Income Payment Summary.
1.10 Treatment of payments made under a Voluntary Agreement

Businesses and certain workers can agree to bring payments made to the worker into the PAYG
withholding system under a voluntary agreement, when no other PAYG withholding applies. Under a
voluntary agreement, a business can deduct amounts from payments to a worker and remit them to the
Tax Office. This assists the worker in meeting their annual income tax liability.
1.10.1 Establishing a Voluntary Agreement

A voluntary agreement is a written agreement between a business and a worker. A voluntary agreement
can be established between a worker and a business when certain conditions are satisfied. The
requirements are as follows:
 the payment under the arrangement must be, in whole or part, for the performance of work or
services;
 the worker must be an individual (if the worker is an entity, e.g. a company, no agreement can be
made);
 the worker must have an Australian Business Number (ABN); and the payments must not be subject to
any other PAYG withholding.
When two parties decide to enter into a voluntary agreement, the agreement itself must contain certain
information. A PAYG voluntary agreement form is available; however, it is not compulsory to use the
official form. Instead, parties can draft their own written agreement as long as it contains the following
details. They are:
 the commencement date of the agreement;

 what the payments are for (e.g. plumbing services);
 information stating that the payments made under the arrangement are subject to the voluntary
agreement provision;
 the worker’s ABN, name & address;
 the payer’s ABN, name and address;
 the rate of withholding;
 the signatures of both the payer and payee; and
 the amount of payments the agreement will cover i.e. only one or successive payments over a period
of time.
If the initial voluntary agreement specifies that it applies to successive arrangements between the business
and the worker, there is no need to complete a new agreement for each payment made. Either party can
end a voluntary agreement at any time by notifying the other in writing. The business and the worker must
keep copies of the agreement while it is in force and for five years after it ends.
Arrangements suited to the establishment of a Voluntary Agreement

The following are examples of situations that are considered as being conducive to the establishment of a
voluntary agreement. They include:
 a plumber who contracts with a building company to undertake plumbing work on new units;
 a computer consultant who has a contract with a manufacturing company to develop an electronic
reporting system;
 a marketing consultant who contracts with a large retailing firm to undertake market research.
Please note: before a voluntary agreement is entered into, both the payer and the payee must ensure that
a master/servant relationship does not exist between the two parties.
1.10.2 Rates of withholding under a Voluntary Agreement

Under a voluntary agreement, tax will be withheld from payments made to the payee at the lower of:
 a flat rate of 20%; or
 at the payee’s instalment rate.
If applicable, the payee is informed of their instalment rate by the Tax Office. A payee's instalment rate is
referred to as the Commissioners instalment rate or CIR. The payer then withholds at the appropriate rate
from the gross amount payable.
If the payee has a CIR he/she is obligated to inform the payer of their rate. If the payee does not have a CIR
or does not know their CIR, tax should be withheld at the flat rate of 20%. Workers who have amounts
withheld under a voluntary agreement will not need to include that income on the Business Activity
Statement as income.
Please note: As stated earlier, in some cases a payee must include GST in the price charged under a
voluntary agreement i.e. if the worker is supplying services to a business that is not entitled to full input
tax credits, e.g. a financial institution. When this occurs, the payer must deduct the GST from the gross
amount before calculating the amount of tax to withhold.
1.10.3 GST Implications of a Voluntary Agreement

Goods and services tax (GST) will not be payable on supplies made under a voluntary agreement, even if
the worker is registered for GST. A worker who is registered for GST and who is the recipient of payments
under a voluntary agreement, can however, claim the input tax credits for any GST paid for goods or
services bought and used in performing the work or services under the voluntary agreement.
Example: John runs a small car repair workshop. He contracts with Used Car Yard Pty Ltd to carry out
minor repairs on their newly acquired cars. John and Used Car Yard Pty Ltd enter into a voluntary
agreement. Used Car Yard Pty Ltd deducts tax from the payments it makes to John. Although John is
registered for GST he does not add GST to the price he charges Used Car Yard Pty Ltd, as there is no GST
liability under a voluntary agreement. However, he can claim input tax credits for any GST paid on goods or
services bought or used in performing the work he carries out for Used Car Yard Pty Ltd.
One exception to the rule is where the supply involves an entity that is not entitled to full input tax credits.
That is, GST will be payable on supplies made under a voluntary agreement if the worker is supplying
services to a business that is not fully entitled to input tax credits for that transaction, e.g. a financial
institution.
1.11 Treatment of payments made to a supplier who does not quote an
ABN
If an entity supplies goods or services to another business and does not quote an Australian Business
Number (ABN), the business that receives the goods or services is required to withhold tax from the
payment to the supplier. The requirement to quote an ABN applies whether or not the payer or the
supplier is registered, for GST.
Normally an ABN will be quoted on the supplier’s invoice which will be kept by the recipient of the supply
in their business records. A supplier may also quote their ABN on another document as long as it relates to
the supply they are making. For example, their ABN can be quoted on:
 a quotation notice that relates to the supply;

 a renewal notice for insurance or subscriptions;
 an order form that you used to order the supply;
 a contract or lease document;
 a catalogue produced by the supplier; or
 a voluntary withholding agreement.
Withholding of tax from payments to a supplier of business supplies who does not quote an ABN, applies
to all types of entities, including individuals, partnerships, and companies or trusts.
Payers cannot claim an input tax credit where there is no ABN on the invoice. If a payer doubts the
authenticity of an ABN that has been quoted on an invoice (or similar document), the validity of the ABN
can be checked by accessing the Australian Business Register on-line at www.abr.business.gov.au
1.11.1 Rate of withholding where no ABN is quoted

Recipients of payments who fail to provide an ABN on an invoice will be subject to tax being withheld from
the payment at the top marginal rate plus Medicare levy (currently 49%). The payer should remit the
amount withheld to the Tax Office with other PAYG withholding obligations for that period.
Exceptions to Withholding Where No ABN is Quoted

In certain circumstances, payers are not required to withhold tax when no ABN is quoted on the invoice.
Those circumstances include:
 the total payment you make to the supplier is $75 or less, excluding goods and services tax (GST)
 the supplier is an individual under 18 years of age and your payments to that person are $350 or less
each week
 the goods or services are supplied through an agent who has quoted their ABN on an invoice or some
other document relating to the supply (including a ‘Statement by supplier’ – see over page)
 the goods or services supplied are wholly input taxed under GST
 the entire payment you make is exempt income for the supplier
 the supplier is not entitled to an ABN as they are not carrying on an enterprise in Australia.
1.11.2 Statement by supplier

In some cases, a supplier can provide the payer with a written statement referred to as a 'Statement by a
Supplier' to avoid the payer withholding 49% as a result of no ABN being quoted. Those cases are where
the supply was:
 an activity done as a private recreational pursuit or hobby; or
 wholly of a private or domestic nature for the recipient; or
 by a non-resident who is not carrying on an enterprise in Australia; or
 exempt from income tax (e.g. a charity); or
 being made by an individual or on behalf of a partnership where there is no reasonable expectation of
profit or gain from the activity undertaken and the individual considers that they (or the partnership)
do not meet the definition of enterprise for tax purposes.
The 'Statement by a Supplier' form is available from the Tax Office, or suppliers can create their own. It
should contain:
 the supplier’s name and address
 the reason for the non-requirement to withhold (as stated above), and
 the supplier’s signature.
The statement can be on the invoice. If it is separate, the payer must be able to link its transaction records
to show why it did not withhold. If the payer suspects that the statement is false, it must withhold from
the payment if the supplier does not quote their ABN.
There is also a Statement by supplier form available specifically for the metal industry. This can be
downloaded from the Tax Offices website.
1.12 Treatment of payments made for a Non Cash Benefit (that are not
FBT items)
Certain non-cash benefits are also caught under the PAYG withholding system. Under this measure,
businesses that provide a non-cash benefit must withhold tax equal to the amount that would have been
withheld had the payment been made in cash.
Example: Mike is a building contractor who has entered into an agreement with John. Under the
agreement Mike proposes to give John his old ute as payment for work John had carried out two weeks
prior. The market value of the ute is $1,000. In accordance with current rates, if Mike had paid John the
$1,000 in cash, he would have been required to withhold $183. Under PAYG withholding arrangements,
Mike would still be required to remit $183 to the Tax Office in relation to this agreement.
There is no requirement to withhold if the benefit is a fringe benefit, an exempt benefit under the Fringe
Benefits Tax Assessment Act 1986 or a benefit being the acquisition of a share or right under an employee
share scheme.
The payer can recover the amount paid to the Tax Office
The amount paid by the payer to the Tax Office is a debt that the payer may recover from the recipient. In
the above example, this means Mike can recover, from John, the amount of $183 that was paid to the Tax
Office. Mike would provide John with a payment summary stating gross payments of $1,000 and tax
withheld of $183. John will include this in his tax return.
1.13 References and Further Information

 Publications (Use NAT number)
 These are available in pamphlet form by contacting your local Tax Office on 13 28 66 or by using the
on-line ordering system at https://business.iorder.com.au/bLogin.aspx
 Tax Office's Internet site
 You can access the Tax Office website at www.ato.gov.au. The site has a wide range of information on
all topics in relation to an employer's taxation responsibilities, including those shown over the page.
Publication/Fact Sheet Title NAT Number
PAYG withholding variation short application 2015 – This application should be used when ATO Website
the payee wants to reduce their PAYG withholding rate on their allowances, director’s fees,
HELP/SFSS over payments or HELP/SFSS deferral.
Withholding Declaration ATO Website
Tax File Number Declaration ATO Website
PAYG bulletin no. 1 – Taxing of allowances for the 2000/01 and future income years ATO Website
PAYG – How to determine if workers are employees or independent contractors ATO Website
Allowances paid to religious practitioners PAYG withholding for the 2002/03 and future years ATO Website
PAYG withholding and religious practitioners – fact sheet for religious institutions ATO Website
Community Development Employment Program (CDEP) ATO Website
PAYG Tax Tables – Weekly Rates 1005
PAYG Tax Tables – Fortnightly Rates 1006
PAYG Tax Tables – Monthly Rates 1007
HELP – Fortnightly Tax Table 2185
HELP – Monthly Tax Table 2186
HELP – Weekly Tax Table 2173
PAYG Withholding - Schedule 8 (calculating HELP in conjunction with SFSS) 3539
Schedule 16 - statement of formulas for calculating SFSS component including coefficients 3305
for calculating weekly withholding amounts incorporating SFSS component
Schedule 14 - statement of formulas for calculating HELP component including coefficients 3539
for calculating weekly withholding amounts incorporating HELP component
PAYG Withholding Tax Table – Bonuses, commissions and backpayments 3348
PAYG Withholding Tax Tables – Return to work payments 3347
PAYG Withholding Tax Tables – Statement of Formulas for Calculating Amounts to be 1004
withheld
A Voluntary Agreement for PAYG withholding (form) ATO Website
Activity Statement instructions PAYG Instalments ATO Website
Add a new business account ATO Website
Introduction to pay as you (PAYG) income tax instalments ATO Website
PAYG withholding for Large Withholders 3301
Magnetic media Information – Withholding where ABN not quoted annual reports ATO Website
How to lodge your PAYG annual reports electronically 3367
PAYG instalment income - partnership 3494
PAYG instalments for primary producers and special professionals ATO Website
PAYG Voluntary Agreements 3063
PAYG withholding - how to complete your activity statement ATO Website
PAYG withholding for small business ATO Website
PAYG withholding tax tables – Payment made under voluntary agreements 3352
PAYG withholding where ABN is not quoted – Annual report 3448
Personal Services Income: Additional PAYG withholding obligations ATO Website
Registering for pay as you go (PAYG) withholding ATO Website
Withholding for non-cash benefits ATO Website
PAYG Withholding Tables – Commission payments ATO Website
PAYG Withholding Tax Tables for senior Australians 4466
General anti-avoidance rules and how they may apply to a personal services business 8028
Special Tax Tables – Daily and Casual Workers 1024
Special Tax Tables for Actors, Variety Artists and other Entertainers 1023
Special Tax Tables for Individuals Seasonally employed in the Horticultural Industry 1013
Special Tax Tables for Individuals Seasonally employed in the Shearing Industry 1014
Volunteers and Tax 4612
Schedule 15 - Statement of formulas for calculation withholding amounts for members of the 2446
Defence Force
How to set up a work place giving program ATO Website
PAYG withholding – Performing artists and promotional activities ATO Website
The Building and construction industry - employee/contractor decision tool ATO Website
2 PAYMENT SUMMARIES & OTHER REPORTING
REQUIREMENTS
2.1 Interacting with the Tax Office online

Most of a business’s reporting obligations and other transactions in relation to the Tax Office can be
facilitated online. The organisation will require an Auskey to do this. All the methods shown here require
an Auskey.
2.1.1 How to Register for an Auskey

 Associates eligible for an Auskey – To register for an Administrator Auskey you need to be recorded on
an Australian business number (ABN) in the Australian Business Register (ABR) as one of the associates
listed below.
− Trustee
− Public Officer
− Director
− Partner
− Office Bearer of a
club/association
− Individuals/Sole traders can
also use the online
registration to register for an
Administrator Auskey.
 If you are not an eligible
associate, one of the
organisation’s office bearers
listed above will have to set up
the Auskey and be an
Administrator Auskey user. They
can then register other people to
use the Auskey.
 Check your ABN details are up to
date on the Australian Business
Register (ABR). The initial
registration of an Auskey will be quick if the data can be matched with ABR. This can be done at: https
 Register for an Auskey:
https://abr.gov.au/AUSkey/Registering-for-AUSkey/Register-for-an-AUSkey/
An Auskey can be saved to a USB for portability if required. The Tax Office can be contacted on
1300 Auskey (1300 287 539) to assist businesses in relation to general Auskey enquiries.
For the online registration you will need:

− the ABN of the business you want the Auskey to be linked to
− your full legal name
− your date of birth
− your personal tax file number (TFN) – Providing your personal TFN is not mandatory, but will speed
up the registration process. If you don’t provide your TFN you will need to call 1300 Auskey
(1300 287 539) and provide extra details so the Tax Office can confirm your identity and complete
the registration.
− an email address that only you have access to.
Note: Most web browsers require the installation of Java software in order to use the business portal with
an Auskey. The user will generally be prompted if Java is required and not yet installed.
Page 56 Section 2 — Payment Summaries & other Reporting Requirements Taxation Seminar
2.1.2 The Tax Office’s Business Portal
There are several online
services with the most
widely used being the
Business Portal. Once an
organisation has an
Auskey installed on its
computer, access to the
business portal is
immediate. The portal
can be accessed at:
https://bp.ato.gov.au/
What can be done

through the Business
Portal
The Business Portal is a
secure website for
managing your business
tax affairs with the Tax
Office protected by
Auskey. Through the
portal organisations can:
 view, prepare, lodge
and revise activity
statement
 view and request
refunds from, income
tax accounts, fringe
benefits tax accounts,
excise accounts,
some superannuation
accounts
 view statement of
account and payment
options for a running
account balance and
income tax accounts
 update details
 transfer funds
between accounts
 test, lodge and
download selected
files.
Online forms in the

Business portal
Apart from Activity
Statements, there are
currently only three
online forms (see
previous page) that can
be completed and
submitted through the portal without the need for any additional software.
Taxation Seminar Section 2 — Payment Summaries & other Reporting Requirements Page 57
Activity Statements in the Business Portal
Most types of activity
statements can be lodged
and revised online through
the Business Portal. The
user will receive instant
confirmation that the
activity statement has been
lodged. The statement can
also be viewed and printed.
All previously lodged
statements are also
available.
Organisations that lodge
their activity statements
online through the
business portal may qualify
for an extra two weeks to
lodge and pay amounts
owing in relation to the
activity statement. The Tax
Office no longer forward
paper activity statements
to organisations that have
commenced lodging
activity statements online. The Tax Office will send notification by email that an activity statement is
available to access online.
File Transfer in the Business Portal

The following files can now
be securely lodged through
the Business Portal but
only with supported
software:
 Payment summary
annual report (also
known as EMPDUPE)
 TFN declaration
 Taxable payments
annual report
 Quarterly TFN/ABN
report and Corrected TFN/ABN return file
 Annual investment income report (AIIR) and Corrected TFN/ABN return file
 Member contributions statement (MCS)
 Super TFN Integrity Check (SuperTICK)
 Employer TFN Integrity Check (ETICK).
Whilst the forms above can be securely supported and lodged electronically through the file transfer
facility, to lodge a file electronically you must first create a file that is generated from your software in a
format supported by the Tax Offices’ systems. The Tax Office lists products that meet their requirements.
That list is available at:
http://www.sbr.gov.au/products-register/browse-products-by-form/australian-taxation-office
Important information for file transfer and SBR: You must check with the software developer as to
whether their software can generate the latest electronic version of a particular form or document. For
example, even though MYOB is listed as being able to generate electronic TFN Declarations, not all
versions of their products are able to do so.
2.1.3 Standard Business Reporting (SBR)

Standard Business Reporting (SBR) is a way to prepare and lodge reports to the Tax Office directly from
business accounting or payroll software. SBR is considered by government as the future of electronic
service delivery.
To lodge forms etc. using SBR, you'll need an AUSkey along with SBR-enabled business software. The Tax
Office lists SBR enabled software providers at:
http://www.sbr.gov.au/sbr-products-register/sbr-product-register-full-list
The Tax Office accepts lodgements via SBR-enabled software for a wide range of forms and statements.
The forms most relevant to employers include:
 Business activity statement (4195)
 EmployerTICK (ETIC)
 Fringe benefits tax (FBT) return (1067)
 Non-individual PAYG payment summary schedule
 PAYG payment summary - business and personal services
 PAYG payment summary - employment termination payment summary data record
 PAYG payment summary - individual non-business
 PAYG payment summary - superannuation income stream payment summary data record
 PAYG payment summary - superannuation lump sum payment summary data record
 Personal services income schedule (3421)
 Super tax file number integrity check (STIC)
 Taxable payments annual report (TPAR)
 Tax file number declaration (3092)
2.1.4 The Electronic Commerce Interface (ECI) – Ceasing as of December 2017

To use ECI, software must be downloaded from Tax Office. This allows business to lodge bulk files that are
not supported through the portals, such as employee share scheme annual reports. It's mainly used by
larger businesses and tax practitioners. Only documents relating to the 2015/16 financial year will
accepted. Documents relating to future years will need to be lodged using the business portal or SBR.
The Australian Taxation Office's Electronic Commerce Interface (ECI) Client software is an application that
allows businesses with an Australian Business Number (ABN) to communicate with the ATO electronically.
Some examples of the functions you can perform are:
 collecting documents/files from the ATO electronically
 sending documents/files to the ATO electronically
 checking your documents/files for errors before sending
 send secure messages to the ATO via the Internet (Superannuation only).
Allows general businesses access to the most commonly used functions such as:
 Activity Statements (the sub menu link to the In Tray, Out Tray and Sent Items used for the download
and lodgment of activity statements
 PAYG Summary Reports (functions used for the validation and lodgment of bulk data files created in
commercially available HR software)
 TFN Declaration Reports (functions used for the validation and lodgment of bulk data files created in
 ESS Annual Reports (functions used for the validation and lodgment of bulk data files created in
2.2 Types of Payment Summaries
Businesses are required to complete a payment summary for each worker who has received payments
under the PAYG withholding system. Depending on the arrangement under which the worker is paid, one
of the following payment summaries will be issued:
 the Individual non business payment summary;
 the Business and Personal Services Income Payment Summary;
 the Foreign Employment Income Payment Summary; or
 the Withholding where ABN not quoted Payment Summary.
These will be discussed in turn.
This section refers to workers' payment summaries, not ETP payment summaries. Employment
termination payment summaries are used in relation to lump sum payments on termination of
employment; these will be discussed in detail in Section 4.
2.2.1 Issuing a Payment Summary (excluding withholding where ABN not quoted)
Issuing a Payment Summary Immediately at End of Financial Year

The payment summary will record workers' payment details for the previous financial year. Workers still
employed on 30 June must be issued with a payment summary no later than 14 July of the following
financial year.
Issuing on Paper
The individual non business payment summary provides details of payments made to employees under
common law. There are three copies of each payment summary. They are as follows:
 The top copy is the Tax Office’s copy which should be sent to the Tax Office together with the
appropriate annual reconciliation/report for the financial year, by August 14th.
 The next copy is given to the worker to keep in his/her personal records. Workers are no longer
required to attach a copy to their tax return.
 The final copy is kept by the employer/payer as the file copy.
If a worker loses his or her payment summary, do not give them another one. The simplest solution is to
give them a photocopy of the payer's copy. Alternatively, a letter setting out the details that were on the
payment summary will do. Do not send unused or cancelled payment summaries back to the Tax Office.
Issuing Electronically
Payment summaries may be provided to employees electronically if the employer lodges their PAYG
withholding payment summary annual report electronically. All electronic payment summaries provided by
an employer must be non-editable, and use letter quality print so that it may be easily read.
Employers intending to provide payment summaries electronically must contact their employees and give
them the choice of receiving their payment summaries either electronically, or on paper. Where an
employee does not respond, the employer can issue the payment summary electronically.
Employers must inform employees of when the payment summaries are available and ensure that
employees know how to access and print their payment summaries. It is also important to ensure the
method chosen to distribute electronic payment summaries is secure enough to protect the tax file
numbers and other personal information, and to meet obligations under privacy and taxation law.
If a Mistake is Made
During Completion – If a mistake is made on a payment summary during completion, destroy and discard
the old payment summary and complete a new one.
After Completion – If there is an error in the original payment summary provided to an employee, an
amended payment summary must be issued. If this is the case, the amended payment summary box will
be marked with an X. Employees who receive an amended payment summary and have not yet lodged
their income tax return, will use the information on the amended payment summary – not the original – to
complete their return. Send the amended payment summary to:
Australian Taxation Office

Locked Bag 50
PENRITH NSW 2740
Employees, who have already lodged their income tax return and receive an amended payment summary
after the lodgement, will need to lodge an amendment to their income tax return. If the payee loses their
payment summary do not issue a new one. Give them a certified copy (of your own copy), or a signed
statement showing all the details from the lost payment summary.
Only Individuals can receive a Payment Summary

A payment summary must be issued to each worker who has received payments under the PAYG
withholding system, even if no tax has been withheld from the earnings. A payment summary cannot be
issued to a partnership, company, or trust. The exception to this rule is the Withholding where ABN not
quoted payment summary, this will be discussed shortly.
Please note: Normally only persons who receive salary and wages can receive a payment summary;
however, for FBT reporting purposes, any individual can receive a payment summary including former
employees, future employees and persons who have received fringe benefits but no salary or wages in
return for employment type services.
Issuing a Part-year Payment Summary

A part year payment summary is issued when a worker ceases employment or whenever a worker
requests a payment summary.
A part-year payment summary must be given to the worker within 14 days of when it is requested in
writing. A payer can issue a part year payment summary when:
 the worker requests the payment summary before 10 June; and

 the worker does not have a reportable fringe benefits amount.
Note – Where an employee has received an employment termination payment the employee must be
provided with an ETP Payment Summary within 14 days of the payment being made.
If a part-year payment summary is issued, any future payment summary will only cover wages paid and tax
withheld since the date of issue of the previous payment summary.
2.2.2 Completion of the Individual Non-business Payment Summary
Avoiding Common Errors on the PAYG Individual non business payment summary
There are common errors made in relation to completion of the PAYG Individual non business payment
summary.
DO NOT DO THE FOLLOWING: CORRECT

Do not include amounts paid as employment termination Report employment termination payments and the tax
payments (ETP) or the tax withheld from ETPs. withheld from them only on a PAYG payment summary -
employment termination payment (NAT 70868).
Do not include amounts paid under a salary sacrifice Amounts that are paid to a super fund under a salary
arrangement at Gross payments. sacrifice arrangement must be reported at Reportable
employer superannuation contributions.
Any other amounts paid under a salary sacrifice
arrangement may need to be reported at Reportable
fringe benefits amount; otherwise, they should not be
reported on the payment summary.
Do not include amounts shown in Lump sum fields Any amount recorded in a Lump sum field is not shown
A, B, D and E at Gross payments. at gross payments.
Do not include cents at Reportable fringe benefits Do not show cents at any label - instead, remove the
amount. cents from any amount before you enter it on the
payment summary.
Do not include contributions for super guarantee Amounts that are paid to a super fund under salary
obligations or industrial agreement obligations at sacrifice arrangement must be reported at Reportable
Reportable employer superannuation contributions. employer superannuation contributions.
Do not include living-away-from-home allowance fringe Do not report LAFHA amounts on the payment
benefits at Allowances. summary, unless it forms part of the reportable fringe
benefits amount as a result of not meeting the exemption
requirements.
Do not include amounts reported at Allowances in Gross If you report an allowance at Allowances, do not include
payments. it in the amount reported at Gross payments.
Do not report negative amounts. To amend a previous year's payment summary, see
Amending payment summaries.
Do not report amounts containing a decimal point. Do not report cents at any label – instead, remove the
cents from any amount before you enter it on the
payment summary.
Do not provide a payment summary containing all zeros. If you have not made any payments to a payee
throughout the year, you do not need to give them a
payment summary.
Do not show the year on the payment summary as Show the year as a four-digit figure - for example, show
anything but a four-digit figure. the year ending 30 June 2017 as 2017, and not 17.
Items on the Individual Non-business payment summary

Each numbered item here corresponds to the equivalent number labelled on the individual non business
payment summary which is shown over the page. Please note: On the payment summary, all amounts
must be reported in whole dollars only. Cents are disregarded, for example the amount $6,713.95 would
be recorded on the payment summary as $6,713.
1. Year – The payment summary is non-year specific. When completing a payment summary for income
earned in the 2016/17 financial year, the payer records the year '2017' at this item. Being non-year
specific, employers can keep payment summaries on hand, writing in the appropriate year when a
payment summary is required.
2. Amended Payment Summary – If there is an error in the original payment summary provided to an
employee, an amended payment summary must be issued. If this is the case, the amended payment
summary box will be marked with an X. Employees who receive an amended payment summary and
have not yet lodged their income tax return, will use the information on the amended payment
summary – not the original – to complete their return. Employees who have already lodged their
income tax return and receive an amended payment summary after the lodgement, will need to lodge
an amendment to their income tax return.
3. Payee Tax File Number – The tax file number the employee has shown on the TFN declaration form
should be reported here. In circumstances where a payee is not required to quote a TFN, has chosen
not to quote a TFN or the TFN is invalid, one of the following code numbers must be used in place of
the TFN.
Generic TFN Circumstances
000 000 000 No TFN quoted by the payee - the payee chooses not to quote a TFN is exempt from
quoting a TFN or does not fit into any other category stated here.
111 111 111 Payee applying for a TFN - if a payment summary is prepared for a payee who does not
provide a TFN but indicates on the TFN declaration that one has been applied for.
The ONLY time that the TFN code 111111111 would be reported to the Tax Office, is
where the payee commenced work in mid to late June and had not received notification of
the TFN prior to the submission of the report to the Tax Office.
333 333 333 Payee under eighteen – where the payee is a child under the age of eighteen, who claims
the general exemption and does not earn enough for tax to be withheld (i.e. less than $350
per week, $750 per fortnight and $1,517 per month), he/she may claim an exemption from
quoting a TFN.
444 444 444 Payee is a pensioner – where the payee is a recipient of a social security or service
pension or benefit (other than New Start or Job Search Allowance or sickness benefits,
etc.) an exemption from quoting a TFN may be claimed.
4. Payee's surname/family name & given name(s) – The payee’s surname must be reported here
together with the payee’s first given name. If the first given name is not provided, the payee’s first
initial must be provided. The payee’s second given name (if applicable) can also be provided. Where a
payee has more than two given names, do not record the third and subsequent given names or initials.
5. Street no. and street name — Suburb/town/locality — State — Postcode – This should be the full,
known address of the employee in a form to allow delivery of correspondence by Australia Post. If the
postcode is that of an overseas address, then this field must contain a code of 9999.
6. Payee’s date of birth
7. Period during which payments were made – report the start date and the end date of the period for
which the payee worked. For employees who worked for the full financial year the dates would read
01/07/2016 to 30/06/2017.
In situations where payments are made in the current financial year in respect of events that occurred
in an earlier period (e.g. compensation) show the date of the payment in both fields.
8. Tax withheld – must contain the total amount of tax withheld from the payee’s income (excluding tax
withheld from any ETP). The amount must be shown on the payment summary in figures.
Note: The Tax Office is responsible for collecting not only tax dollars, but also the Medicare and Higher
Education Contribution Scheme debts. The total of all these amounts deducted from the employee’s
salary or wages should be shown here on the payment summary.
9. Gross Payments – Include all salary, wages, bonuses and commissions paid to an employee, company
director or office holder. Gross payments also include:
− allowances paid to compensate employees for specific working conditions and payments for
special qualifications or extended hours;
− allowances you paid to cover expenses that are not tax deductible to the employee – for example,
normal home-to-work transport expenses;
− return to work payments;
− holiday pay or bonuses;
− amounts paid to employees for unused long service leave, unused holiday pay and other leave-
related payments that accrued after 17 August 1993, except if the amount was paid in connection
with a payment that includes (or consists of) a genuine redundancy payment, an early retirement
scheme payment or the invalidity segment of an employment termination payment or
superannuation benefit (see Lump sum payments);
− non superannuation pensions and annuities;
− compensation, and
− sickness or accident pay.
Do not include in gross payments amounts that are shown separately as:
− allowances that are shown in the allowance box
− lump sum payments
− reportable fringe benefits amounts
− exempt foreign employment income
− salary sacrificed income.
10. Community Development Employment Projects (CDEP) payments – This is the total paid to payees
from a CDEP wages grant. Show this amount in whole dollars. Do not include this amount in Gross
payments.
11. Reportable Fringe Benefits Amount – This is the grossed-up value of an employee's fringe benefits
that are part of their remuneration package or award, where the total taxable value of the fringe
benefits provided to a payee in the 2016/17 FBT year (1 April 2016 to 31 March 2017) exceeds
$2,000.00. See Section 6 for more details. The amount shown here can never be less than $3,921.
12. Reportable Employer Superannuation Contributions – Reportable employer superannuation
contributions (RESC) are recorded here on the individual non-business payment summary. Generally,
RESC includes all employer superannuation contributions except contributions made by an employer
that meets the employer’s requirements under federal, state or territory legislation and other
contributions over which the employee has not influenced the amount to be contributed. Hence,
contributions that an employer makes under the Superannuation Guarantee provisions would never
be RESC. Generally, RESC will be salary sacrifice employer contributions. Employers must report all the
reportable employer super contributions made for an employee on their payment summary for the
income year (1 July to 30 June). Reportable employer super contributions are to be reported for the
income year that the contribution relates to. This could be a different year to the one they are actually
received by the super fund. See Section 5 for further information.
13. Deductible amount of the undeducted purchase price of an annuity – NOT APPLICABLE TO
EMPLOYEES.
14. Lump Sum Payment A – (see Section 4 for more details) – This amount is taxed at a rate of 32% and
refers to monies paid on termination of employment for:
I. unused long service leave that accrued after 15 August 1978 but before 18 August 1993;
II. unused holiday pay and other leave related payments that accrued before 18 August 1993;
III. unused long service leave or unused holiday pay accrued after 17 August 1993, where the
amount paid was a result of termination under an approved early retirement scheme, due to
invalidity or due to a genuine redundancy.
15. 'Type' box - next to Lump sum A will only be completed when there is an amount at Lump sum A and
will consist of:
I. R – where payment was for a genuine redundancy, invalidity or under an early retirement
scheme; or
II. T – where payment was not a payment for a genuine redundancy, invalidity or under an early
retirement scheme.
16. Lump Sum Payment B – (see Section 4 for more details) – This amount is only 5% assessable. It refers
to monies paid on termination of employment for unused long service leave which accrued before 16
August 1978. To calculate the correct amount of tax to withhold, 5% of the amount is multiplied by the
employee's marginal rate.
17. Lump Sum Payment D – (see Section 4 for more details) – This amount is tax free and refers to monies
received as a result of termination of employment under an approved early retirement scheme or a
genuine redundancy, where the amount is within the tax free limit.
18. Lump Sum Payment E – 'E' is the amount of back payment of salary or wages which accrued more than
12 months ago, provided all back paid wages total more than $1,200.00. This is taxed at the marginal
rate. See Section 1 for further details.
19. Exempt foreign employment income – this will include foreign earnings derived by an Australian
resident individual engaged in continuous foreign service for not less than 91 days where the foreign
service is directly attributable to any of the following:
I. the delivery of Australia’s overseas aid program by the individual’s employer;
II. the activities of the individual’s employer in operating a developing country relief fund or a
public disaster relief fund;
III. the activities of the individual’s employer being a prescribed institution that is exempt from
Australian income tax;
IV. the individual’s deployment outside Australia by an Australian government (or an authority
thereof) as a member of a disciplined force; or
V. an activity of a kind specified in the regulations.
20. Allowances – Allowances to be shown in this section are payments made to cover an employee’s
anticipated expenses, e.g. for the replacement of tools, for the replacement or cleaning of uniforms,
for travel expenses, and so on. Each such allowance must be shown separately and identified
separately. If an employee receives more than four allowances, write 'various' in the box and attach a
note detailing all allowances. Do not include these allowances in the gross payments field. See section
1 for more information on the treatment of allowances.
21. Union Fees/Professional Association – The amounts shown here are also included in the employee's
gross salary or wages. Where extra deductions have been made for reasons other than union fees (e.g.
professional organisations), only show the total amount and write 'Various' in the written field. Provide
the employee with a detailed list.
22. Workplace Giving – Employers who offer workplace giving show amounts donated by their employees
here. Generally, the donation amount will be a fixed amount which has been deducted each pay day.
The donation is paid directly by the employer to the charity. The workplace giving arrangement does
not affect an employee’s gross income or other calculations, such as superannuation guarantee
payments or fringe benefits. If gross payments has been reduced by the amount of workplace giving,
then no amount should be shown here.
23. Payer's ABN or withholding payer number – the current Australian Business Number (ABN) or
Withholding Payer Number (WPN) allocated to the business by the Tax office must be reported here. A
WPN is recorded at this item when the payer is not in business (e.g. an embassy).
24. Branch number – Some businesses have opted to be split into separate branches for accounting
purposes under the new tax system. Those payers with a branch number record it here.
25. Payer's name – This should be the name as it appeared on the payer's ABN registration issued by the
Tax Office. If there has been a change in the payer's name, the appropriate 'change of name' form
should be sent to the Tax Office.
26. Signature of Authorised Person – This must be the signature of the employer, or someone who has
been authorised to sign documents on behalf of the employer. See start of Section 1 for more details.
27. Date – The payment summary must be completed and distributed to the employee by 14 July.
2.2.3 The Business and Personal Services Income Payment Summary
This payment
summary should be
used to provide
details of amounts
you have withheld
from payments
made:
 under a
voluntary
agreement
 under a labour
hire
arrangement
 that are other
specified
payments
including
− payment to
a performing
artist in a
promotional
activity
− payment for
tutorial
services
provided for
the
Indigenous
Tutorial
Assistance
Scheme of
the
Department
of
Education,
Employment
and
Workplace
Relations
− payment for translation and interpretation services for the Translating and Interpreting Service of
the Department of Immigration and Citizenship.
 that are attributed personal services income.
Gross payments or gross attributed income should include all payments made (or attributed) to the
payee, including the market value of any non-cash benefits provided. Show whole dollars only. Allowances
are also included at gross payments.
Indicate by marking the appropriate box whether the payments were made under a voluntary agreement,
a labour hire arrangement or other specified payments or that are attributed personal services income.
The payment summary must be given to a payee by the 14 July each year.
2.2.4 The Foreign Employment Income Payment Summary
Employees need
to receive this
payment
summary if the
earnings are not
exempt and any
of the following
conditions apply:
 foreign tax
has been
withheld and
paid to a
foreign
government
on behalf of
your
employee; or
 the
employee is
in any
foreign
country for a
consecutive
period of at
least 60 days;
or
 the earnings
have a
foreign
source.
The period of 60
consecutive days
commences at
the time that the
employee starts
work in the
foreign country.
This period
includes non-
working days and will end if an employee returns to Australia.
Gross payments should include any allowances paid to the payee. The payment summary must be given to
a payee by the 14 July each year.
Australian resident employees working in a foreign country are subject to PAYG withholding except in
some circumstances. Aid workers employed for over 91 days in a foreign country are one of the
exemptions. Where an employee does not meet the criteria to be exempt, their earnings will be subject to
pay as you go (PAYG) withholding requirements. The amount to be withheld in Australia under the relevant
PAYG withholding tax table may be reduced by the Australian dollar equivalent of the amount of tax to be
withheld and paid to the foreign country. If the resulting Australian withholding amount is zero or
negative, there is no amount to withhold.
2.2.5 The Withholding where ABN not Quoted Payment Summary
When a business
receives an invoice
from a supplier on
which no ABN is
quoted, the business
must withhold 49%
from the payment.
When the supplier
receives the
remaining 51% of
their payment, they
should be given a
payment summary at
that time. The
supplier is provided
with an original and
a copy of the
payment summary.
Employers may
create their own
Withholding where
ABN not quoted
payment summary.
It must contain the
same information
shown on the official
payment summary.
The amount
withheld is shown at
W4 on the BAS. Do
not show the gross
amount at W1.
The supplier will

need to attach the
copy of the payment
summary to their tax
return.
Please note: A payer is required to supply the name and address of the supplier only if it is available.
Additionally, unlike the other payment summaries, the Withholding where ABN not quoted payment
summary can be issued to any type of entity, including an individual, company, partnership or trust. A copy
of the payment summary is not forwarded to the Tax Office; see 'Annual Reporting' information for further
details.
Annual Reporting Requirement for No ABN Withholding

Payers are required to complete an annual report for Pay As You Go withholding when amounts have been
withheld from ‘No ABN’ suppliers. The annual report has to be sent to the Tax Office by 31 October of the
following financial year. The annual report will contain details for the financial year of all the amounts that
have been withheld where no ABN was quoted and details of all the withholding where ABN not quoted
payment summaries that have been issued. Annual report forms are available from the Tax Office on
request. This report is separate from a payer's other reporting obligations which are due on 14 August
each year.
2.3 Annual Reporting of PAYG Withholding Amounts
If you have withheld amounts from wages, salaries, employment termination payments (ETP) or other
similar payments, you are required to submit a PAYG withholding payment summary annual report
detailing all payments made and amounts withheld for the financial year. This annual report/file must be
sent to the Tax Office by 14 August following the end of the financial year. These amounts can be reported
to the Tax Office online or in paper format.
2.3.1 Reporting annual PAYG withholding amounts electronically

When the annual PAYG withholding amounts are reported electronically, the Tax Office receives an
EMPDUPE file from the employer's approved software on-line. To use these on-line services, businesses
need to obtain an Auskey. See section 2.1 for more information on how to obtain an Auskey and all online
reporting options.
Magnetic Media is no longer available for reporting amounts – In its place employers will need to lodge
online. See section 2.1 for further information about how this can be facilitated.
Reporting electronic and manual Payment Summaries at the same time

In the case where certain payment summaries (i.e. ETP Payment Summaries) can only be completed
manually; the employer is required to report the manually completed payment summaries on paper using
the Payment Summary Statement. It is important never to include the payment summary information that
was sent electronically (i.e. non-business individual payment summary information) on the manually
written Payment Summary Statement, and vice versa. The manual ETP payment summaries together with
the PAYG Withholding Payment Summary Statement containing only the ETP payment summary
information will be forwarded to the Tax office by mail. The electronic transmission of all the non-business
individual payment summary information will be submitted to the Tax Office separately with no paper
work included.
2.3.2 Reporting annual PAYG withholding amounts on paper

Entities who report on paper are required to complete the PAYG Payment Summary Statement. The Tax
Office forwards statements to employers towards the end of the financial year together with blank
payment summaries.
The statement will show totals of all the amounts shown on the payment summaries issued including gross
amounts where no tax was withheld. The statement of the totals will be forwarded to the Tax Office with
copies of all Individual non business, Labour Hire & Specified Payments, Voluntary agreement, Personal
services attributed income and ETP Payment Summaries issued to payees for the financial year. The total
of gross payments in whole dollars should include the following, for:
 Individual non business payment summaries – include all amounts shown at gross payments, CDEP
salary or wages, other income, total allowances and total lump sum payments (excluding any amounts
shown at lump sum D);
 ETP payment summaries – include only the taxable component;
 Labour hire, Voluntary agreement & Personal services attributed income payment summaries – include
all amounts shown at gross payments.
Other important points
 Failure to
lodge a PAYG
Payment
Summary
Statement by
14 August
will attract a
penalty. The
rate of $10
per week (or
part week)
applies up to
a maximum
penalty of
$200.
 Entities
reporting
payment
summary
information
to the Tax
Office
electronically
are not
required to
complete a
PAYG
Payment
Summary
Statement
form.
Amended PAYG
Payment
Summary
Statement
If a mistake is
made with any of
the amounts on
the completed
PAYG payment
summary
statement and it has already been sent to the Tax Office and amounts have been amended on the
payment summaries issued to payees, or additional payment summaries need to be forwarded to the Tax
Office that were not forwarded with the original form then a new PAYG payment summary statement
needs to be completed marking the 'If this is an amended PAYG payment summary statement' box with an
‘X’. The amended PAYG payment summary statement must show details of ALL payment summaries issued
by the entity for the financial year. You are only required to lodge the copies of any amended payment
summaries and any payment summaries that have not previously been sent, when you lodge the amended
PAYG payment summary statement.
2.4 Reporting PAYG Withholding on the BAS/IAS
The time frame within which an amount withheld must be remitted to the Tax Office depends on the total
amount of PAYG withheld by a business on an annual basis. Businesses are categorised as either a large,
medium or small withholder. Information regarding the total amount of PAYG withheld will be recorded on
the entity's Business/Instalment Activity Statement (BAS/IAS) with the exception of large withholders.
2.4.1 Small and Medium Withholders

Small and medium sized entities who withhold tax from payments to others are required to complete the
'PAYG tax withheld' section of the BAS/IAS (see over page).
Criteria for small withholder

An entity is considered a small withholder for a particular month, if:
 it has an annual withholding amount of up to $25,000;

 it withheld at least one amount during the month; and
 it is not considered to be a large or medium payer.
Criteria for medium withholder

An entity is considered a medium withholder for a particular month, if its total PAYG withholdings for the
financial year exceeds $25,000 but is less than $1 million.
Due dates for small and medium withholders

Lodgement and Payment Due Dates
1
Wages paid in the period Medium Withholders Small Withholders
1-31 July 21 August
1-31 August 21 September
28 October
1-30 September 21 October (or 28 October if contained on the quarterly
BAS)
1-31 October 21 November
1-30 November 21 December
28 February
1-31 December 21 January or (28 February if contained on the quarterly
BAS)
1-31 January 21 February
1-28 February 21 March 28 April
1-31 March 21 April (or 28 April if contained on the quarterly BAS)
1-30 April 21 May
1-31 May 21 June 28 July
1-30 June 21 July (or 28 July if contained on the quarterly BAS)
1
Small withholders can choose to remit PAYG withholding monthly whilst still paying other obligations such
as GST and fringe benefits tax quarterly.
What is reported by small and medium withholders

Small and medium withholders are required to record amounts in up to 5 boxes on the 'PAYG tax withheld'
section of the BAS. These include:
W1 Total of salary, wages and other payments – At item W1 businesses report the payments from
which they are usually required to withhold amounts. These include:
 ordinary salary or wages paid to full-time, part-time and casual employees, including overtime,
penalties and shift allowances, and other allowances. Even those from which no deductions were
made because the payments were below the tax-free threshold;
 commissions, retainers, performance, incentive or bonus payments, and holiday leave loadings;
 severance, termination and redundancy payments;
 directors fees and remuneration;
 payments to office holders in any Federal, State, Territory or eligible local government body;
 payments for unused annual or long service leave;
 employment termination payments;
 compensation, sickness and accident payments in respect of incapacity for work which are made as
regular or periodic payments;
 payments made to workers by labour hire firms under labour hire arrangements
 payments made to an individual payee for work or services where the parties (payer and payee) enter
into a voluntary agreement that amounts will be withheld from those payments, and
 amounts paid as non-cash benefits, but not including amounts subject to fringe benefits tax.
Do not include salary sacrifice amounts,

payments made to suppliers where no ABN
has been quoted on an invoice, or
superannuation contributions.
W2 Amounts withheld from payments

shown at W1 – Businesses report the
amount of tax withheld from the
payments recorded at W1 here.
W4 Amounts withheld where no ABN is
quoted – At item W4 businesses
record the total amount that was
withheld from payments made to
suppliers where no ABN was quoted
on the invoice.
W3 Other amounts withheld (excluding any amount shown at W2 or W4) – Usually amounts shown
here would apply where investment bodies have not received a TFN.
W5 Total amount withheld – At item W5 businesses record the total amount that was withheld from
all payments. This is equal to W2+W3+W4.
The Tax Office has conceded that amounts shown at W1 are in most cases incorrect and therefore no
longer use the data shown at W1 in their data matching program. In fact the Tax Office is considering
deleting this label from the activity statement. They do however match the data shown at W2 with the tax
withheld totals recorded on employees’ payments summaries. Generally where W2 and tax withheld totals
differ by more than $999 over the year, the employer will be contacted by the Tax Office.
2.4.2 Large Withholders

An entity is considered a large withholder for a particular month, if its total PAYG withholdings for the
financial year exceeds $1 million. These include amounts withheld from payments to employees, directors,
office holders, payments under a voluntary agreement, labour hire arrangement or in respect of failure to
quote an Australian Business Number (ABN), and payments of dividends, interest and royalties to non-
residents. The withholding liabilities of all wholly-owned companies in a group must be included.
Due dates for lodgement and payments of PAYG withholding for large withholders
A large withholder must pay the withheld amount to the Tax Office within seven or eight days of making
the payment. The payment arrangement for large payers is as follows:
 Deductions made on Saturday, Sunday, Monday or Tuesday should be electronically remitted by the
following Monday;
 Deductions made on Wednesday, Thursday, or Friday should be electronically remitted by the
following Thursday.
The amount must be paid electronically. When the Monday or Thursday falls on a public holiday, the due
date is extended to the next working day.
What reported by large withholders
The Tax Office will send a BAS to large withholders each month or each quarter, in accordance with their
GST reporting cycle. Large withholders are only required to complete item W1 (Total of salary, wages and
other payments). Inclusions at W1 are the same as those that apply to small and medium remitters. Large
withholders do not complete items W2, W3, W4 & W5. These amounts were recorded by the Tax Office at
the time the payment was electronically remitted by the large withholder. Large withholders will not
transfer any amount for PAYG withholding to the summary section of the BAS.
Large withholders and PAYG Branches

The Tax Office can register different branches of a registered entity for its PAYG withholding obligations.
However, the entity continues to remain legally responsible for these obligations. Each branch must be
able to be separately identified by reference to a location or the nature of activities carried on through it.
The withheld amounts of each branch of an entity are added together to determine whether the amount
of withholding reaches the $1 million threshold.
Deferment of some payments for large withholders

The inconvenience of remitting a separate small payment outside of a regular pay cycle, has resulted in
some large payers being allowed to defer minor PAYG payments. Payments that can be deferred to the
next regular payment date include ETPs, casual salary or wages, and ad-hoc contract payments. Whether a
payment is small depends on the size of the remittance of each large remitter. The maximum payment
that can be deferred is the lesser of 0.5% of amounts withheld under PAYG withholding made in the
previous year by the payer or $50,000.
Offsetting a GST credit against PAYG withholding liability – Large withholders

If a large payer has a net GST credit for a tax period, it can offset the credit against its PAYG withholding
liability. To offset a net GST credit against a PAYG withholding liability the entity must notify the Tax Office
of the withholding liability one working day before the PAYG withholding due date. This can be done by
completing a PAYG Withholding Liability Notification form, which can be obtained from the Tax Office
website. The form can be lodged by faxing it to 1300 134 791 or emailing it to
largeDAN@ato.gov.au
Entitlement to the offset is available when the BAS is lodged on or before the PAYG withholding due date
for that period. The BAS cannot be lodged after the due date for lodgement of your PAYG Withholding
Liability Notification form. If there is an amount outstanding after the offset, it must be paid to the Tax
Office by the due date. If any credit is left after the offset, it will be refunded.
2.4.3 Transferring amounts to the PAYG withheld section on the BAS/IAS

Example: XYZ Co is a medium withholder who withheld the amount of $16,966 from payments of $89,154
made under the PAYG withholding system during the month of June. The payments included:
 $3,130 for invoices where an ABN was not quoted - The amount withheld was 49% × $3,130 = $1,533.
 $86,024 paid in salary/wages and under voluntary agreements to workers - The amount of tax
withheld (as per the tax tables) totalled
$15,433.
Note: The payment of $3,130 for invoices
where no ABN was quoted is not included in
the amount at item W1. The tax withheld
from this amount ($1,533), however, is
shown at item W4 and included in W5.
Transferring Amounts to the Summary Section of the BAS/IAS
4 PAYG tax withheld – The total of all amounts withheld from payments is recorded at W5. The
amount at W5 must be transferred to item 4 in the summary section of the BAS. This is the
business' PAYG withholding liability for the particular period. Referring to the example, the amount
recorded at W5 ($16,966) is transferred to item 4 in the summary section.
2.4.4 Penalties for Late Lodgement, Late Payment and Non-payment
Failure to Lodge on Time (FTL)

Any documents (including all activity statements) that are not lodged on time will have a penalty notice
issued automatically. The FTL penalty depends on the size of the organisation. Under most Commonwealth
laws, financial penalties are expressed in terms of 'penalty units' instead of dollar figures. The value of 1
penalty unit is $180. Size tests also apply. Taxpayers classified as medium entities will have the penalty
amount multiplied by a factor of 2, and entities classified as large by a factor of 5.
General interest charge (GIC)

This is calculated daily based on the 90 day Bank Accepted Bill rate plus 7%. The current GIC rate can be
found on the ATO website.
Penalty for failing to withhold or pay a withheld amount

The requirement to withhold amounts applies to payments made to employees, directors, office holders or
other individuals in various capacities, as well as to enterprises that do not quote an Australian business
number (ABN) for a supply. Where amounts are not withheld when required the penalty amount is equal
to the amount the business should have withheld from the payment.
The Tax Office have available a document titled About Penalties and Interest. This can be accessed on the
Tax Office website by placing the document title in the search facility.
Directors’ can be personally liable for company PAYG withholding obligations

Directors can be made personally liable for their company’s unpaid Pay As You Go (“PAYG”) withholding
tax obligations. In addition, there is no ability for directors to discharge their director penalties by placing
their company into administration or liquidation where unpaid PAYG withholding remain unpaid and
unreported three months after their due date.
Whilst a director can defend a claim by the Tax Office for the recovery of a director penalty, those
defences are limited. In the ordinary course, a director would need to demonstrate that he or she had an
illness that prevented them from participating in the management of the business or that they had taken
all reasonable steps to ensure compliance. For newly appointed directors, they will have three months
from the date of their appointment before the restricted remission provisions apply.
For existing directors, it is crucial for them to ensure that their company’s PAYG obligations are reported to
the Tax Office within 3 months of the due day. Even if the disclosed debt is not remitted by the due date,
by reporting these obligations to the Tax Office, directors will still be able to have their liability remitted by
placing their company in administration or commencing a winding up within 21 days of receiving a director
penalty notice. For new directors, it is crucial that they satisfy themselves the company has complied with
its PAYG reporting obligations within 3 months of commencing their directorship.
2.5 Taxable Payments Reporting — Building and Construction
Industry
Businesses in the building and construction industry need to report the total payments they make to each
contractor for building and construction services each year. These will need to be reported on a 'Taxable
payments annual report' which is due by 28 August each year for the previous financial year.
The Tax Office will use the information they receive about payments made to contractors in the building
and construction industry for data matching so they can detect contractors who have not lodged tax
returns and/or have not included all their income in returns that have been lodged.
2.5.1 Who Needs to Report?

Businesses need to report if all of the following apply:
 the business is primarily in the building and construction industry
 the business makes payments to contractors for building and construction services; and
 the business has an Australian business number (ABN).
A business is considered to be primarily in the building and construction industry if any of the following
apply:
 in the current financial year, 50% or more of the business activity relates to building and construction
services; or
 in the current financial year, 50% or more of the business income is derived from providing building
and construction services; or
 in the financial year immediately before the current financial year, 50% or more of the business
income was derived from providing building and construction services.
Reportable details
For each contractor, businesses need to report the following details each financial year:
 ABN
 name
 address
 gross amount you paid for the financial year (this is the total paid including GST) and
 total GST included in the gross amount you paid.
These details will generally be contained on the contractor's invoice. Where invoices include both labour
and materials, the whole amount of the payment is reportable unless the labour is incidental.
A contractor can be an individual, partnership, company or trust.
Businesses will need to report payments you make to contractors for building and construction services.
Building and construction services include any of the activities listed below if they are performed on, or in
relation to, any part of a building, structure, works, surface or sub-surface:
Alteration Design Excavation

Improvement Modification Site preparation
Assembly Destruction Finishing
Installation Dismantling Management of building and
Construction Removal construction services
Maintenance Erection Organisation of building and
Demolition Repair construction services
2.5.2 Payments that are not reportable
Payments for materials only

Businesses are not required to report on payments where the invoices are for materials only, such as
building supplies and materials. This also applies to payments that include a small amount of labour which
is incidental to the total cost.
Example – No Need to report supply of materials when labour is incidental – Kevin purchases a stock of
new taps from Harry’s Hardware to install in a commercial building. Harry installs one tap by way of
demonstration so that Kevin knows how to install the rest. Harry’s Hardware invoices Kevin for the taps
and includes a small amount for the labour to demonstrate the installation. Kevin does not need to report
the payment he makes to Harry’s Hardware because the labour component of installing the tap is
incidental to the supply of the materials.
Unpaid Invoices as at 30 June Each Year

Do not report any unpaid invoices as at 30 June each year. For example, if you receive an invoice in June
2016, but you do not pay that invoice until sometime in July 2016, you report that payment in the 2016/17
Taxable payments annual report.
PAYG Withholding Payments

Businesses do not report payments that are required to be reported in a Pay as you go (PAYG) withholding
payment summary annual report or a Pay as you go (PAYG) withholding where ABN not quoted annual
report - for example, payments to:
 employees
 workers engaged under a voluntary agreement to withhold
 workers engaged under a labour hire or on-hire arrangement
 contractors who do not quote an ABN*.
 *Where an ABN is not provided, the payer must withhold under the existing pay as you go withholding
arrangements. For ease of reporting, if there are instances of no-ABN withholding, details may be
reported in the new Taxable payments annual report instead of the Pay as you go (PAYG) withholding
where ABN not quoted annual report.
Payments for Private and Domestic Projects

Entities will not need to report amounts for private and domestic projects e.g. a home owner making
payments to contractors for building and construction services in the case where the homeowner is
building or renovating their own home.
Payments within Consolidated Groups

Businesses in a consolidated group or multiple entry consolidated group for income tax purposes, you do
not need to report payments made to another member of that same consolidated or multiple entry
consolidated group. This is because members of a consolidated group or multiple entry consolidated group
are effectively taxed as a single entity.
Example – Payments within consolidated groups – Brick Co and Paint Co are both members of the same
consolidated group for income tax purposes. Brick Co provides building services and makes a payment to
Paint Co for painting its building project. As Paint Co and Brick Co are in the same consolidated group, Brick
Co will not have to report on the payment made to Paint Co for the provision of painting services. It will,
however, have to report on payments made to entities outside the consolidated group for the supply of
building and construction services.
2.5.3 Keeping records
Businesses should make sure they record all the necessary
information so it can easily report the total payments made
to each contractor by the due date each year.
The Tax Office has developed a worksheet that can be

downloaded (ato.gov.au) and printed to help businesses
record details of payments you made to contractors for
their building and construction services. The worksheet will
also help in completing the Taxable Payments Annual
Report required to be sent to the tax Office at the end of
each financial year.
The worksheet is not forwarded to the Tax Office.
2.5.4 When to report using the Taxable Payments Annual Report

The Taxable Payments Annual Report is due 28 August each year.
Lodging the 'Taxable Payments Annual Report'

Businesses can lodge the report online
or on paper.
Online – Business using commercial

software can check with their software
provider that their system will be able
to produce the new annual report.
More information about lodging the
new annual report online will be
available closer to the due date for
lodgement of the report.
Paper – Businesses intending to lodge
a paper form must complete and send
the ATO Taxable Payments Annual
Report to the Tax Office by the due
date. The ATO form must be used
which can be ordered online or by
phone. Businesses with more than nine
contractors will need to order
additional forms.
Amending a Taxable Payments Annual

Report
Businesses needing to correct
information which was previously provided in a Taxable payments annual report, have to complete a new
Taxable payments annual report, marking the ‘amending an annual report‘ box with an ‘X’. You only need
to complete an amended annual report where the amount fields have been reported incorrectly. When
preparing an amended annual report:
 only include payees where the information needs to be corrected
 complete all fields, showing the amounts as they should have been reported
 send the amended annual report to the address on the front of the form.
You are not required to complete any information for those payees that were reported correctly in the
original report.
2.6 Reporting of Government Grants and Payments for Services –
commencing 1/7/17
Grants and payments made by government for other services often constitute assessable income in the
hands of recipients. The third party reporting regime requires government related entities at the
Commonwealth, state and territory level to report information in relation to grants and payments for
services to businesses including vendors such as contractors, consultants and others.
This will have a significant effect on the reporting obligations of all Government bodies and the entities
who receive payments from government bodies.
The capturing of grants and other payments made by government entities further assists the ATO in
ascertaining information about payments that are received by businesses and individuals. The ATO will use
the information for compliance purposes and also in the pre-filling service offered to taxpayers to assist
them in voluntarily meeting their obligations when preparing their income tax return.
When to report
The new reporting system will commence on 1 July 2017, with first annual report being for the year ending
30 June 2018. The first due date for the annual report will be 28 August 2018. This new reporting system is
similar to the current reporting system for the building and construction industry.
Entities required to report

A government entity is:
 (a) a Department of State of the Commonwealth; or
 (b) a Department of the Parliament established under the Parliamentary Service Act 1999 ; or
 (c) an Executive Agency, or Statutory Agency, within the meaning of the Public Service Act 1999 ; or
 (d) a Department of State of a State or Territory; or
 (e) an organisation that:
− (i) is not an entity; and
− (ii) is either established by the Commonwealth, a State or a Territory (whether under a law or not)
to carry on an enterprise or established for a public purpose by an Australian law; and
− (iii) can be separately identified by reference to the nature of the activities carried on through the
organisation or the location of the organisation;
whether or not the organisation is part of a Department or branch described in paragraph (a), (b),
(c) or (d) or of another organisation of the kind described in this paragraph.
 a local governing body established by or under a State law or Territory law.
2.6.1 Grants
Local government bodies are exempt from the obligation to report grants because grants made by those
entities are rarely assessable for income tax purposes.
What is a grant
Some factors that may indicate whether a payment constitutes a grant include:
 grants may be explicitly tied to a government policy or goal;

 grants may be disbursed on a one-off or longer term basis, but are not provided as ongoing,
permanent funding;
 recipients are usually required to submit applications to receive grants;
 grants typically, but do not always, have conditions attached, such as reporting obligations or the
requirement to include government logos on marketing materials; and
 unlike loans, grants usually do not have to be repaid.
It is not up to the government entity to determine whether a grant would constitute assessable income or
give rise to a tax-related liability in the hands of the recipient. It must be reported even where it will not
ultimately be taxable in the hands of the recipient, or the recipient is exempt from taxation.
Only report grants provided to entities with an ABN

Reporting entities need only provide information on grants made to entities that have an Australian
Business Number under the A New Tax System (Australian Business Number) Act 1999. Grants paid to
entities that do not have an Australian Business Number do not need to be reported, as they are usually of
low value and are rarely assessable.
Using existing reporting processes

The Government anticipates that the ATO will work together with relevant entities to meet their reporting
obligations in the most efficient way possible. For example, reporting requirements under the
Commonwealth Grants Rules and Guidelines may streamline the reporting process by enabling the
Department of Finance to report grants to the Commissioner on behalf of other Commonwealth
government related entities, potentially reducing duplicative reporting and administrative costs.
2.6.2 Other payments for services

Government entities provide consideration to suppliers, such as contractors or consultants, for the
provision of a range of services. This consideration may give rise to taxable consequences for the supplier.
What is a payment for a service

This includes any payment, or any act or forbearance, in connection with a supply of anything and any
payment a supply of anything (as defined in section 9-15 of the A New Tax System (Goods and Services
Tax) Act 1999). Usually consideration will be a monetary payment, but it may also include other forms of
non-cash benefits and constructive payments.
Payments for supplies other than services are not reportable

Only consideration provided wholly or partly for a supply of services must be reported. Consideration
provided solely for something other than services, or for a supply of services where the services are merely
incidental to the provision of goods, do not need to be reported.
Consideration provided ‘partly’ for the supply of services includes consideration provided for both goods
and services. A reporting entity is required to report the total benefit provided and should not separate
out the proportion of the benefit that went towards the goods.
Example
A local council orders 1,700 black pens from an office supply company and pays an additional fee for
delivery. Delivery of the pens constitutes a service. However, since this service has been provided
incidentally to the provision of the goods, it does not need to be reported.
2.6.3 What information will be reported

The reportable information for each payee may include:
 ABN, name and address, phone number

 gross amount paid
 GST included in gross amount paid
 bank account details
 email address
 Statement by supplier check box
Additional information to be reported for grants (does not apply to local government):
 name of grant program

 date of payment
2.7 Workplace Gender Equality Reporting
The Workplace Gender Equality Act 2012 (Act) replaced the Equal Opportunity for Women in the
Workplace Act 1999. The new legislation, which aims to improve and promote equality for both women
and men in the workplace, requires relevant employers to report information in relation to gender and
remuneration to the Workplace Gender Quality Agency (WGEA).
2.7.1 Relevant employers

A relevant employer is a non-public sector employer with 100 or more employees in Australia for any six
months or more of a reporting period. The six months do not have to be consecutive months. All
employees (headcount, not full-time equivalent) should be counted. This includes full-time, part-time,
casual and temporary employees of the employer (including all of its subsidiaries employing employees in
Australia).
For corporations which are part of a corporate group, the 100 or more employees’ threshold is applied to
the combined total of employees in Australia of the parent corporation plus the employees in Australia of
any subsidiaries.
If a relevant employer has previously reported and its number of employees falls below 100, it must
continue to report until employee numbers fall below 80 for six months or more of the particular reporting
period. The six months do not have to be consecutive months.
Registering for reporting

Organisations covered under the Workplace Gender Equality Act 2012 that has never reported before first
need to register with the Agency. The Agency will then confirm the organisation’s reporting requirements
in writing.
If your organisation is a relevant employer and a standalone entity, that is, not part of a corporate
structure, you may register online. To register online, create a local user account and associate it with an
Auskey. To register go to:
https://www.wgea.gov.au/preparing-reporting/register-and-login
If your organisation is a relevant employer and part of a corporate structure please contact the Agency to
register at wgea@wgea.gov.au.
2.7.2 Reporting
What needs to be reported?

Relevant employers must report on the workplace profile of their organisation. A workplace profile must
include:
 Actual head–count (that is, the actual number of employees), not full–time equivalents
 Data that is representative of your workforce at a point in time within the reporting period
The following information is required to be provided in the workplace profile:
 Gender
 Employment status:
− full-time/part-time,
− permanent/contract/casual
 Standardised occupational categories for managers and non-managers

 For managers: with the exception of
 Remuneration:
− annualised average full-time equivalent base salary and,
− annualised average full-time equivalent total remuneration.
Employers are also required to complete a reporting questionnaire. The reporting questionnaire
comprises of 18 questions and is a yes/no survey type format with options to provide a reason when ‘no’ is
selected. The responses must apply to all organisations included in the report and during the applicable
reporting period (1 April to 31 March). It also includes information relating to:
 the number and gender of appointments made, as well as promotions and resignations between 1
April 2015 and 31 March 2016. Organisations will have to outline whether the positions were
managerial and whether they were part-time or full-time roles.
 the impact of childbirth on employee retention. Employers will be required to report on the number
and gender of employees who left their job, for whatever reason, during, or at the end of, a period of
parental leave.
What does not need to be reported

Remuneration data is not required for:
 CEO’s (or equivalent)
 managers who are more senior than the CEO and report to someone overseas i.e. with a reporting
level to the CEO recorded as '+1' (this mainly applies to global entities)
 managers employed on a casual basis
 independent contractors (contractors for services).
When to report
The workplace profile includes the actual headcount of all – full-time, part-time, casuals and relevant
independent contractors –employees at one point in time (any day) within the applicable reporting period
(1 April to 31 March). The remuneration data associated with the employees included in the workplace
profile is for the 12 months prior to the date chosen for the workplace profile. Many organisations select
30 June as the date for your workplace profile as this will allow you to use end of financial year data such
as group certificates or payment summaries. This means that part of the 12 months the remuneration data
applies to may fall outside the reporting period.
How to report
Organisations can report online. Generally the key steps are:
 Download the workplace profile worksheets from the website

 Populate the workplace profile worksheets with your data
 Download the system-generated template (unit level OR aggregated template)
 Save the system-generated template to your computer
 Populate the system-generated template by copying/pasting data from your workplace profile
worksheets
 Upload the system-generated template back into the system (the system-generated template includes
a unique identifier, which will be recognised by the system).
2.8 Single Touch Payroll (STP) – commencement date 1/7/18
2.8.1 What is STP?

STP is a government initiative:
 that enables businesses and employers to report staff salary and wages (including ordinary time
earnings) and PAYG withholding amounts to the ATO at the same time they pay their employees
 where Superannuation contribution information is reported to the ATO when payments are made by
the employer to the fund
 where employers will also have the option to pay their PAYG withholding more regularly, for example,
at the same time they pay their staff
 for employers with 20 or more employees, STP reporting will be mandatory from 1 July 2018 (subject
to legislation being passed). Businesses (with an STP solution) can choose to start STP reporting from
1 July 2017
 which includes an optional streamlined process for individuals commencing employment. An employer
can allow their employees to complete forms such as TFN declaration and Superannuation Choice
using pre-fill in myGov or through their business management software
 where a pilot will be conducted in 2017 to demonstrate the benefits for smaller employers.
2.8.2 Key Benefits

The purpose of STP is to provide individuals and business with a range of benefits:
 providing employees with visibility of their total year to date salary and wage income, PAYG
withholding amounts and super guarantee contribution amounts as they accumulate
 STP will enable employers and employees to be more assured that all eligible businesses are meeting
their obligations. With earlier warning, the ATO can better assist employers struggling to meet their
PAYG withholding and super obligations
 to simplify business reporting for employers by leveraging the natural business processes of paying
their employees, to meet their PAYG withholding reporting obligation at the same time
 streamlining of employee commencement processes in relation to forms such as TFN declarations and
Super Choice, making it more efficient for some employers and easier for employees to meet
requirements through pre-fill in myGov or through their business management software
 the pilot will seek to explore and confirm benefits of STP for those employers with 19 or less
employees.
2.8.3 Phased Approach

STP will be implemented in phases providing appropriate time for businesses to adjust to the new
reporting requirements. STP reporting will be mandatory from 1 July 2018 for businesses with 20 or more
employees. Any business can choose to start STP reporting from 1 July 2017. Following are the phases:
 from 1 July 2017 all businesses will be able to commence STP reporting
 from 1 July 2018 employers with 20 or more employees will be required to report to the ATO using STP
(subject to legislation)
 the ATO will be conducting a pilot in the first half of 2017, with a focus on small businesses, to
demonstrate the deregulation benefits for businesses and test the support and education tools.
Tax offset for software for small business

The government will provide businesses with an annual turnover of less than $2m, a $100 non-refundable
tax offset for expenditure on Standard Business Reporting enabled software. This offset will apply from
1 July 2017, and will be available for software purchases or subscriptions made in the 2017/18 financial
year only.
2.8.4 Impact of STP on the process of commencement of new employee
The employer will:

 hire a new employee
 ask the new employee for an email address and any other personal details
 send the new employee a welcome pack email with a link to myGov and the employer’s business
details.
 check their business management / STP software periodically to see if the employee has completed
the process
 confirm that they are their employee
 download the employee details to their chosen STP solution
 submit super details to the super fund or clearing house
The new employee will:

 get a welcome email from my new employer and click on the myGov link.
 log into myGov and click on the ATO services link
 select ‘commence new job’, enter my employer’s ABN and select ‘find employer’
 tick the box indicating my employer can receive information electronically and select ‘next’
 see their details are displayed and select on what basis they will be paid.
 change their address details if they need to
 enter their employment details, including withholding information
 nominate my chosen super fund
 submit the information online
 get confirmation that their request was submitted
 get an SMS from myGov to let them know if they have a message
2.8.5 Impact of STP on processing the pay run
The employer:
 needs to pay their staff
 completes the payroll run.
 pays their staff
 creates and send payslips to the staff
 uses their chosen STP solution to report their payroll data to the ATO
 can see how the reported data affects their account if they look on the business portal
 submits their activity statement report through their chosen STP solution and reports to the ATO per
their normal payment cycle
 the ATO captures and confirms receipt
The employee:
 will have their deposited into their nominated bank account
 get a payslip
 can log into myGov and view myPayroll information
2.8.6 Impact of STP on End of financial year obligations

The employer will:
 run final payroll and declare YTD totals are correct
 make any adjustment/ amendment to non-pay reporting information
 answer employee question and update the business management/STP software as needed through
the adjustment service
The employee will:
 receive notification from their employer that payroll information can be accessed
 be required to lodge a tax return
 log onto myGov and navigate to ATO and select “my Payroll”
 select “EOFY summaries” to view this information and print if needed
 contact their employer if they have a question about the EOFY summary
 lodge their tax return after they are satisfied with their payment summary
2.9 Treatment of Employee Share Schemes (ESS)
An employee share scheme (ESS) is a mechanism providing employees the opportunity to acquire interests
in companies related to their employment. Under an ESS employees acquire shares, stapled securities or
rights (including options). Companies may encourage employees to participate in an ESS by offering these
interests at a discount. ESS tax rules apply to this discount. The rules that apply depend on whether the
ESS interests involved were acquired:
 Before 1 July 2009 and also had a taxing point before that date
 Before 1 July 2009 with a taxing point on or after that date
 Between 1 July 2009 and 30 June 2015
 On or after 1 July 2015, or
 Under a company start-up after 1 July 2015
If ESS interests are not granted at a discount, the specific ESS tax provisions don't apply, although the
benefits given to employees may be taxed under other parts of the tax law, such as the capital gains tax
regime.
IMPORTANT: ESS interests granted at a discount have special reporting requirements. ESS discounts
should NOT be reported on a payment summary. The discount is not subject to PAYG withholding or Fringe
Benefit Tax, however the ATO will tax employees on the discounts received in the year in which the taxing
point occurs (except if the ESS is under a compliant company start-up scheme). Therefore, employers are
required to provide employees with an “ESS Statement” detailing the value of the discounts received in the
year ended June 30, by July 14. Employees are then required to include the discount in their income tax
return.
2.9.1 Reporting to employees - ESS Statement

You must provide an ESS statement to your employee by 14 July after the end of the financial year in
which:
 they (or their associates) acquired ESS interests under a taxed-upfront ESS at a discount during the
financial year
 a deferred taxing point for ESS interests acquired under a tax-deferred ESS occurred.
 a cessation time for shares and rights acquired before 1 July 2009 occurred.
The ESS statement will help your employee complete their tax return.
Employee Share Scheme Statement
Examples of completed ESS Statements can be found at:

https://www.ato.gov.au/General/Employee-share-schemes/In-detail/Employer-reporting-
requirements/ESS--Reporting-requirements-for-employers/?page=4#Examples
2.9.2 ESS in a Start-up Company from 1 July 2015
An ESS Statement will not be issued to employees receiving ESS interests in a start-up company which
meets the start-up concession rules applying from July 1, 2015. The discount in this case is not subject to
income tax. However, employees must be given the following information about ESS interests acquired
during the income year:
 number of ESS interests acquired
 market value of ESS interests acquired
 acquisition price of ESS interests that are shares
 exercise price of ESS interests that are rights
 acquisition date of the ESS interests.
Although the employee will not be required to include an assessable ESS discount amount in their income
tax return on acquisition of ESS interests, they will need this information to determine the cost base of
their CGT asset and calculate any gain or loss when they dispose of their interests.
Conditions for a complying for a start-up concessions can be found at:

https://www.ato.gov.au/General/Employee-share-schemes/Employers/Types-of-ESS/Concessional-
ESS/Start-up-concession-(interests-acquired-after-30-June-2015)/
2.9.3 Reporting to the ATO – ESS Annual Report

You must provide an Employee Share Scheme (ESS) annual report to the Tax Office by 14 August. From the
2015/16 year the ESS annual report must be lodged electronically. The report includes the following
information for each employee participating in an ESS and for each ESS that the employee is participating
in.
General requirements:
 Plan identifier
 Acquisition date – the date the ESS interests were acquired.
 Plan date – the date a taxing point happens to an ESS interest; for a taxed-upfront scheme, this will
be the acquisition date; for a tax-deferred scheme, this will be the deferred taxing point.
 TFN amounts withheld on ESS interests if a taxing point arose during the financial year.
For complying start-up concession schemes:
 the number of ESS interests acquired
 the market value of the interests
 the acquisition price of ESS interests that are shares
 the exercise price of ESS interests that are rights
For taxed-upfront schemes:
 Number of ESS interests acquired under taxed-upfront schemes eligible for reduction during the
financial year.
 Discount for ESS interests acquired under taxed-upfront schemes eligible for reduction.
 Number of ESS interests acquired during the financial year under taxed-upfront schemes not
eligible for reduction.
 Discount for ESS interests acquired under taxed-upfront schemes not eligible for reduction.
 For tax-deferred schemes:
 Number of ESS interests for which a deferred taxing point arose during the financial year.
 Discount on the ESS interests for which a deferred taxing point arose during the financial year.
 Discount for ESS interests acquired before 1 July 2009 for which a cessation time occurred during
the financial year, whether or not the employee has made an election.
Instructions for electronic lodgement can be found at:
https://www.ato.gov.au/General/Employee-share-schemes/In-detail/Employer-reporting-
requirements/How-to-lodge-your-employee-share-scheme-annual-report-
electronically/?page=1#About_this_guide
2.9.4 Employee Share Schemes Calculator
This calculator has been updated to reflect changes to the tax treatment of employee share schemes
which took effect from 1 July 2015. The calculator can be accessed at:
https://www.ato.gov.au/Calculators-and-tools/Employee-share-schemes-calculator/
Employer
If you are an employer, this calculator will assist you to prepare your employee statements and annual
report by calculating the discount amounts on employee share scheme interests you provide to your
employees.
The Tax Office accepts a number of methods used to calculate market value. This calculator uses tables set
out in the regulations to value unlisted rights acquired under an employee share scheme. Individuals can
choose to use this method or another accepted method to value unlisted rights.
Employee
If you are an employee, and have acquired unlisted rights to listed shares through an employee share
scheme, this calculator will help you work out the:
 discount you receive from participation in an employee share scheme
 market value of your unlisted rights
 weighted average share closing price for your underlying shares.
2.9.5 Types of schemes

There are a number of types of employee share schemes (ESS) available. Most of them allow employees
concessional tax treatment if they receive their ESS interests at a discount and certain conditions are met.
Employees can be provided with ESS interests under more than one type of scheme. The type of scheme
determines the tax treatment of the ESS interests. The schemes are:
Taxed upfront scheme - Not eligible for reduction

Discounts on ESS interests where the scheme does not meet the conditions for concessional tax treatment,
will be taxed in the year the ESS interests are received.
Taxed-upfront scheme - Eligible for $1,000 reduction

Under this concession, employees can reduce the discount amount that must be included in their taxable
income by up to $1,000. They must meet an income test and both the scheme and the employee must
meet other conditions.
Start-up concession
Under this concession, an employee can reduce the taxable discount income relating to their ESS interests
to nil. The concession is available if all the conditions are met.
Tax-deferred scheme - Salary sacrifice

Under this concession, employees who have acquired ESS interests under salary-sacrifice arrangements are
taxed on those interests in the income year the deferred taxing point occurs. Both the ESS and employee
must meet certain conditions.
Tax-deferred scheme - Real risk of forfeiture

Some schemes include a risk that the employee's ESS interests will be forfeited. Employees who have
acquired ESS interests under such a scheme are taxed in the income year that the deferred taxing point
occurs, provided both they and the scheme meet certain conditions.
Tax-deferred scheme - Disposal restrictions

An employee with an ESS interest in a scheme with a disposal restriction is taxed in the income year in
which the deferred taxing point occurs if the scheme's rules:
 restrict immediate disposal of the ESS interest (that is, employees are not permitted to dispose of
rights as soon as they acquire them)
 state specifically that the scheme is a tax-deferred scheme.
2.9.6 Tax-deferred schemes taxing point

The deferred taxing point for a share or stapled security in a tax-deferred scheme is the earliest of the
following times:
 when the employee terminates employment in the company to which the scheme relates
 when there is no real risk of forfeiture and the scheme no longer genuinely restricts the disposal of the
share
 shares acquired between 1 July 2009 and 30 June 2015, 7 years after acquisition by the employee
 shares acquired from 1 July 2015, 15 years after acquisition by the employee.
The deferred taxing point for a right in a tax-deferred scheme is the earliest of the following times:
 when the employee terminates employment in the company to which the scheme relates, or
 for rights acquired between 1 July 2009 and 30 June 2015,
− when there is no real risk of forfeiting the right or underlying share, and the scheme no longer
genuinely restricts exercise of the right or disposal of the resulting share,
− 7 years after the employee acquired the right
 for rights acquired from 1 July 2015

− when the employee exercises the right, there is no real risk of forfeiting the underlying share and
the scheme no longer genuinely restricts the disposal of the resulting share
− 15 years after the employee acquired the right.
If the employee disposes of the ESS interest (or the share acquired on exercise of the right) within 30 days
of the deferred taxing point, the deferred taxing point will instead be the date of that disposal (this is
called the 30-day rule).
2.10 Reporting PAYG Instalments on the BAS/IAS
2.10.1 What are PAYG instalments?

Pay As You Go (PAYG) instalments is a system for businesses and individuals to pay instalments of their
expected tax liability on their business income for the current income year. The reporting options are as
follows.
2.10.2 Reporting Options
OPTION 1 - Pay the quarterly PAYG instalment amount advised by the Tax Office
All individual taxpayers and businesses that are registered for GST have the option to pay their quarterly
PAYG instalments based on the tax from their last tax return lodged. The Tax Office advises businesses of
their PAYG instalment amount by placing a pre-printed figure at label T7 on the BAS/IAS. Businesses that
choose this option will therefore not be required to calculate their quarterly PAYG instalment amount
themselves. This instalment amount advised by the Tax Office is then treated as meeting their PAYG
instalment reporting obligation for the quarter. Any balance owing is paid by the taxpayer on assessment
calculated at the end of financial year. Companies and superannuation funds must have a turnover of less
than $2 million per annum to be entitled to use this option.
The Tax Office's instalment amount can be varied, however, if the varied down instalment amount results
in the entity paying less than 85% of their actual tax liability for the financial year, a penalty will apply.
Entities who pay the tax instalment amount advised by the Tax Office will incur no penalty or interest
charge under any circumstances.
OPTION 2 - Calculate the quarterly PAYG instalment using ATO rate
Entities may opt to calculate their quarterly PAYG instalment based on their instalment income multiplied
by the pre-printed rate shown at T2 on the BAS/IAS. Companies and superannuation funds with a turnover
of $2 million or more per annum must use this method.
Instalment income includes:
 all the ordinary income the entity earned
from business or investment activities,
including gross sales, gross fees for
services, interest received or credited to a
bank account, gross rent, dividends paid or
applied on behalf of the entity, royalties;
 the appropriate share of partnership
income;
 trust income;
 income from which tax has been withheld
because a tax file number or Australian
Business Number, was not provided;
 any amount withdrawn from a farm
management deposit.
Instalment income does not include:
 input tax credits (shown at 1B on the BAS /
shown at 5B on the IAS);
 wine equalisation tax and luxury car tax
received from customers, clients or
tenants;
 income from which tax instalments have
already been withheld or should have
been withheld (e.g. salary and wages);
 any imputation credit recorded on a dividend statement; or
 capital gains.
Varying the instalment rate

An entity can vary its instalment rate if the instalments worked out using the instalment rate pre-printed at
T2 will not adequately reflect the entity’s expected tax liability for the year. If an entity chooses its own
instalment rate, that rate is used for each subsequent quarter in the income year unless another rate is
chosen in a later quarter. The varied instalment rate will not carry over to the next income year. If the
varied down instalment rate results in the entity paying less than 85% of their actual tax liability for the
financial year, a penalty will apply. For those wishing to vary their rate the reason codes are as follows:
 21 Change in investments – Your investment strategy or policy has changed and this will significantly
affect your annual tax liability. For example: the sale or purchase of investments such as shares or
residential property, or the use of investments for private purposes.
 22 Current business structure not continuing – Your current business has stopped trading or has
changed its structure. For example: you have permanently closed or sold your business, it has stopped
trading because of a merger or takeover, or it has gone into bankruptcy or liquidation, or been placed
in the hands of a receiver/manager.
 23 Significant change in trading conditions – Abnormal transactions relating to your business income
or expenses will significantly affect your annual tax liability. For example: you have bought or sold a
major piece of machinery or your trading conditions have been affected by local or global competition.
 24 Internal business restructure – You have restructured your business. For example: it has undergone
an expansion or contraction, and this will significantly affect your annual tax liability.
 25 Change in legislation or product mix – A change in legislation, or the product mix of your business,
will significantly change your annual tax liability.
 26 Financial market changes – Your business has been affected by domestic or foreign financial market
changes. This reason code is for businesses involved in financial market trading, including those whose
income is affected by changes in financial products - for example, banks and finance and insurance
businesses.
 27 Use of income tax losses – You will be using income tax losses, including capital losses transferred
from another entity that will significantly affect your annual tax liability.
Large entities to pay instalments monthly

Corporate tax entities will be required to make PAYG income tax instalments monthly, rather than
quarterly. The government have extended the requirement to make monthly PAYG income tax instalments
to include all large entities in the PAYG instalments system, including trusts, superannuation funds, sole
traders, and large investors.
The table below sets out the transitional start dates for various entities according to the phased-in
thresholds.
Earliest commencement of monthly

Type of entity Instalment income
PAYG instalments
Corporate tax entities (i.e. companies,

corporate limited partnerships,
$1b or more 1 January 2014
corporate unit trusts and public
trading trusts)
Corporate tax entities $100m or more 1 January 2015
Corporate tax entities $20m or more 1 January 2016
All other entities in the PAYG

instalment system (i.e. individuals, $1b or more 1 January 2016
trusts and superannuation funds)
All other entities in the PAYG

$20m or more 1 January 2017
instalment system
An entity’s instalment income is broadly equal to its assessable ordinary income in a base year (which is
ordinarily the entity’s most recent income year for which an assessment has been made).
2.10.3 Some taxpayers excluded from paying PAYG instalments

Taxpayers not registered for GST & with a balance of less than $500 on their last assessment are not a part
of the PAYG instalment system and are therefore only required to pay tax on annual assessment. These
taxpayers do not complete the PAYG instalment section of the BAS. Those taxpayers who have voluntarily
registered for GST and with a balance of less than $500 on their last assessment will also be allowed to pay
instalments annually.
2.10.4 Voluntary entry into PAYG instalments

Businesses will generally only enter the pay as you go (PAYG) instalments system once their first income
tax return has been lodged. This can 12-18 months after the business commenced trading, and accordingly
may result in the business having to pay both a tax debt and their first PAYG instalment towards their next
year's tax liability.
The ATO have recognised this situation and enhanced their registration systems to accommodate
voluntary entry into the PAYG instalments system.
When a business voluntarily enters into the PAYG instalments system their first activity statement will
display a rate or amount of nil. This rate/amount can then be varied upwards by the business according to
how much they choose to pay.
2.10.5 PAYG instalments calculator
The ATO have released PAYG instalments calculators for both individuals and companies to assist in
providing more accurate tax estimates of tax payable. The calculators will help to work out the PAYG
instalments for the current financial year and to work out instalment amounts or rates where you:
 vary your instalment amount or rate if it does not reflect your current financial circumstances
 voluntarily enter PAYG instalments.
It is important to note that there are certain circumstances where the calculators will not provide accurate
results. Such as for individuals who are:
 non-residents (of Australia) for tax purposes

 under the age of 18
 with a substituted accounting period (i.e. a financial year other than 1 July – 30 June)
 special professionals who apply the income averaging rules
 primary producers who apply the income averaging rules.
Also in circumstances, where companies are a special entity or where the financial year is less than 12
months, such as transitioning to or from a substituted accounting period, or a mature consolidated group.
Access the calculator at:
https://www.ato.gov.au/Calculators-and-tools/PAYG-instalments-calculator/
2.11 References and Further Information

These are available in pamphlet form by contacting your local Tax Office on 13 28 66.
The Tax Office can be accessed on the Internet, located at www.ato.gov.au. The site has a wide range
of information on all topics in relation to an employer's taxation responsibilities, including those shown
below. Various forms can be downloaded for completion.
PAYG Payment Summary – Individual Non-business ATO
How to complete the PAYG Payment Summary – Individual Non-business ATO Website
PAYG Payment Summary – business and personal services income form ATO Website
PAYG Payment Summary Statements ATO
How to complete the PAYG payment summary - business and personal services income form 72769
PAYG Payment Summary – Withholding where ABN not quoted guidelines - form ATO Website
PAYG Payment Summary – Withholding where an ABN not quoted 3283
PAYG withholding where ABN is not quoted – Annual report 3448
Activity Statement instructions PAYG Instalments ATO Website
Introduction to pay as you (PAYG) income tax instalments ATO Website
PAYG withholding - how to complete your activity statement ATO Website
PAYG instalments for primary producers and special professionals ATO Website
PAYG Payment Summary – foreign employment ATO
How to complete the PAYG Payment Summary – foreign employment ATO Website
Taxable payment Annual Report 74109
Taxable payments reporting - Building and Constructions Industry ATO Website
Introduction to employee share scheme ATO Website
3 THE NATIONAL INDUSTRIAL RELATIONS SYSTEM (FAIR
WORK)
3.1 Coverage
Region Covered by Fair Work Not covered by Fair Work
New South Wales • All employment by constitutional • State public sector employment
corporations • Local government employment
• All private sector employment
Victoria • All employment
Australian Capital Territory • All employment
Northern Territory • All employment
Queensland • All employment by constitutional State public sector employment
corporations Local government employment
South Australia • All employment by constitutional • State public sector employment
Tasmania • All employment by constitutional • State public sector employment
corporations
• All local government employment
Western Australia • All employment by constitutional • State public sector employment
• Local government voluntary • Employment by non-constitutional
corporations in the private sector
What is a Constitutional Corporation?

A constitutional corporation is defined as a foreign corporation, or a trading or financial corporation
formed within Australia. A corporation for this purpose includes:
 a proprietary company (often indicated by ‘Pty Ltd’ at the end of the organisation’s name);
 a not-for-profit association incorporated under State or Territory incorporated associations legislation
(usually indicated by ‘Inc’ at the end of the organisation’s name);
 a statutory authority incorporated under special legislation.
An individual person is not a corporation. Nor is a partnership between two or more persons.
3.2 Modern Awards

Modern awards replace:
 federal (pre-reform) awards (except those applying to a single enterprise)
 notional agreements preserving state awards (NAPSAs)
 state reference transitional awards
Note: In circumstances where there is no modern award, then pre-modern award instruments (such as a
NAPSA) continue to apply until they are terminated or replaced by a modern award.
Taxation Seminar Section 3 — The National Industrial System – Fair Work Page 93
3.2.1 Modern Awards do not apply to employees earning over the high income
threshold
What is the high income threshold?

Modern awards do not apply to higher income employees (who have an appropriate guarantee of annual
earnings of more than $138,900) even if a modern award covers the industry in which they work. The
threshold amount is indexed annually. From 1 July 2016 the threshold is $138,900.
The high income threshold affects how modern awards apply to employees. It also affects employees’
ability to access unfair dismissal. The high income threshold affects are as follows:
 Employees who earn more than the high income threshold and who aren’t covered by a modern award
or enterprise agreement, can’t make an unfair dismissal claim.
 Employees who are covered by a modern award and have agreed to a written guarantee of annual
earnings that is more than the high income threshold, will not get modern award entitlements,
however, they can make an unfair dismissal claim.
Which income is included for high income threshold purposes

To determine whether an employee’s earnings exceed the modern award threshold of $138,900, the
following earnings need to be considered:
 employee’s wages;
 amounts applied or dealt with in any way on the employee’s behalf or as the employee directs; and
 agreed money value of non-monetary benefits.
Which income is not included for high income threshold purposes

An employee’s earnings, for high income threshold purposes, do not include the following:
 payments the amount of which cannot be determined in advanced. For example commissions,
incentive based payments and bonuses, and overtime (unless the overtime is guaranteed);
 reimbursements; and
 contributions to a superannuation fund to the extent that the employer is liable to pay superannuation
guarantee charge under the Superannuation Guarantee Charge Act 1992, or a law of the
Commonwealth, a State or a Territory.
3.2.2 List of Modern Awards

A list of modern awards can be found on the Fair Work website at:
http://www.fairwork.gov.au/awards-and-agreements/awards/list-of-awards
3.2.3 Pay guides to modern awards

Fair Work has produced pay guides for all modern awards. The guides contain minimum pay rates for full-
time, part-time and casual employees in an award. They also include all the monetary allowances and the
most frequently used penalty rates for each classification in a concise form which is easier to peruse then
the traditional format. They are generally updates on 1 July each year. The pay guides for modern awards
that have an apprenticeship wages component are also updates on 1 January of each year.
Pay guides don’t apply when a business has a registered agreement and the employee is covered by it. To
access the guides go to:
http://www.fairwork.gov.au/pay/minimum-wages/pay-guides
Page 94 Section 3 — The National Industrial Relations System – Fair Work Taxation Seminar
3.2.4 What is contained in a Modern Award
Modern awards build on the National Employment Standards and may contain an additional 10 conditions,
such as wage rates, types of employment, hours of work, overtime and penalty rates, allowances,
annualised wages, leave, superannuation and procedures for consultation, representation and dispute
resolution. All modern awards must contain terms on:
 ordinary hours of work;
 a flexibility clause – allowing agreement on an individual arrangement that varies the effect of the
award in relation to the employee. Agreement must be in writing and can be terminated with 4 weeks’
notice; and
 dispute settlement procedure.
Modern awards must be reviewed at least every four years to ensure that they are kept relevant and up to
date.
Terms that can be included in Modern Awards

A modern award may include terms about any of the following matters:
 Minimum wages (including wage rates for junior employees, employees with a disability and
employees to whom training arrangements apply): and
(i) skill-based classifications and career structures; and
(ii) incentive-based payments, piece rates and bonuses;
 Type of employment, such as full-time employment, casual employment, regular part-time

employment and shift work, and the facilitation of flexible working arrangements, particularly for
employees with family responsibilities;
 Arrangements for when work is performed, including hours of work, rostering, notice periods, rest
breaks and variations to working hours;
 Overtime rates;
 Penalty rates, including for any of the following:
(i) employees working unsocial, irregular or unpredictable hours;
(ii) employees working on weekends or public holidays;
(iii) shift workers;
 Annualised wage arrangements that:
(i) have regard to the patterns of work in an occupation, industry or enterprise; and
(ii) provide an alternative to the separate payment of wages and other monetary entitlements;
and
(iii) include appropriate safeguards to ensure that individual employees are not disadvantaged;
 Allowances, including for any of the following:
(i) expenses incurred in the course of employment;
(ii) responsibilities or skills that are not taken into account in rates of pay;
(iii) disabilities associated with the performance of particular tasks or work in particular conditions
or locations;
 Leave, leave loadings and arrangements for taking leave;
 Superannuation;
 Terms relating to the conditions under which an employer may employ employees who are
outworkers;
 Terms relating to the conditions under which an outworker entity may arrange for work to be
performed (either directly or indirectly), if the work is performed by outworkers;
 Industry-specific redundancy scheme if the scheme was included during the award modernisation and
in some other circumstances;
 Procedures for consultation, representation and dispute settlement.
Any allowance included in a modern award must be separately and clearly identified in the award.
Terms that must be included in modern awards

The award modernisation request provides detailed direction to the Australian Industrial Relations
Commission (AIRC) on how to undertake the award modernisation process. Among other things, the
request requires that the AIRC include the following matters in modern awards:
 a flexibility term enabling an employee and his or her employer to agree on an individual flexibility
arrangement varying the effect of the award, in order to meet the genuine needs of the employee and
employer. An Individual Flexibility Arrangement, or ‘IFA’, is an agreement between an employee and
an employer. Under an IFA, an employer and employee can agree to change certain terms of a modern
award or enterprise agreement that applies to them. Modern awards and enterprise agreements will
often stipulate what the employer can be flexible on, for example, when work is performed or how
overtime and penalty rates will be paid. Employers should always review the relevant modern award
or enterprise agreement prior to entering into the IFA. The flexibility term must:
− identify the terms of the modern award which may be varied by an individual flexibility
arrangement
− require that the employee and the employer genuinely agree to any individual flexibility
arrangement
− require the employer to ensure that any individual flexibility arrangement must result in the
employee being better off overall than the employee would have been if no individual flexibility
arrangement were agreed to; and
− set out how any flexibility arrangement may be terminated by the employee or the employer;
− require the employer to ensure that any individual flexibility arrangement must be in writing and
signed in all cases—by the employee and the employer; if the employee is under 18—by a parent
or guardian of the employee; and
− require the employer to ensure that a copy of any individual flexibility arrangement must be given
to the employee.
Important note: An IFA can only be made after the employee has started working for their employer. It is
against the law to make an IFA a condition of employment. An IFA can be terminated by agreement or by
either party giving the required written notice. Modern awards require 28 day’s notice. This may be
different in an enterprise agreement (but it can’t be more than 28 days).
 a term that requires employers to consult with employees about changes to their regular roster or
ordinary hours of work. When an employer wants to change an employee’s regular roster they need
to:
− give information to the employee about the change
− let the employee give their views about the change (e.g. impact to family or caring responsibilities)
− consider the employee’s views on the impact of the change.
 a dispute resolution term;
 terms providing ordinary hours of work;
 terms about rates of pay for pieceworkers (where necessary);
 terms identifying shift workers eligible for five weeks of annual leave under the NES; and
 terms facilitating the automatic variation of allowances.
3.2.5 Updates to Modern Awards
Employers can now subscribe on the Fair Work website to receive email notifications as updates to their
nominated fields become available. Each email notification contains links to downloadable documents
accessible through this website. The notifications can include a range of areas within Fair Work including,
but not limited to, annual wage reviews, announcements, outcomes from court cases, award
modernisations and amendments to modern awards.
Employers can subscribe by accessing the following website link

http://www.fairwork.gov.au/website-information/staying-up-to-date/subscribe-to-email-updates
3.2.6 Modern Awards – Transitional Arrangements

Transitional arrangements, found in most modern awards, gave employers and employees time to adjust
to the changes in pay rates (including loadings and penalties) under the modern award system. These base
rates and entitlements were phased in over a period of four years until the full modern award rate applies
on the first full pay period on or after 1 July 2014.
Transitional arrangements come to an end for most awards

The transitional arrangements found in most modern awards ended on 1 July 2014. This will make it easier
to calculate modern award pay rates. For awards that had transitional arrangements, the full pay rates,
casual loadings and penalties will apply. There will no longer be a need to phase from pre-modern award
rates.
There are 4 awards that have unique arrangements where phasing of pay rates, casual loadings and
penalties may still apply. These are the:
 Cleaning Services Award 2010

 Hospitality Industry (General) Award 2010 (SA employers only)
 Registered and Licensed Clubs Award 2010 (SA employers only)
 Social, Community Home Care and Disability Services Industry Award 2010.
3.2.7 Pay and Condition Calculators and Tools (PACT)

Fair Work has made available on their website the following tools/calculators to assist employers in
meeting their obligations in relation to pay and conditions for an employee.
Pay Calculator
The Pay Calculator calculates base pay rates, allowances and penalty rates (including overtime).
Shift Calculator
The shift calculator calculates the rates that will apply to specific shifts the employee may work. The Shift
Calculator can only be used once you have completed the Pay Calculator and have a minimum pay rate to
use.
Leave Calculator
The Leave Calculator calculates the annual leave, leave loading and personal and carers leave the
employee which has accrued under their award or under the National Employment Standards (NES).
Notice and Redundancy Calculator

The Notice and Redundancy Calculator calculates entitlements when employment ends, including notice to
be given (by employer or employee) and redundancy pay entitlement under the employees award or NES.
Note - this calculator should not be used if an enterprise agreement has more generous notice and
redundancy entitlements than the NES. NOTE: The redundancy pay calculation assumes that the employee
had redundancy entitlements before 1 January 2010.
Access all the calculators at
https://calculate.fairwork.gov.au/
3.2.8 Award Finder

Employers can use the Fair Work Ombudsman’s Award Finder tool to search for a modern award. This tool
can also be used to search for the pre-modern award that was in place before 1 January 2010. Employers
who know the pre-modern award can use Award Finder to help locate the applicable modern award.
To access Award Finder go to: http://awardfinder.fwo.gov.au/default.aspx
3.3 Status of Agreements and Contracts
3.3.1 Enterprise Agreements

Enterprise agreements are agreements made at an enterprise level between employers and employees
about terms and conditions of employment. Fair Work Commission can assist in the process of making
such agreements, and can deal with disputes arising under the terms of agreements in addition to
assessing and approving agreements.
Why make an enterprise agreement?

Awards cover a whole industry or occupation and only provide a safety net of minimum pay rates and
employment conditions. Enterprise agreements can be tailored to meet the needs of particular
enterprises.
Types of enterprise agreements
Approval processes for enterprise agreements vary depending on the type of agreement. There are three
types:
 Single-enterprise agreements — involving a single employer or one or more employers (such as in a

joint venture) co-operating in what is essentially a single enterprise (such employers are known as
single interest employers).
 Multi-enterprise agreements — involving two or more employers that are not all single interest
employers.
 Greenfields agreements — involving a genuinely new enterprise that one or more employers are
establishing or propose to establish and who have not yet employed persons necessary for the normal
conduct of the enterprise. Such agreements may be either a single-enterprise agreement or a multi-
enterprise agreement.
What can an enterprise agreement include?
Enterprise agreements can include a broad range of matters such as:
 rates of pay
 employment conditions e.g. hours of work, meal breaks, overtime
 consultative mechanisms
 dispute resolution procedures
 deductions from wages for any purpose authorised by an employee.
They cannot, however, include unlawful content (such as discriminatory or objectionable terms).
The enterprise agreement must not include any unlawful content

Agreements should not include any unlawful content. This includes:
 a discriminatory term
 an objectionable term
 a term that confers an entitlement or remedy in relation to unfair dismissal before the employee has
completed the minimum employment period
 a term that excludes, or modifies, the application of unfair dismissal provisions in a way that is
detrimental to, or in relation to, a person
 a term that is inconsistent with the industrial action provisions
 a term that provides for an entitlement to right of entry
 a term that excludes the NES or any part of it during the bridging period.
What Fair Work Commission considers

To approve an enterprise agreement, Fair Work Commission must be satisfied that:
 the agreement has been made with the genuine agreement of those involved
 the agreement passes the better off overall test and does not include any unlawful terms or
designated outworker terms
 the group of employees covered by the agreement was fairly chosen
 the agreement specifies a date as its nominal expiry date (not more than four years after the date of
FWA approval)
 the agreement provides a dispute settlement procedure
 the agreement includes a flexibility clause and a consultation clause.
Better off overall test

Before approving an enterprise agreement, Fair Work Commission must ensure the agreement or variation
passes the better off overall test.
This test requires that each of the employees to be covered by the agreement be better off overall than
under the relevant modern award.
The better off overall test applies to agreements made on or after 1 January 2010. Agreements made
before 1 January 2010 are subject to the no-disadvantage test under the Workplace Relations Act 1996.
The approval process
Once bargaining is complete and a draft agreement has been made certain steps must be taken to ensure
the agreement is valid. The employer must ensure that:
 the terms of the agreement, and the effect of those terms, are explained to the employees
 the explanation is provided in an appropriate manner (e.g. appropriate for young employees or
employees from culturally diverse backgrounds).
Employees must endorse the agreement by voting for it. A vote must not occur until at least 21 days after
the day on which employees were given notice of their representational rights.During the 7 day period
before voting for the agreement, the employer must ensure employees are given a copy of the agreement
and any other material incorporated by reference in the agreement.
Once an enterprise agreement is made, a bargaining representative for the agreement must apply to Fair
Work Commission for approval of the agreement using Form F16—Application for approval of enterprise
agreement.
The application must be lodged with Fair Work Commission within 14 days of the agreement being made
or within such further period as Fair Work Commission allows. The application must be accompanied by a
signed copy of the agreement and any declarations that are required by the FWA Rules or regulations to
accompany the application.
3.3.2 Common Law Contracts

Common Law Contracts is a description of the ordinary employment contracts of which there are
essentially two versions:
 Employment on the award only — paying exactly the award/minimum wage and providing exactly the
terms and conditions of employment in the award.
 Over award employment — an employer pays more than the award, but still has to observe all the
terms and conditions in the award in full. For example, an employer may agree to pay 10% above the
minimum wage, but he/ she will still need to comply with all the hours, rosters, overtime, and
allowance requirements of the award.
Employers and employees can enter into a common law contract but the contract cannot vary any of the
obligations in an award except where the employee is earning over $136,700 per annum. For these
employees, a common law contract can regulate those terms and conditions not already covered by the
NES.
For employees earning less than this threshold, a flexibility clause, which must now by contained in each
modern award, may provide a means of tailoring the award more to the employee's and employer's needs.
Refer to 'modern awards' for more details.
3.3.3 Preserved State Agreements

Preserved state agreements are pre-27 March 2006 state employment agreements. A preserved state
agreement is defined as an agreement:
 between an employer and an employee of that employer and/or a trade union;
 that regulates wages and conditions of employment of one or more of the employees;
 that is in force under a State or Territory industrial law; and
 that prevails over an inconsistent State award.
Generally, a preserved state agreement does not need to be updated. Preserved state agreements
continue to operate as a federal instrument until they are:
 replaced by an enterprise agreement made under the Fair Work Act;
 terminated by agreement of the parties (with approval from Fair Work Commission); or
 terminated by Fair Work Commission after the expiry date on application by one party.
The NES applies to 'preserved state agreements'
Preserved state agreements will be rationalised against the NES to ensure that the preserved state
agreement is no less favourable then the NES. Preserved State Agreements will only be subject to the wage
rates contained in a modern award. These rates will set the minimum rate of pay. No other modern award
terms will apply.
New employees and 'preserved state agreements'

A person employed after the reform commencement would also be bound to the preserved state
agreement provided that they would have been bound had they been employed prior to reform
commencement.
3.3.4 Agreements which can no longer be entered into

Other types of agreements made previously under the Workplace Relations Act 2006 cover the conditions
of individual employees, or a group of employees. These include:
 Collective agreements — Collective agreements made before 27 March 2006 were called certified
agreements and were lodged with the Australian Industrial Relations Commission. Collective
agreements made after 27 March 2006 were lodged with the Workplace Authority;
 AWAs (Australian Workplace Agreements) — AWAs could only be made before 27 March 2008 and
were lodged with the Workplace Authority;
 ITEAs (Individual Transitional Employment Agreements) — ITEAs were a transitional instrument
introduced after the abolishment of new AWAs and could be made and lodged by certain employers
and employees on or before 31 December 2009. After 31 December 2009, ITEAs could no longer be
made. ITEAs were lodged with the Workplace Authority and were subject to the no-disadvantage test.
Those agreements made prior to 1 January 2010 continue on until they are terminated or replaced,
however no new agreements of this type can be entered into.
3.4 National Minimum Wage (NMW)

The National Minimum Wage is the minimum amount payable to any adult employee under the federal
system. An adult employee is a national system employee who is 21 years or over. Fair Work Commission
handed down their latest wage-setting decision to take effect from 1 July 2015. The pay scales are changed
as follows:
 the weekly rate is $672.70 (previously $656.90);
 the hourly rate is $17.70 (previously $17.29).
The decision increases modern award minimum wages by $15.80 per week or 41 cents per hour (on the
basis of a 38 hour week). A default casual loading of 25% applies to wages paid to casual award/
agreement free employees. This NMW applies from the first full pay period commencing on or after
1 July 2016.
This minimum entitlement does not apply to:
 a junior employee (under 21 years of age);
 an Australian Pay & Classification Scale (APCS) piece rate employee;
 an employee with a disability; or
 an employee to whom a training agreement applies (including school-based apprenticeships).
However wages for these categories of employees are generally increased proportionately. There are
special NMW's for a junior employee, an employee with a disability, or an employee to whom a training
agreement applies.
Salary sacrifice and the minimum wage – Where a provision in a workplace agreement or written contract
of employment binds the employee and the employer to a salary sacrifice arrangement, the employee may
receive an amount less than the minimum wage. For this to occur within the guidelines, the employee
must give the employer a written election, separate to the workplace agreement or contract of
employment, for the salary sacrifice arrangement.
3.5 National Employment Standards (NES)
The National Employment Standards (NES) are a standard which includes minimum award classification
wages as set by Fair Work Commission and ten guaranteed minimum conditions of employment as
covered by legislation.
In addition to the NES, generally an employee’s terms and conditions of employment come from a modern
award, agreement, award and agreement based transitional instruments, minimum wage orders,
transitional minimum wage instruments, state or federal laws.
The NES cannot be excluded by agreement

The NES is an employee's minimum entitlement. The minimum entitlement stated under the NES cannot
be excluded by way of a contract.
Example: Suzy is a personal assistant. Her contract of employment states that she is entitled to five days
sick leave and that the NES does not apply to her employment. This has no effect. As the NES provides for
10 days sick leave, and as that entitlement is more favourable than under Suzy's contract of employment,
she would be entitled to 10 days sick leave.
Which entitlements are addressed under the NES?

The NES addresses an employees' minimum entitlement in relation to:
 Maximum weekly hours
 Requests for flexible working arrangements
 Parental leave and related entitlements
 Annual leave
 Personal/carer’s leave and compassionate leave
 Community service leave
 Long service leave
 Public holidays
 Notice of termination and redundancy pay
 The Fair Work Information Statement
3.6 Maximum Weekly Hours

The NES guarantees that an employee cannot be required or requested to work more than the following
number of hours in a week:
 for full-time workers – 38 hours per week plus reasonable additional hours;
 for other employees – the lesser of – 38 hours, or the employee's ordinary hours of work in a week
plus reasonable additional hours.
Hours can be averaged over a 26 week period if it is written into a modern award or if the employee and
the employer agree in writing. Additional hours worked under the averaging provisions will be required to
be reasonable.
Reasonable additional hours

In determining whether additional hours are reasonable or unreasonable the following must be taken into
account:
 any risk to employee health and safety from working the additional hours;
 the employee’s personal circumstances, including family responsibilities;
 the needs of the workplace or enterprise in which the employee is employed;
 whether the employee is entitled to receive overtime payments, penalty rates or other compensation
for, or a level of remuneration that reflects an expectation of, working additional hours;
 any notice given by the employer of any request or requirement to work the additional hours;
 any notice given by the employee of his or her intention to refuse to work the additional hours;
 the usual patterns of work in the industry, or the part of an industry, in which the employee works;
 the nature of the employee’s role, and the employee’s level of responsibility;
 whether the additional hours are in accordance with averaging terms included in a modern award or
enterprise agreement that applies to the employee, or with an averaging arrangement agreed to by
the employer and employee;
 any other relevant matter.
Employees may refuse to work unreasonable additional hours.
3.7 Requests for Flexible Working Arrangements

Eligible employees have a right to request flexible working arrangements. They may request a change in
their working arrangements. For example:
 changes in hours of work (e.g. reduction in hours worked, changes to start / finish times),
 changes in patterns of work (e.g. working ‘split-shifts’ or job sharing arrangements)
 changes in location of work (e.g. working from home or another location).
3.7.1 Eligibility for flexible working arrangements

In order to be eligible to make this request an employee must have completed at least 12 months
continuous service with their employer immediately before making the request. Flexible working
conditions apply to:
 workers with caring responsibilities – including employees returning from unpaid parental leave
requesting part-time employment as opposed to returning to their previous full-time role
 employees who are parents, or who have responsibility for the care of a child of school age under
school or with a disability (up to 18 years of age)
 employees with disability
 mature-age employees (55 years or older)
 workers experiencing family violence and workers providing personal care, support and assistance to a
member of their immediate family or member of their household because they are experiencing family
violence.
A casual employee that has been employed by the employer on a regular and systematic basis for a
sequence of periods of employment of at least 12 months can also request flexible working arrangements
where there is a reasonable expectation of continuing employment by the employer on a regular and
systematic basis.
The request must be made in writing and set out details of the change sought and reasons for the change.
The employers response to a request

Employers must give employees a written response to the request within 21 days, stating whether they
grant or refuse the request.
Employers may refuse the request only on reasonable business grounds. If the employer refuses the
request, the written response must include the reasons for the refusal.
The NES doesn’t require an employer to agree to a request for flexible working arrangements, but refusal
must be made on reasonable business grounds, as outlined below. Employers and employees are
encouraged to discuss their working arrangements and, where possible, reach an agreement that balances
both their needs.
Grounds for refusal

The following are some of the grounds on which an employer may refuse a request for flexible working
arrangements. Many things need to be taken into account including:
 the excessive cost of accommodating the request;
 that there is no capacity to reorganise work arrangements of other employees to accommodate the
request;
 the impracticality of any arrangements that would need to be put in place to accommodate the
request, including the need to recruit replacement staff;
 that there would be a significant loss of efficiency or productivity;
 that there would be a significant negative impact on customer service.
The list of reasonable business grounds is not exhaustive and such grounds will be determined having
regard to the particular circumstances of each workplace and the nature of the request made.
3.8 Parental Leave and Related Entitlements

The NES provides both parents with the right to separate periods of up to 12 months unpaid parental
leave. Alternatively, one parent will have the right to request an additional 12 months of leave, which
employers will only be able to refuse on reasonable business grounds. Parental leave also applies where an
employee adopts a child under 16 years of age. Parental leave entitlements also apply to same-sex
couples. Where an employee’s entitlement for parental leave under an award is more generous than that
in the NES, the more generous conditions will apply.
3.8.1 Eligibility
Parental leave provisions apply to all full-time, part-time and eligible casual employees with at least
12 months continuous service with their current employer. Casual employees are eligible for parental
leave if they have been employed with the same employer on a regular and systematic basis for a period
or sequence of periods of at least 12 months and they have a reasonable expectation of ongoing
employment with the same employer.
A Parental leave notification form can be accessed at:
https://www.fairwork.gov.au/about-us/policies-and-guides/templates
Eligibility when having another child

The requirement for the employee to have 12 months service with an employer to access unpaid parental
leave is only required for the first child. The employee does not need a further 12 months service for each
subsequent child.
3.8.2 Affect of the Government Paid Parental Leave Scheme

Eligible employees who are the primary carer of a newborn or adopted child get 18 weeks' leave paid at
the national minimum wage currently $672.60. The government makes these payments to the employer
first, who then pays them to the employee. These payments can be paid before, after or at the same time
as other entitlements such as annual leave and long service leave.
The government scheme does not provide an entitlement to any additional parental leave time. See
section 1 of this manual for more information.
3.8.3 Transfer to a safe job

An employee may need to be transferred to a safe job due to risks arising out of her pregnancy or risks
connected with her position. If a pregnant employee provides her employer with a medical certificate
stating that she is fit to work but is unable to continue in her present position she is entitled to be
transferred to a safe job. If transferring the employee to a safe job is not reasonably possible for the
employer, the employee is entitled to ‘no safe job’ leave for the period during which she is unable to
continue in her present position (as stated in the medical certificate).
Where an employee meets the eligibility criteria for unpaid parental leave, the ‘no safe job’ leave will be
paid at the employee’s basic hourly periodic rate of pay immediately before the period of leave begins.
‘Basic periodic rate of pay’ means a rate of pay that does not include entitlements such as incentive-based
payments and bonuses, loadings, monetary allowances or penalty rates.
Transfer to a safe job can occur regardless of length of service with current employer, however, where the
employee has worked for less than 12 months, the ‘no safe job’ leave will be unpaid leave.
This entitlement is in addition to any other leave entitlement and does not reduce the period of maternity
leave to which an employee may be entitled.
3.8.4 Taking Parental Leave
Leave for primary carer

Female employees may commence unpaid parental leave up to six weeks before the expected date of
birth of the child and must not start later than the birth of the child. There is a requirement to take all
leave associated with the child’s birth in a continuous, unbroken period of leave.
Special maternity leave can be taken by a female employee for a pregnancy related illness, or to recover
from a miscarriage that occurs up to 28 weeks before the expected date of birth or in the event of a still
birth. A female employee is entitled to take special maternity leave for the period stated in a medical
certificate provided to her employer. Where an employee has personal/carers leave she can request to
take this at this time.
Special maternity leave

A female employee can take unpaid special maternity leave if she can’t work because:
 she has a pregnancy related illness
 if her pregnancy ends for a reason other than the birth of a living child, within 28 weeks of the
expected birth date (for example, if a child is still born).
If an employee needs to use unpaid special maternity leave, she needs to give her employer notice as soon
as she can (which may be after the leave has started). She also needs to tell her employer how long she
expects to be on leave. If the special maternity leave is taken for a pregnancy related illness, it ends either
when the pregnancy ends or the illness ends (whichever is earlier). If an employee is taking special
maternity leave because of a miscarriage or still birth, the leave can continue for as long as she is not fit for
work.
To be entitled to unpaid special maternity leave, an employee needs to meet the eligibility criteria for
unpaid parental leave. Employees who take special maternity leave are still entitled to take the full 12
months unpaid parental leave.
If a female employee has an entitlement to paid personal/carer's leave she may take that leave instead of
taking unpaid special maternity leave.
Leave for partner of primary carer

The secondary carer is entitled to take up to 52 weeks unpaid leave commencing on the date of birth of
the child or later. It must commence immediately after the primary carer’s unpaid leave period has ceased.
Leave cannot coincide with that of the primary carer with the exception of an eight week period. This is
referred to as concurrent leave.
Concurrent leave can be taken in separate periods. Each period has to be at least 2 weeks long, however,
an employer can agree to shorter lengths. Concurrent leave is part of an employee's total unpaid parental
leave entitlement. This means that any concurrent leave taken is deducted from the total parental leave
entitlement.
Example: Both parents taking unpaid parental leave at the same time
Peter and Leanne both work full-time and are expecting a baby. Leanne plans to take 12 months unpaid
parental leave. Peter also intends to take time off when the baby is born. Leanne's mum will be staying
with them for 4 weeks when the baby is born to help. Instead of taking 8 weeks concurrent leave
immediately, Peter and his employer agree that he will take 2 weeks unpaid parental leave when the baby
is born and another 6 weeks after Leanne's mum goes home. These 8 weeks of concurrent leave is
deducted from their total unpaid parental leave entitlement of 12 months.
Paid partner leave – Paid leave for the partner of the primary carer provides eligible working fathers, and
other partners who are providing full-time care or sharing the child’s care, with 2 weeks paternity leave
paid. This paid paternity leave will be paid at a rate equivalent to the national minimum wage of $672.60
applies in relation to children born on or after 1 January 2013. See Section 1 for more information.
Both parents taking parental leave at different times

Each parent can take a separate period of up to 12 months unpaid parental leave. The combined leave
cannot be for more than 24 months. Any concurrent leave or keeping in touch days taken are deducted
from this overall entitlement. If the pregnant employee takes unpaid parental leave first, it has to start:
 on the birth or placement of the child or
 up to 6 weeks before the expected birth (or earlier if their employer agrees).
If the employee who isn't pregnant takes unpaid parental leave first, it has to start on the birth or
placement of the child. If the leave is adoption related, one parent has to start their leave period on the
date of placement of the child.
In both cases, leave has to be taken in a single continuous period. This means the other parent has to start
their unpaid parental leave the next working day after the first parent's leave ends.
Keeping in touch days

Keeping in touch days allow an employee who is still on unpaid parental leave to go back to work for a few
days. This may assist employees who are caring for a baby or newly adopted child to stay up to date with
their workplace, refresh their skills and assist their return to work.
Work on a keeping in touch day may include:
 participating in a planning day
 doing training or
 attending a conference.
An employee on unpaid parental leave gets 10 keeping in touch days. This doesn't affect their unpaid
parental leave entitlement. If the employee extends their period of unpaid parental leave beyond
12 months, they can take an additional 10 days. Keeping in touch days can be worked:
 as a part day
 1 day at a time
 a few days at a time, or
 all at once.
A keeping in touch day can be worked at least 42 days after the birth of a child or adoption. It can only be
earlier if the employee requests it. If a request is made, a keeping in touch day can't be worked earlier than
14 days after the birth or adoption. The employer and employee have to agree to the keeping in touch
days. An employee gets their normal wage for each keeping in touch day or part day.
Example: Payment for a keeping in touch day to assist with a return to work
Georgia has taken 12 months unpaid leave to look after her newly adopted son. During this time, her
workplace gets a new computer system and everyone needs training in how to use it.
To help Georgia's transition back into work after her leave, her manager Alex asks if she'd like to come in
for a keeping in touch day. This means Georgia can do the training with everyone else. Georgia agrees and
is paid her normal wage for coming to work.
To practice her new skills, she asks Alex if she can come in for a keeping in touch day once a month for 6
months. Alex agrees.
Pregnant employee may be required to take unpaid parental leave
The employer may ask the employee to provide a medical certificate if a pregnant employee continues to
work during the 6 week period before the expected date of birth of the child. The medical certificate will
need to state:
 whether the employee is fit for work;
 if the employee is fit for work—a statement of whether it is inadvisable for the employee to continue
in her present position during a stated period because of illness, or risks, arising out of the employee’s
pregnancy; or hazards connected with the position.
Requesting extended unpaid parental leave

If the employee requests an additional extended period of up to 52 weeks parental leave, the request must
be made in writing and given to the employer at least 4 weeks before the end of the available parental
leave period. The employer must give the employee a written response to the request stating whether the
employer grants or refuses the request within 21 days of the request being made. The employer may
refuse the request only on reasonable business grounds. In this case the written response must include
details of the reasons for the refusal. The following forms can be found at
http://www.fairwork.gov.au/Leave/maternity-and-parental-leave/When-on-parental-leave/extending-
parental-leave
 Parental leave – application to vary / extend leave within the initial 12 months template – This form
is to be used for notification or application to extend or vary a period of parental leave within the
initial 12 months from the time leave began. To request to extend leave beyond the initial 12 month
period, use the ‘parental leave – request to extend leave beyond initial 12 months’ form.
 Approval of extension of parental leave template
 Refusal of extension of parental leave template
3.8.5 Unpaid parental leave’s impact on accruals and service

During unpaid parental leave employees can take:
 accumulated annual leave;
 accumulated long service leave;
 jury service leave.
Employees on parental leave can't take:
 sick leave or carer's leave;

 compassionate leave;
 community service leave (other than for jury service).
Example: Taking annual leave during unpaid parental leave
Maggie is about to take 12 months unpaid parental leave. She wants to take some annual leave during her
parental leave so she has income in the later months of her unpaid leave.
She agrees with her employer to take 4 weeks annual leave in her ninth month of unpaid parental leave.
These 4 weeks don't extend Maggie's unpaid parental leave period. Instead, they will run at the same time.
Access Fair Work for clarification at:

http://www.fairwork.gov.au/leave/parental-leave/pages/other-leave-and-parental-leave.aspx
Whilst an employee will keep their continuity of service whilst on unpaid parental leave, the period is not
included as service for the following entitlements:
 Annual leave
 Personal leave
 Long service leave; and
 Redundancy pay
A period of unpaid parental leave is however included as service for:
 Notice of termination requirements; and
 Requests for flexible working arrangements.
An employees’ annual leave and personal leave does not accrue while they’re on unpaid parental leave,
employees do not lose any leave that they built up prior to taking parental leave. An employees’ annual
leave and personal leave does not accrue while they’re on the government paid parental leave.
http://www.fairwork.gov.au/leave/parental-leave/pages/other-leave-and-parental-leave.aspx
Does paid leave accumulate during employer-funded paid parental leave

Employers can provide for paid parental leave in registered agreements, employment contracts and
workplace policies. The amount of leave and pay entitlements depends on the relevant registered
agreement, contract or policy.
3.8.6 Returning to work

When returning to work from parental leave an employee is entitled to return to the position they held
before taking leave or to a new position if they have been promoted or have agreed to accept a new
position. If the employee’s former position no longer exists and the employee is qualified and able to work
for their employer in another position, then the employee is entitled to work in another position for their
employer. When there is more than one appropriate position, the employee is entitled to the position
nearest in status and remuneration to their former position.
Employees returning from unpaid parental leave have the ability to request part-time employment as
opposed to returning to their previous full-time role. This can be done under flexible working
arrangements.
3.8.7 Ending employment during parental leave

Resigning from a job while on parental leave – An employee can resign from their job while they're on
parental leave. They:
 have to give the correct notice period to their employer
 can use their parental leave as the notice period.
Dismissed by an employer while on parental leave – If an employer dismisses an employee while they're
on parental leave, the employee has to be paid instead of working the notice period. This is because the
employee can't work the notice period when they're on parental leave. An employer can't dismiss an
employee because:
 of family or caring responsibilities
 they are pregnant
 they are on maternity or parental leave, or
 they are temporarily absent from work due to illness or injury.
This may be seen as discrimination, and it's unlawful to dismiss an employee for any of these reasons.
Redundancy while on parental leave – If an employee's job is made redundant while on parental leave,
the employer has to:
 give them the correct notice,
 pay the employee for the notice period.
 pay out any entitlements, including redundancy pay.
Employers have to talk to an employee on unpaid parental leave if they decide to make a significant
change in the workplace that will affect the employee's job. This has to occur as the decision is made, not
when the employee comes back to work from parental leave.
Employer checklist for parental leave
Checklist 
Has your employee provided notice of taking unpaid parental leave?
Has your employee provided you with confirmation of intended start and end dates for his or her leave?
Has your employee provided you with a medical certificate or verification of the dates (only required if you
request evidence)?
Have you and your employee discussed the arrangements for payment of monetary entitlements that they
may be entitled to? These could include any annual leave, long service leave, employer-funded paid
parental leave or Parental Leave Pay under the Australian Government Paid Parental Leave scheme.
Varying a period of parental leave (within the first 12 months)
Has your employee provided you with written notification or request (when applicable) to vary the period of
leave?
Have you provided a response in writing?
Extending parental leave beyond the 12 month entitlement

Has your employee provided you with a written request to extend their period of parental leave?
Have you provided a response in writing stating whether the request will be granted or refused?
If you are refusing the request:

Does the response clearly outline the reason for the refusal?
Australian Government Paid Parental Leave scheme
Do you understand your role as an employer and your obligations under the Australian Government Paid
Parental Leave scheme? Have you registered your business with Centrelink?
Has your employee advised you if they will be applying for Parental Leave Pay under the Australian
Government Paid Parental Leave scheme? Remember to give your employee your Australian Business
Number (ABN) and the name and contact details of a relevant person Centrelink can contact. Your
employee will need these details when they lodge their claim with Centrelink.
If Centrelink has contacted you about providing Parental Leave Pay to your employee, have you registered
and accepted this role?
Have you advised Centrelink of any changes to your employee’s period of parental leave which may affect
their ongoing entitlement to Parental Leave Pay (for example, if the employee has left the business or has
returned to work during their Paid Parental Leave period)?
Have you advised Centrelink of any changes which may affect the payment of Parental Leave Pay to your
employee? This could include changes to your bank account details, payroll arrangements, or a decision by
your business to cease trading, transfer ownership or merge with another business.
Have you kept records of Paid Parental Leave funds received from Centrelink and Parental Leave Pay
provided to your employee?
Record keeping
Have you recorded your employee’s leave dates?
Have you kept a copy of any requests to vary or extend the period of parental leave, and your response to
your employee?
If your employee’s period of parental leave has changed – have you recorded the new dates of your
employee’s leave?
3.9 Annual Leave
3.9.1 Entitlement to annual leave

For each year of service with an employer, an employee is entitled to:
 4 weeks of paid annual leave; or
 5 weeks of paid annual leave, if the employee a shiftworker.
A shift worker is an employee who:
 is employed in an enterprise in which shifts are continuously rostered 24 hours a day for 7 days a
week; and
 is regularly rostered to work those shifts; and
 regularly works on Sundays and public holidays.
3.9.2 Accrual of annual leave

An employee’s entitlement to paid annual leave accrues progressively during a year of service according to
the employee’s ordinary hours of work, and accumulates from year to year. If an employee’s employment
ends during what would otherwise have been a year of service, the employee accrues paid annual leave up
to when the employment ends. Part time employees are entitled to 4 weeks’ annual leave paid pro-rata.
Generally, annual leave accrues at one-thirteenth of an employee’s hours.
Accrual of annual leave, personal leave and long service leave entitlements for workers' compensation
recipients
Where an employee is absent from work because of personal illness or injury for which they are receiving
workers’ compensation, they will not accrue any annual leave, personal leave or long service leave unless
stated in relevant State legislation. Please see paragraph 7.5.3 for detailed information on a state by state
basis.
3.9.3 Taking annual leave

Paid annual leave may be taken for a period agreed between an employee and his or her employer. The
employer must not unreasonably refuse to agree to a request by the employee to take paid annual leave.
An employee is not taken to be on paid annual leave on public holidays or during a period of any other
leave (other than unpaid parental leave). For example, where an employee is absence from employment
under community service leave provisions, the employee will not be considered to be on annual leave.
Matters that may be agreed between employer and employee in relation to taking paid annual leave
include:
 that paid annual leave may be taken in advance of accrual;
 that paid annual leave must be taken within a fixed period of time after it is accrued;
 the form of application for paid annual leave;
 that a specified period of notice must be given before taking paid annual leave.
Modern awards may also contain terms regarding the taking of leave. For example, this could include
provisions that allow an employee to take twice the annual leave required by the NES but at half the rate
of pay.
Directing an employee to take annual leave

An employee may be directed to take annual leave in certain circumstances, for example:
 during a period of shut down (such as between Christmas and New Year);
 if the employee has an excessive accumulated annual leave balance.
− “Excessive” leave is when an employee has accrued at least 8 weeks for non-shift workers and 10
weeks for shift workers;
− Employers cannot make a direction that will result in an employee’s annual leave balance dropping
below 6 weeks; and
− Before making a direction, the employer must meet with the employee to try to reach agreement
on a plan to reduce or eliminate the excessive leave.
Sending an employee home due to lack of work – an employer is unable to send a part-time or full-time
employee home without pay because it’s quiet. A casual employee can be sent home where they have
worked (or will be paid for) the minimum shift length in their award or agreement. An employer can stand
an employee down without pay if there isn’t enough work because of:
 industrial action (not industrial action that is organised by your employer)
 machinery or equipment breaking down
 any reason that they aren’t responsible (like a natural disaster).
An enterprise agreement, contract or award may allow stand down for other reasons too.
3.9.4 Payment for annual leave

When an employee takes a period of paid annual leave, the employer must pay the employee’s base rate
of pay for the employee’s ordinary hours of work in the period. If, when the employment of an employee
ends, the employee has a period of untaken paid annual leave, the employer must pay the employee the
amount that would have been payable to the employee had the employee taken that period of leave.
Where an employee falls ill during their period of annual leave, they are taken not to be on paid annual
leave, rather on personal leave for the period of illness.
Leave Calculator – The Leave Calculator provides employers with assistance in calculating their employees
annual and personal leave entitlements under the National Employment Standards (NES). The leave
calculator can be found under the tab ‘leave’ on the Fair Work website homepage or by going to the
following website address:
https://calculate.fairwork.gov.au/Leave
Cashing out paid annual leave for award/agreement free employees

To make an agreement to cash out paid annual leave all of the following must apply:
1. An employer and an award/agreement free employee must agree to the employee cashing out a
particular amount of the employee's accrued paid annual leave.
2. The employer and the employee must not agree to the employee cashing out an amount of paid
annual leave if the agreement would result in the employee's remaining accrued entitlement to paid
annual leave being less than 4 weeks.
3. Each agreement to cash out a particular amount of paid annual leave must be a separate agreement in
writing.
4. The employer must pay the employee at least the full amount that would have been payable to the
employee had the employee taken the leave that the employee has forgone.
Cashing out paid annual leave for employees under an award

In addition to the above, employees under an award or agreement can only cash out paid annual leave if
the following applies:
5. A maximum of two weeks is cashed out in any 12 months;
6. Specific records are kept;
7. A signature from parents is obtained for employees under 18 years of age; and
8. There is no undue employer influence forcing the employee to cash out paid annual leave.
NOTE: Modern awards are currently being reviewed to include clauses allowing cashing out of annual
leave. This process should be finalised in 2016.
Termination and annual leave loading

Where an employee is entitled to leave loading when they take annual leave whilst employed, leave
loading must also be paid to the employee when making payment of accrued annual leave on termination.
3.10 Personal Leave — Includes Sick Leave, Carer’s Leave, and
Compassionate Leave
3.10.1 Entitlement and accrual of paid personal/carer's leave

For each year of service with his or her employer, an employee is entitled to 10 days of paid
personal/carer’s leave. An employee’s entitlement to paid personal/carer’s leave accrues progressively
during a year of service according to the employee’s ordinary hours of work, and accumulates from year to
year. Generally, personal leave accrues at one-twenty-sixth of an employee’s hours.
Where an employee is absent from work because of personal illness or injury for which they are receiving
workers’ compensation, they will not accrue any personal leave unless stated in relevant State
compensation legislation. Please see section 7 for detailed information on a state by state basis.
3.10.2 Taking personal/carer’s leave

An employee may take paid personal/carer’s leave:
 because the employee is not fit for work because of a personal illness, or personal injury, affecting the
employee; or
 to provide care or support to a member of the employee’s immediate family, or a member of the
employee’s household, who requires care or support because of a personal illness, or personal injury,
affecting the member, or an unexpected emergency affecting the member.
If the period during which an employee takes paid personal/carer’s leave includes a day or part-day that is
a public holiday in the place where the employee is based for work purposes, the employee is taken not to
be on paid personal/carer’s leave on that public holiday.
Who is immediate family

'Immediate family' is an employee’s spouse, de facto partner, child, parent, grandparent, grandchild,
sibling, or a child, parent, grandparent, grandchild or sibling of the employee’s spouse or de facto partner.
Note: A former spouse and a former de facto partner are considered immediate family.
Notice and evidence requirements

An employee must give his or her employer notice of the taking of leave:
 as soon as practicable (which may be a time after the leave has started); and
 must advise the employer of the period, or expected period, of the leave.
The employee is not entitled to the leave if the employee fails to provide either:
 notice (as soon as practicable), or
 evidence (when requested) that would satisfy a reasonable person.
An award or agreement may include terms relating to the kind of evidence that an employee must provide
in order to be entitled to paid personal/carer’s leave, unpaid carer’s leave or compassionate leave. For
example, an employer may request that the employee provides a medical certificate.
3.10.3 Payment for personal/carer’s leave

If an employee takes a period of paid personal/carer’s leave, the employer must pay the employee at the
employee’s base rate of pay for the employee’s ordinary hours of work in the period. An employee will be
considered to be on personal leave in the situation where he/she falls ill during their period of annual
leave.
Cashing out personal/carer’s leave

Paid personal/carer’s leave must not be cashed out, except in accordance with cashing out terms included
in a modern award or enterprise agreement.
A modern award or enterprise agreement may include terms providing for the cashing out of paid
personal/carer’s leave but only where:
 the cashing out would result in the employee’s remaining accrued entitlement to paid personal/carer’s
leave being 15 days or more; and
 each cashing out of a particular amount of paid personal/carer’s leave is by a separate agreement in
writing between the employer and the employee; and
 the employee is paid at least the full amount that would have been payable to the employee had the
employee taken the leave.
Employees who are not covered by an award or enterprise agreement can’t cash out their personal leave,
even if it’s in a written contract.
3.10.4 Long periods of sick leave

An employee can take as much paid sick leave as they have accumulated to get better from an injury or
illness.
An employee can’t be fired because they are sick. This includes when an employee is on paid sick leave for
a long period of time.
When paid sick leave runs out

When an employee has run out of paid sick leave, they can take unpaid leave if they aren’t fit for work
because they are sick or injured. If the employee is on unpaid sick leave, they can’t be dismissed if:
 they have been away for 3 months or less and

 they provide evidence of their illness or injury.
Terminating a person on sick leave or workers compensation – see section 4
3.10.5 Unpaid carer’s leave

An employee is entitled to 2 days of unpaid carer’s leave for each occasion (a permissible occasion) when a
member of the employee’s immediate family, or a member of the employee’s household, requires care or
support because of a personal illness, or personal injury, affecting the member or an unexpected
emergency affecting the member. An employee may take unpaid carer’s leave for a particular occasion as:
 a single continuous period of up to 2 days; or
 any separate periods to which the employee and his or her employer agree.
An employee cannot take unpaid carer’s leave during a particular period if the employee could instead
take paid personal/carer’s leave.
3.10.6 Compassionate leave

An employee is entitled to 2 days of compassionate leave for each occasion when a member of the
employee’s immediate family, or a member of the employee’s household contracts or develops a personal
illness that poses a serious threat to his or her life; or sustains a personal injury that poses a serious threat
to his or her life; or dies. An employee may take compassionate leave for a particular occasion as:
 a single continuous 2 day period; or
 separate periods of 1 day each; or
 any separate periods to which the employee and his or her employer agree.
If it is a case of the immediate family member or household member contracting or developing an illness
or sustaining an injury, the employee may take the compassionate leave for that occasion at any time
while the illness or injury persists.
The employer must pay the employee at the base rate of pay for the employee’s ordinary hours of work in
the period. For casual employees, compassionate leave is unpaid leave.
3.10.7 Use of personal leave in natural disaster or emergency
Employer has to temporarily close as a result of a natural disaster or emergency

An employer will need to determine their obligations to their employees in the event that a business has to
temporarily close as a result of a natural disaster or emergency. Employers should review the industrial
instrument their employees fall under (i.e. award, agreement, or employment contract) as well as the Fair
Work Act 2009 to understand any entitlements an employee may have in this situation. This may include
offering the choice of taking accrued paid leave, or in some cases, standing down employees.
Where an award, agreement or contract of employment does not include a stand down provision for these
circumstances then the Fair Work Act 2009 and the provisions within it will apply. The provisions within
the Act enable employers to stand down employees, without pay, where they cannot usefully be employed
during a period because of any stoppage of work for which the employer cannot reasonably be held
responsible, such as a natural disaster. Stand downs can be unpaid; however, an employer may choose to
pay employees at their discretion.
Some awards or agreement under the Fair Work Act 2009 may include terms requiring an employee, or
allowing an employee to take paid annual leave in particular circumstances, but only if the requirement is
reasonable. Employees who are award or agreement free can be required to take paid annual leave if the
requirement is reasonable.
Where possible, employees should be notified by writing where a stand down is taking place. This
notification should also include the following information:
 the date which the stand down commences,
 whether the employees will or will not be paid
 the effect on other employment entitlements.
 and the date that the stand down will end (where possible)
Possible alternatives to standing down employees could include:
 Invite employees to take a period of accrued paid leave (for example, annual leave). Some industrial
instruments permit annual leave to be taken at half pay and some have terms which allow the
employer to require annual leave to be taken by employees.
 Offering to move employees to an unaffected worksite where possible.
 Where appropriate, consider flexible arrangements, like working from home.
Any arrangements to alter an employee’s working patterns would need to be implemented in accordance
with the Fair Work Act 2009 and any relevant award or agreement.
Employee unable to attend work due to natural disaster or emergency

Natural disasters often result in employees requiring time off to care for themselves or their family.
Employers should keep in mind the health and wellbeing of their staff when granting access to leave
entitlements. Employees (other than casual employees) affected by a natural disaster or emergency may
have an entitlement to take paid personal / carer’s leave or compassionate leave. For example, if an
employee sustained an injury during a flood or bushfire they may be entitled to personal leave. An
employee would also be eligible for personal / carer’s leave if their child’s school is closed due to a natural
disaster or emergency.
Entitlement to personal / carer’s leave in disaster or emergency

Employees who have an entitlement to paid personal / carer’s leave are entitled to take personal / carer’s
leave if they are unfit for work because of their own personal illness or injury or to provide care or support
to a member of their immediate family or household, because of an illness, injury or an unexpected
emergency. An unexpected emergency would include a natural disaster. Employees who have exhausted
their paid personal / carer’s leave entitlement, and casual employees, are eligible for up to 2 days unpaid
carer’s leave per occasion to provide care and support to a family or household member due to illness,
injury or in the event of an unexpected emergency.
Personal Leave Summary Chart
Paid personal/carer’s leave
Who For all employees except casuals.
When When the employee is sick or injured or when the employee needs to care for an immediate
family or household member who is sick, injured or has an unexpected emergency.
How much 10 days per year for a full-time employee, pro-rated for part-time employees.
Paid compassionate leave
Who For all employees except casuals.
When An immediate family or household member dies or gets an injury or illness that threatens their
life.
How much 2 days per occasion taken either as 2 continuous days, 2 separate periods of 1 day each, or any
separate periods to which the employee and employer agree. Compassionate leave is in addition
to the 10 days personal/carers leave. The number of occasions/events per year is unlimited.
Unpaid carer’s leave
Who For all employees including casuals.
When When the employee needs to care for an immediate family or household member who is sick,
injured or has an unexpected emergency. Note: full and part-time workers can only use this
when they have used up all of their paid personal/carer’s leave.
How much 2 days per occasion or any separate periods to which the employee and employer agree. An
employee cannot take unpaid carer’s leave during a particular period if the employee could
instead take paid personal/carer’s leave.
Unpaid compassionate leave
Who For casual employees only
When An immediate family or household member dies or gets an injury or illness that threatens their
life.
How much 2 days per occasion/event. The number of occasions/events per year is unlimited
3.11 Community Service Leave

Employees, including casual employees, are entitled to take leave to carry out certain community service
activities such as:
 jury service (including attendance for jury selection)
 a ‘voluntary emergency management activity’ where all the following apply:
− the activity deals with an emergency or natural disaster

− the employee engages in the activity on a voluntary basis
− the employee is a member of, or has a member-like association with, a ‘recognised emergency
management body’
− the body requests the employee to engage in the activity, or it would be reasonable to expect
that such a request would have been made.
While community service leave is unpaid leave, it is regarded as an authorised unpaid leave and therefore,
an employee will continue to accrue paid annual leave and paid personal/carer’s leave under the Fair Work
Act (s22(2)(b)) when on this leave.
3.11.1 Voluntary Emergency Management Activity
Service must be with a recognised emergency management body. A recognised emergency management
body is:
 a body, or part of a body, that has a role or function under a plan that:
− is for coping with emergencies and/or disasters, and
− is prepared by the Commonwealth, a State or a Territory
 a fire-fighting, civil defence or rescue body, or
 part of such a body any other body, or part of a body, which substantially involves:
− securing the safety of persons or animals in an emergency or natural disaster
− protecting property in an emergency or natural disaster
− otherwise responding to an emergency or natural disaster
Eligible Bodies
The following are examples of bodies that would be recognised for the purposes of community service
leave:
 the State Emergency Service (SES)
 Country Fire Authority (CFA)
 the RSPCA (in respect of animal rescue during emergencies or natural disasters).
Amount of leave
There is no set limit on the amount of time an employee can be absent due to their work with a
Voluntary Emergency Management Activity. An employee is entitled to take leave for an amount of time
reasonable in the circumstances. The time away can also include travelling time associated with the
activity and rest time immediately following the activity.
Requirement to pay community service leave in some states

Queensland – The Qld Public Safety Preservation Act 1986 (s44) provides for payment of ordinary
remuneration to an employee for the period absent from work on emergency service leave.
Western Australia – The WA Emergency Management Act 2005 (s92(2)) provides that an employee who is
absent from work on emergency service leave is entitled to payment of ordinary remuneration for the
period of absence from work, based on normal working hours.
In all other states, there is no requirement to pay employees whilst they are absent as a result of a
Voluntary Emergency Management Activity however, an employee will continue to accrue paid annual
leave and paid personal/carer’s leave under the Fair Work Act (s22(2)(b)) when on this leave.
3.11.2 Jury Duty

 Employees (other than casual employees) will be entitled to be paid for the first 10 days of Jury service
 PAYG withholding will need to be withheld from this payment using the PAYG tax tables
 Superannuation will not be due on this payment
 Annual leave, personal leave and long service leave will continue to accrue while an employee is on
jury service.
Payment for Jury Duty

The employer is required to pay the employee’s base rate of pay for the employee’s ordinary hours of
work in the period of leave. There is no cap on the amount of jury service leave an employee can take in
any 12 month period of employment. The time away can also include travelling time associated with the
jury duty and rest time immediately following the jury duty. An employee (other than a casual) is entitled
to ‘make-up pay’ for the first 10 days that the employee is absent for a period of jury service. Make-up pay
is the difference between:
 any jury service pay the employee receives (excluding any expense-related allowances) and
 the employee’s base rate of pay for each hour (or part hour) they would have worked, excluding
separate entitlements, such as incentive-based payments and bonuses, loadings, monetary allowances,
overtime or penalty rates.
Before paying make-up pay, an employer may ask the employee to provide reasonable evidence:
 that they tried to claim jury service pay
 of the total amount of jury service pay that has been paid (even if there was no jury service payment),
 of the total amount of jury service pay that is payable, for the period (even if there was no jury service
payment).
If the employer requires evidence, then the employer is only required to pay the employee upon receipt of
the evidence. If the relevant State or Territory laws provide more beneficial entitlements than the NES in
relation to eligible community service activities, those laws continue to apply.
Victoria, Queensland and Western Australia – No limit of Jury Service pay

In Victoria, Queensland and Western Australia the make-up pay provisions of the State Act supersede the
provisions contained in the Fair Work Act. The State Act requires employers to provide make-up pay for
jury service for as long as the employee is required to attend jury service, even if it is in excess of 10 days.
There is no limit.
Jury Service and Casual Employees

The Fair Work Act does not exclude a state or territory law that entitles a casual employee to be paid jury
service pay. Likewise, a state or territory law that provides that the employer pays jury service pay for a
period longer than 10 days will also apply to the employer.
State Casuals paid jury duty pay Reference

by Employer
Queensland No http://www.legislation.qld.gov.au/legisltn/current/i/industrela99.
Qld Jury Act 1995 pdf
Victoria Yes https://www.courts.vic.gov.au/jury-service/attending-jury-
Vic Juries Act 2000 service
South Australia Act does not specifically http://www.courts.sa.gov.au/ForJurors/Brochures/jury_Info_em

SA Juries Act 1927 include casuals. Look to ployers.pdf
award/agreement.
Western Australia Yes http://www.courts.dotag.wa.gov.au/F/faq_for_employers.aspx?
WA Juries Act 1957 uid=9648-3636-1487-2918
New South Wales No http://www.courts.justice.nsw.gov.au/cats/jury_service.html,c=y
NSW Jury Act 1977
Australian Capital Silent (therefore refer back to http://www.legislation.act.gov.au/a/1967-47/current/pdf/1967-

Territory Fair Work Act which states no 47.pdf
ACT Juries Act payment required for casuals)
1967
Northern Territory Silent (therefore refer back to http://www.supremecourt.nt.gov.au/jurors/#q11
NT Juries Act Fair Work Act which states no
payment required for casuals)
Tasmania Silent (therefore refer back to http://www.supremecourt.tas.gov.au/__data/assets/pdf_file/001
Tas Juries Act 2003 Fair Work Act which states no 4/105332/SCoT_Jury_Duty_DL_NEW_17_June_2008.pdf
payment required for casuals)
3.11.3 Notice and evidence for community service leave

For community service leave, employees must give their employer notice of the leave, the period or
expected period of leave and if requested, reasonable evidence that the employee is entitled to the leave.
3.12 Long Service Leave
NEW SOUTH WALES
Service requirement 10 yrs - 8.6667 wks. Further 5 yrs = 4.3333 wks.
Pro-rata LSL after : 5 years
Conditions for pro-rata of Pro-rata only applies if employee:
leave • terminates due to illness, incapacity or domestic or other pressing necessity.
• is dismissed for any reason except serious and wilful misconduct.
• termination results from death of employee.
Pro-rata calculation is based on total service (Years, Months and Days)
Can it be cashed out No
Calculating amount to be Higher of:
paid • Ordinary pay for the last pay period prior to leave being taken, and
• Average weekly ordinary rate of pay earned during the previous 5 years.
Does not include overtime, shift premiums, or penalty rates.
When paying out the calculation is based on total service (Years, Months and Days)
up to 15 years service. After that the pay out in based only on whole years.
Calculating amounts for Long service leave pay is based on whichever is the highest rate:
casual/ part time employees • The employee’s ordinary pay for the last pay period prior to the leave being taken
• The average weekly ordinary rate of pay earned during the previous five years.
Shiftwork, other penalty rates and overtime payments are not included. Note that
service for casual employees’ only counts after 9 May 1985.
When and how should long An employer is required to grant long service leave as soon as practicable after it has
service leave be taken become due, taking into account the needs of the business. The employer must give
their employee one month's notice of the commencement date of the long service
leave. If both the employer and employee agree, long service leave may be
postponed to a mutually convenient date. It can be taken in one continuous period of
leave or, if the employee and employer agree, as follows:
• Where the leave owing is two months – in two separate periods.
• Where the leave owing is between two months and nineteen and one-half weeks –
in two or three separate periods.
• Where the leave exceeds nineteen and one- half weeks – in two, three or four
separate periods.
LSL extended by a public Yes
holiday
Continuity of service for long • Employer terminates employment for slackness of trade and employee is rehired
service leave remains if: at anytime in the future.
• Employer terminates employment for any other reason and employee is rehired
within 2 months.
Website http://www.industrialrelations.nsw.gov.au/Employment_info/Leave/Long_service_leav
e.page
VICTORIA
Note: transitional rules apply if employee commenced prior to 1January 2006
Conditions for pro-rata of Pro-rata applies on termination of employment by either the employer or employee or
leave the employee has passed away. Periods of unpaid parental leave does not count
towards period of employment.
VICTORIA
Calculating amount to be • Total number of weeks’ employment divided by 60 and multiplied by the ordinary
paid weekly rate of pay at the time the leave is taken, or the employee ceases
employment.
• Does not include penalty or overtime rates. Ordinary pay includes the cash value
of any board or lodging that the employee receives from his or her employer and
casual loadings.
Calculating amounts for If the normal weekly number of hours changed one or more times during the 12
casual/ part time employees months immediately before the employee takes or is paid out long service leave, the
hours are averaged over the preceding 12 months or 5 years whichever is greater,
multiplied by the current hourly rate for ordinary time.
When and how should long The date of commencement of long service leave is to be agreed between the
service leave be taken employee and the employer. The long service leave must be taken in one period,
except where an employer and employee agree to separate periods. If an agreement
is reached, then the first thirteen weeks of long service leave may be taken in up to
three separate periods, and subsequent long service leave may be taken in two
separate periods.
holiday
within 3 months.
Website http://www.business.vic.gov.au/operating-a-business/employing-and-managing-
people/long-service-leave-entitlements
AUST CAPITAL TERRITORY

Service requirement 7yrs – 1/5 month for each year of service. Further 5 yrs = 1 month.
Conditions for pro-rata of Pro-rata only applies if employee:
leave • terminates due to illness, incapacity or domestic or other pressing necessity.
• has reached retirement age,
• is dismissed for any reason except serious and wilful misconduct or death.
Pro-rata calculation is based on years and months of service.
Calculating amount to be Amount equivalent to the ordinary remuneration the employee would have received in
paid respect of the period of leave if he or she had not taken the leave.
When paying out the calculation is based on years and months of service.
Calculating amounts for Multiply the average number of hours worked each week by the employee during the
casual/ part time employees period of 12 months immediately preceding the day on which the employee became
entitled to the leave by the ordinary remuneration of the employee on that day.
When and how should long The employer shall grant long service leave to the employee as soon as practicable
service leave be taken after the leave has accrued at a time agreed between the parties. If an agreement
cannot be reached the employer shall give the employee notice in writing that leave
must be taken after 60 days from the date of the notice. The time and manner of
taking long service leave should be agreed between the employer and employee.
Where agreement can't be reached, the employer can - with at least three months
written notice - require an employee to take at least four weeks long service leave.
holiday
service leave remains if: within 6 months.
within 2 months.
Website http://www.legislation.act.gov.au/a/1976-27/current/pdf/1976-27.pdf
WESTERN AUSTRALIA
Service requirement 10 yrs – 8 2/3 wks. Further 5 yrs = 4 1/3wks.
Note: transitional rules apply if employee commenced prior to 4 July 2006.
Pro-rata LSL after 7 years
Conditions for pro-rata of Pro-rata payable on termination unless employment is terminated for serious
leave misconduct.
The pro-rata LSL payment must be paid for all qualifying service, not just completed
years.
Can it be cashed out Yes – if the employer and employee agree for the employee to receive adequate
benefit in lieu of the LSL entitlement and the agreement is in writing.
Calculating amount to be Ordinary rate of pay applicable at the time the leave is taken.
paid Does not include shift premiums, overtime, penalty rates and allowances.
Commissions and bonuses form part of the ordinary rate of pay.
Calculating amounts for The ordinary rate of pay for the average number of hours worked over the period of
casual/ part time employees employment.
When and how should long Provided an agreement is reached between the employer and employee, long service
service leave be taken leave is to be granted and taken as soon as reasonably possible after it falls due and
may be taken in one continuous period or in separate periods of not less than one
week. If an employee has been entitled to their long service leave for more than 12
months, and an agreement cannot be reached with the employer, the employee can
give the employer two weeks of notice of their intention to take leave. An employer
cannot refuse the employee taking leave.
holiday
within 2 months.
Website http://www.commerce.wa.gov.au/labour-relations/long-service-leave-entitlements-
employees
SOUTH AUSTRALIA
Service requirement 10 yrs = 13 wks each additional year = 1.3 wks
Conditions for pro-rata of Pro-rata applies on termination of employment by either the employer or employee or
leave the employee has passed away. It is not payable on termination if dismissal is due to
serious and wilful misconduct or if employee terminates unlawfully.
The pro-rata LSL payment is only paid for completed years of service.
Can it be cashed out Yes – if written agreement between employee and employer is entered into after
10 yrs of service.
Calculating amount to be Generally, long service leave is paid at the ordinary weekly wage a worker is entitled
paid to immediately before going on leave, or at the time of employment termination. It will
include above-award payments for work in ordinary time, but not overtime, shift
premiums or penalty rates.
If a worker is paid by commission, piece rates or another system of payment-by-result,
then their ordinary weekly wage is calculated by averaging their weekly earnings over
the 12 months immediately before taking leave or the time of employment termination.
When paying out the calculation is based on completed years of service.
Calculating amounts for If a worker’s weekly hours changed during all or some of the three years immediately
casual/ part time employees preceding a payment for long service leave, then their ordinary weekly wage is
calculated by averaging the number of hours worked per week in that period of three
years, and multiplying that result by the worker’s hourly rate at the time of taking leave
or employment termination.
When and how should long The employer should give a worker at least 60 days of notice of the date from which
service leave be taken leave is to be taken. The Long Service Leave should be taken in one continuous
period, but if an employer and their worker agree, separate periods can be taken.
SOUTH AUSTRALIA
LSL extended by a public No
holiday
within 2 months.
Website http://www.safework.sa.gov.au/show_page.jsp?id=2477#.VDdHy2dEiUk
NORTHERN TERRITORY
Service requirement 10 yrs = 13 wks further 5 yrs = 6.5wks
Conditions for pro-rata of Pro-rata only applies if
leave • Employee has reached retirement age,
• Employer terminates employee (unless due to serious misconduct).
• Employee terminates due to illness, incapacity or domestic or other pressing
necessity of such a nature as to justify so ceasing to be an employee.
The pro-rata LSL payment is only paid for completed years of service.
Calculating amount to be Generally, calculated using the current rate of pay and the average number of hours
paid per week worked.
Does not include overtime, penalty rates, district allowance, site allowance etc.
When paying out the calculation is based on completed years of service.
Calculating amounts for Divide total amount of pay paid to the employee (excluding overtime worked, district
casual/ part time employees allowance, site allowance, climatic allowance or penalty rates), by the total number of
hours, other than hours of overtime, worked by the employee during the year of
continuous service.
When and how should long Usually the time for using leave is by mutual agreement between employee and
service leave be taken employer, however the employer can require the employee to take their long service
leave entitlement, but they must give the employee 2 months’ notice. Leave should
normally be taken in one continuous period unless agreed by the employee and
employer, in which case it cannot be taken in more than 3 separate periods of not less
than 4 weeks each.
LSL extended by a public No
holiday
• Employer or employee terminates employment for any other reason and employee
is rehired within 2 months.
Website http://www.workplaceadvocate.nt.gov.au/pdf/NT_LSL_Act_FAQ.pdf
QUEENSLAND
Note: transitional rules apply if employee commenced prior to 3 June 2001
Pro-rata LSL after 7 years
Conditions for pro-rata of Pro-rata only applies if:
leave • Employee terminates due to illness, incapacity or domestic or other pressing
necessity
• Employer terminates employee (unless due to employees conduct, capacity or
performance).
• Employee is unfairly dismissed.
• Death of the employee
Can it be cashed out Yes – if permitted under an award/agreement or by application to the commission.
QUEENSLAND
Calculating amount to be Current ordinary weekly rate.
paid Does not include overtime or penalty rates.
Calculating amounts for Divide the total ordinary hours worked during the period of service by 52, and
casual/ part time employees multiplying this amount by 8.6667/10 (8.6667 weeks LSL is due after 10 years
service).
When and how should long The time and manner of taking long service leave should be agreed between the
service leave be taken employer and employee. Where agreement can't be reached, the employer can - with
at least three months written notice - require an employee to take at least four weeks
long service leave.
holiday
• Employer or employee terminates employment for any other reason and employee
is rehired within 3 months.
Website http://www.justice.qld.gov.au/fair-and-safe-work/industrial-relations/long-service-leave
TASMANIA
Service requirement 10 yrs = 8.66 wks further 5yrs = 4.33 wks
Conditions for pro-rata of Pro-rata only applies where:
leave • Employer terminates employee (unless due to serious and wilful misconduct).
• Due to employee illness.
• Employee resigns due to incapacity or ‘domestic or other pressing necessity
Can it be cashed out Yes – by agreement between employee and employer.
Calculating amount to be Current ordinary weekly rate.
paid Does not include overtime, bonus payments, and certain allowances.
Calculating amounts for Ordinary pay is calculated using the average number of hours worked over the 12
casual/ part time employees months immediately prior to the commencement of leave.
When should long service Long service leave may be taken after an employee has established an entitlement to
leave be taken leave. It cannot be taken in advance. An employer may grant the leave on
application. An application may be either a verbal or written request. In considering
the request, the employer is entitled to have regard to the needs of the business. Long
service leave must be taken in one period unless the employer and employee have
agreed that it will be taken in two periods.
holiday
within 3 months.
Website http://worksafe.tas.gov.au/__data/assets/pdf_file/0008/286775/Guide_to_long_service
_leave.pdf
3.12.1 Employee serves in more than one State

Should an employee work across multiple States and Territories throughout their continuous service with
one employer, the entitlement to long service leave will be derived from the statute operating in the State
or Territory in which the employee is working at the particular point in time that the employee wishes to
use their entitlement to long service leave.
3.12.2 Long service leave and awards prior to 1 January 2010
Under the NES, an employee is entitled to long service leave in accordance with their applicable pre-
modernised award. From 1 January 2010, if a pre-modernised award does not apply to an employee, any
entitlement to long service leave will be derived from applicable State or Territory long service leave laws.
The State or Territory long service leave laws generally prevail over any provisions in an enterprise
agreement to the extent that they are inconsistent with those laws. Information can be found at:
http://www.fairwork.gov.au/about-us/policies-and-guides/fact-sheets/minimum-workplace-
entitlements/long-service-leave
3.12.3 Portable Long Service Leave Schemes

Employers in the construction industry need to be aware that there is a portable long service leave scheme
for their industry in every state and territory in Australia. A portable long service leave scheme in relation
to contract cleaning exists in the Australian Capital Territory, New South Wales and Queensland. Similarly,
portable long service leave schemes for the community sector have recently commenced in the Australian
Capital Territory and Victoria. The Australian Capital Territory and Victoria are in the process of introducing
a portable long service leave scheme for the security industry.
3.13 Public Holidays 2016/17
A public holiday is a day that the Australian, state or territory governments have declared to be a holiday.
PUBLIC HOLIDAYS 2016 OCCASION ACT NSW NT QLD SA TAS VIC WA
Monday 1st August Picnic Day X

Royal Queensland
Wednesday 10th August* X*
Show (Brisbane)
Family and
Monday 26th September Community X X
Day/Queens B’Day
Friday 30th September AFL Grand Final X
Labour Day/
Monday 3rd October X X X X
Queen’s Birthday
Tuesday 1st November Melbourne Cup X
Monday 7th November* Recreation Day X*

Saturday 24th December
Christmas Eve X
from 7pm to Midnight
Sunday 25th December Christmas Day X X X X X X
Boxing Day/Christmas
Monday 26th December Day additional X X X X X X X X
substitution
Xmas Day Additional)/
Tuesday 27th December X X X X X X X X
Proclamation Day
Saturday 31st December
New Year’s Eve X
from 7pm to Midnight
PUBLIC HOLIDAYS 2017 OCCASION ACT NSW NT QLD SA TAS VIC WA
Sunday 1st January New Year's Day X X X X X X X

Substitute additional
Monday 2nd January X X X X X X X X
day - New Year’s Day
Thursday 26th January Australia Day X X X X X X X X
Monday 8th February* Royal Hobart Regatta X*
Monday 6th March Labour Day X
Labour day
Eight Hour day
Monday 13th March X X X X
Canberra Day
Adelaide Cup
Friday 14th April Good Friday X X X X X X X X
Saturday 15th April Easter Saturday X X X X X X
Sunday 16th April Easter Sunday X X X
Monday 17th April Easter Monday X X X X X X X X
Tuesday 18th April Easter Tuesday X**
Tuesday 25th April ANZAC Day X X X X X X X X
Monday 1st May May Day/Labor Day X X
Monday 5th June WA Day X
Monday 12th June Queen's Birthday X X X X X X
X – Indicates public holiday * Applicable to only part of State **Applies to certain awards
3.13.1 Payment on public holidays
Unworked public holidays

Most employees are entitled to a day off, and to be paid for public holidays, if they usually would have
worked on that day. However, an employee is not entitled to payment if they do not ordinarily work on
that day. For example, a part-time employee is not entitled to payment if their part-time hours do not
include the day of the week on which the public holiday falls. Employees are paid for public holidays at the
base rate of pay for the employee’s ordinary hours of work on that day or part-day. The base rate of pay
excludes incentive-based payments and bonuses, loadings, monetary allowances, overtime or penalty
rates or any other separately identifiable amounts.
Worked public holidays

Public holiday pay for employees who work on a public holiday depends on whether they’re covered by an
award or agreement that provides for penalty rates to be paid for work on public holidays. Refer to the
employee's industrial instrument to determine their rate of pay on a public holiday. If under the law of a
State or Territory, a day or part-day is substituted for any public holiday then the substituted day or part-
day is the public holiday. An employer and employee can also agree to a substitution of this kind, on the
condition that an employer does not exert undue influence or undue pressure on an employee to do so.
3.13.2 Requesting and refusing to work on public holidays

An employer can request an employee work on any public holiday and an employee can refuse. Both the
request and refusal must be reasonable. In determining whether a request or a refusal of a request, to
work on a public holiday is reasonable, the following must be taken into account:
 the nature of the employer’s workplace (including its operational requirements) and the nature of the
work performed by the employee;
 the employee’s personal circumstances, including family responsibilities;
 whether the employee could reasonably expect that the employer might request work on the public
holiday;
 whether the employee is entitled to receive overtime payments, penalty rates, additional
remuneration or other compensation that reflects an expectation of work on the public holiday;
 the type of employment (e.g. full-time, part-time, casual or shiftwork);
 the amount of notice given by, the employer, when making the request and the employee in refusing
the request.
3.13.3 Local public holidays

In all States there are local public holidays gazetted under respective State Acts. These local public holidays
can be viewed on the Industrial Relations internet site relevant to your state. In determining local public
holiday entitlements, employees/employers should consider the terms of the relevant industrial
instrument (i.e. award, agreement or employment contract) and the National Employment Standards
under the Fair Work Act 2009. Generally, when working on a gazetted local public holiday, employers will
be required to pay penalty rates as stated in the employee's award or agreement.
3.13.4 Public holiday interstate

An employee is entitled to a public holiday that occurs in their primary place of work, regardless of
whether they’re interstate on the day.
The fact that they are working interstate on the day the public holiday falls in their home State, they will
still be entitled to that public holiday.
Employees are not entitled to local and state public holidays that occur interstate whilst they’re travelling
interstate for work purposes.
Notice of Termination and Redundancy Pay – See section 4
Unfair Dismissal Laws – See section 4
3.14 Fair Work Information Statement

All employers have an obligation to give each employee a ‘Fair Work Information Statement’ before or as
soon as possible after, the employee starts employment.
The Statement contains information about:

 the National Employment Standards (NES)
 the effect on an employee’s NES entitlements when there is a transfer of business
 modern awards
 agreement making under the Fair Work Act 2009
 individual flexibility arrangements
 the right to freedom of association
 termination of employment
 right of entry (including the protection of personal information by privacy laws)
 the role of the Fair Work Ombudsman and Fair Work Commission
The Statement may be given to an employee by:
 giving it personally to the employee;
 sending it by pre-paid post to the employee’s residential address or a postal address nominated by the
employee;
 sending it to the employee’s email address at work or to another email address nominated by the
employee;
 sending by email to the employee’s email address at work or to another email address nominated by
the employee an electronic link to the page on the Fair Work Ombudsman’s website where the
Statement is located or an electronic link that takes the employee directly to a copy of the Statement
on the employer’s intranet;
 faxing it to the employee’s fax number at work, fax number at home or another fax number nominated
by the employee;
 another method (an employer will need to ensure this meets the requirement to give the Statement to
the employee, e.g. by courier where there is a signed acceptance by the employee of receipt of the
Statement).
Whatever method is used to give the Statement to an employee, it is recommended that the employer
retain details of how the Statement was given.
Employment of the same employee more than once in 12 months

If the employer employs the same employee more than once in any 12 months and gave the Statement to
the employee commencing employment the first time, then there is no requirement to give the Statement
more than once in any 12 months.
Obtaining copies of the Statement
It can be downloaded for emailing or printing by accessing
http://www.fairwork.gov.au/employee-entitlements/national-employment-standards/fair-work-
information-statement
3.15 Statutory Bodies
3.15.1 Fair Work Commission

Fair Work Commission provides practical information, advice and assistance, to settle grievances and
ensure compliance with the new workplace laws. The new body is accessible to all Australian employers
and employees. There are offices in suburbs and regional centres and workplace visits are available. Find
contact details at end of section. Fair Work Commission is responsible for a range of functions, including:
 assisting parties to resolve workplace grievances;
 resolving unfair and unlawful dismissal claims;
 facilitating collective bargaining and enforcing good faith bargaining;
 reviewing and approving collective agreements;
 adjusting minimum wages and award conditions;
 monitoring compliance with and ensuring the application of workplace laws, awards and agreements;
 regulating registered industrial organisations.
The Fair Work Commission also conducts inquiries and may recommend adjustment to the 10 national
employment standards. There is a separate division with jurisdiction to hear and determine unlawful
dismissal claims, matters relating to minimum entitlements and freedom of association.
The Fair Work Commission has a telephone information service, and publishes workplace information on
its website (www.fairwork.gov.au). The government’s intention in developing this body is that it will act
informally and, in most cases, lawyers will not be necessary.
3.15.2 Fair Work Ombudsman (FWO)

A key aspect of the functions of the FWO is to assist employers, employees and organisations to
understand and comply with their rights and obligations by providing education, assistance and advice to
employees, employers and organisations. This may involve:
 providing general information (e.g. fact sheets, guides and other guidance materials);
 developing and implementing targeted education campaigns for a particular industry or class of
employees (e.g. juniors, employees in hospitality, foreign workers);
 assisting parties to access ‘self-help’ remedies (e.g. by providing information about the small claims
procedure); and
 responding to requests for advice or information (e.g. about the NES or a particular employee’s
entitlements under a modern award).
The FWO are also charged with compliance monitoring, investigations and bringing legal proceedings
where warranted. It can appoint inspectors who will be empowered to enter premises, conduct interviews
and obtain documents for the purposes of ensuring compliance with legislation. See contact details at end
of section.
3.16 Worker Records

An appropriate and correct payment record is important, not only to help a business manage the many tax
responsibilities in respect of workers, but it will also enable various other Government regulations to be
complied with. These include legislation relating to industrial relations, worker’s compensation and even
superannuation contributions. Remember that inspectors from these various Government departments
and agencies, as well as the Tax Office, have the right to inspect a business’ wages records. Employers
must be sure to comply with these regulations as well. Even if a person is only employed for one day, the
details should be recorded and a payment summary issued. Payment records must be finalised at the end
of each financial year (30 June).
A payment record should be kept for all workers, regardless of whether or not they are covered under an
award or agreement. The information provided here relates to federal industrial relations legislation.
3.16.1 What records must employers keep?
A range of information must be made and kept for each employee as prescribed by the Fair Work Act 2009
and Fair Work Regulations 2009.
General records
General employment records must include all of the following:
 the employer’s name

 the employer’s Australian Business Number (ABN) (if any)
 the employee’s name
 the employee’s commencement date
 the basis of the employee’s employment (full or part-time and permanent, temporary or casual).
Pay records
Records of pay must include all of the following:
 the rate of pay paid to the employee
 the gross and net amounts paid and any deductions from the gross amount
 the details of any incentive-based payment, bonus, loading, penalty rate, or other monetary allowance
or separately identifiable entitlement paid.
Hours of work records
Records relating to hours worked by employees are to include the following:
 In the case of a casual or irregular part-time employee who is guaranteed a pay rate set by reference
to time worked, a record of the hours worked by that employee
 For any other type of employee, the record must specify the number of overtime hours worked each
day, or when the employee started and finished working overtime hours (but only if a penalty rate or
loading must be paid for overtime hours actually worked)
 A copy of the written agreement if the employer and employee have agreed to an averaging of the
employee’s work hours.
Leave records
If an employee is entitled to leave, the record must include both:
 leave taken, if any
 the balance of the employee’s entitlement to that leave from time to time.
If an employer and employee have agreed to cash out an accrued amount of leave, the employer must
keep both:
 a copy of the agreement to cash out the amount of leave
 a record of the rate of payment for the amount of leave cashed out and when the payment was made.
Superannuation contributions records

If the employer is required to make superannuation contributions for the benefit of the employee, the
record must include all of the following:
 the amount of the contributions made

 the dates on which each contribution was made
 the period over which the contributions were made
 the name of any fund to which a contribution was made
 the basis on which the employer became liable to make the contribution, including a record of any
election made by the employee (including the date) to have their superannuation contributions paid
into a particular fund.
Note: Employers who contribute a defined benefit interest in a defined benefit fund do not have to fulfil
the reporting requirements relating to superannuation contributions.
Individual flexibility arrangement records
If an employer and employee agree in writing to an individual flexibility arrangement in relation to a
modern award or enterprise agreement, a record must include both:
 a copy of the agreement
 a copy of any notice or agreement terminating the flexibility arrangement.
Guarantee of annual earnings records

If an employer gives a guarantee of annual earnings (for employee's earning above $136,700 who have
opted out of the award system) under the Fair Work Act 2009, the employer must make and keep a record
of the guarantee and the date of any revocation of the guarantee (where applicable).
Termination records
Where the employment has been terminated, the records must include both whether the employment
was terminated by consent, by notice, summarily, or in some other manner (specifying that manner) along
with the name of the person who terminated the employment.
Transfer of Business records

Where there has been a transfer of business under the Fair Work Act 2009 (from 1 July 2009), at the time
of transfer, the old employer is required to transfer to the new employer each employee record
concerning a transferring employee. If the transferring employee becomes an employee of the new
employer after the transfer, the new employer must ask the old employer to provide them with the
employee’s records. The old employer must give the records to the new employer.
What deductions may be made from an employee’s pay?

Under the Fair Work Act 2009, an employer is allowed to make a deduction from an employee’s pay if one
of the following applies:
 the employee has authorised the deduction in writing (which must specify the amount) and the
deduction is principally for the employee’s benefit
 the deduction is authorised by the employee in accordance with an enterprise agreement and other
industrial instruments (e.g. an award or agreement made under the former Workplace Relations Act
1996)
 the deduction is authorised by or under a modern award or order of Fair Work Commission
 the deduction is authorised by or under a law or
 an order of a court.
A term in an enterprise agreement, modern award, industrial instrument, or contract of employment that
allows for deductions has no effect if:
 the deduction is directly or indirectly for the benefit of the employer and is unreasonable
 the employee is under the age of 18 and the employee’s parent or guardian has not authorised the
deduction in writing.
The Fair Work Regulations 2009 provides that certain deductions are to be treated as reasonable. These
include, for example, the recovery of costs incurred through private use by the employee of a credit card,
mobile phone, or petrol for a vehicle that have been provided by the employer.
3.16.2 Pay Statements

Pay slips must be issued to each employee within one working day of pay day (even if an employee is on
leave) in electronic form or hard copy. It is best practice for pay slips to be written in plain and simple
English.
What information must be included on the pay slip?

Pay slips must contain details of the payments, deductions, and superannuation contributions for each pay
period. The following information must be included on all pay slips issued to each employee as prescribed
by the Fair Work Act 2009 and the Fair Work Regulations 2009.
A pay slip must include all of the following:
 The employer’s name
 The employer’s ABN (if any)
 The employee’s name
 The date of payment
 The pay period (beginning and end dates – e.g. 24/8/16 to 30/8/16)
 The gross and net amount of payment
 Any loadings, monetary allowances, bonuses, incentive-based payments, penalty rates, or other
separately identifiable entitlement paid.
Additionally, where relevant, a pay slip must include any of the following:
 If the employee is paid an hourly pay rate, the ordinary hourly pay rate and the number of hours
worked at that rate and the amount of payment made at that rate
 If the employee is paid an annual rate of pay (salary), the rate as at the last day in the pay period any
deductions made, including the name, or the name and number, of the fund or the account of each
deduction
 If the employer is required to make superannuation contributions for the benefit of the employee: the
amount of each contribution the employer made or is liable to make during the pay period, the name,
or name and number, of any superannuation fund into which the contributions were made or will be
made.
No requirement to show leave balances on pay slips –It is not a requirement that leave accruals are to be
shown on an employee’s payslip; however, an employer must advise of the leave accrual to an employee if
requested by them.
Requirement to report super payment date on payslips not to go ahead

Treasury has released a Bill to repeal the requirement to report the contribution date and fund for
superannuation guarantee on payslips. This will mean that the law which would have required employers
to report on the payslip, the date on which contributions were made to a superannuation fund, will no
longer go ahead.
Best practice guidelines for issuing electronic pay slips

Electronic pay slips must be provided to an employee (unless issued in hard copy) and include the same
information as hard copy pay slips. Employers should:
 give electronic pay slips to each worker, such as via email or into an electronic personal account
(employers should not simply store them on a database)
 issue electronic pay slips in an easily printable format.
By way of best practice, employers should:
 issue electronic pay slips to employees securely and confidentially

 ensure that employees can access and print their electronic pay slips in private (e.g. it would be
inappropriate to issue an electronic pay slip to an employee who doesn’t have access to a computer
terminal to privately read and print their pay slip).
3.16.3 Contravention of Record-Keeping and Pay Slip Obligations

Fair Work Inspectors may issue an employer with an infringement notice for failing to meet their record-
keeping and pay slip obligations under the Fair Work Act 2009.
An infringement notice is similar to an on-the-spot fine and is an alternative to taking matters to court. An
infringement notice can be issued within 12 months after the day on which contravention(s) is alleged to
have occurred. Generally, an employer has 28 days to pay the penalty in the infringement notice.
The maximum fines payable from an infringement notice are:

 $540 per contravention - for an individual
 $2,700 per contravention - for a body corporate
If an employer’s failure to meet their obligations is serious, wilful or repetitive, Fair Work Inspectors may
recommend the matter be taken to court.
3.16.4 How long should records be kept

Employers must keep all time and wages records of each worker for at least seven years. The records
should be in plain English and easy to read. Employers can keep records on computer as long as the
records can be printed out on request. Workers or former workers have the right to access their own
records. Other authorised persons, including Workplace Inspectors, must be allowed access to time and
wages records.
Workcover records for NSW public offices – Records relating to non-serious injury claims in public offices
of NSW, (including state owned operations, parliament, courts, local government, public universities and
public hospitals) need to be kept for 25 years.
3.17 Other Fair Work issues
3.17.1 Changing an employee’s roster

On 1 January 2014 there was a change to all modern awards. The variation means that employers have to
consult with employees before changing their regular roster or ordinary hours of work. The new clause is
in the ‘Consultation’ section of the employee’s modern award.
Employers need to consult an employee if:
 the employee works a ‘regular roster’ or has ordinary hours of work, and
 the employer is considering making a change to an employee’s working hours, times or days.
It doesn’t matter whether the change is temporary or permanent, if the employee works a regular roster
nor has ordinary hours of work, the employer needs to consult.
A regular roster
A regular roster is a regular and systematic work arrangement. Full-time, part-time and casual employees
can all have a regular roster. Employees that work irregular, sporadic or unpredictable hours don’t have a
regular roster.
Example – Tim is a casual employee covered by the General Retail Industry Award 2010. For the last 3
years he’s worked 4 days a week Monday, Tuesday, Thursday and Friday. Tim has a regular and systematic
working arrangement, so if his employer wanted him to start working Wednesdays they would need to
consult with him before making changes.
Steps to consultation
There are 3 steps employers need to follow when consulting:
 Give the employee and their representative (if any) information about the proposed change. This
should include information about what the changes are and when you’d like them to start.
 Ask the employee/representative to give their views about the impact the change would have,
including any impact to their family and caring responsibilities.
 Consider the employee/representative’s views about the impact of the changes.
Employees need to be given the option of being represented in any consultations. Examples of
representatives an employee can choose include:
 an elected employee representative
 representative from a union that’s eligible to represent the employee.
It’s also important that the employer genuinely considers an employee’s views. If an employee doesn’t
think their views have been considered, they can enact the dispute resolution terms in the modern award.
Other considerations
Many awards restrict when and how an employer can change an employee’s roster or hours of work.
These new consultation obligations must be read in conjunction with any other award terms about
changing hours and rostering. There may also be restrictions in an employee’s employment contract about
changing their working hours.
Example – Simone is part-time and covered by the General Retail Industry Award 2010. Simone and her
employer have agreed in writing that she’ll work 21 hours a week on Tuesdays, Thursdays and Saturdays.
The agreement says that Simone will work 7 hours each day and includes the start and finish times, rest
breaks and meal break.
The Award says that any change to the regular pattern of work must be agreed in writing between the
employee and employer. If Simone’s employer wants her to increase her agreed hours or the days she
works, they need to consult with her about the proposed change. Simone’s employer also needs to reach a
written agreement with her to change her regular pattern of work.
3.17.2 Unpaid leave

Generally, when calculating entitlement to annual leave, personal leave, notice requirements on
termination, redundancy pay on termination and long service leave, a period on unpaid leave will not be
included as service. Some exceptions to this rule are:
 when calculating how much notice an employee is entitled to on termination, unpaid parental leave is
included as service;
 when calculating long service leave in Victoria unpaid absences approved by the employer (excluding
unpaid parental leave) are included;
 when calculating long service leave in South Australia unpaid sick leave is included.
3.17.3 Unpaid work

Unpaid work can take on different forms - including vocational placements, unpaid internships, unpaid
work experience and unpaid trials. Unpaid work arrangements can be entered into for a number of
reasons. These include:
 to give a person experience in a job or industry
 to test a person's job skills
 to volunteer time and effort to a not-for-profit organisation.
These arrangements can be initiated by employers, the person wanting the work or experience, or
education/training institutions.
Is unpaid work lawful?

Some unpaid work arrangements are lawful and others are not. Depending on the nature of the
arrangement, the person doing the work may be an employee and be entitled to be paid the legal
minimum rate of pay for the type of work they're doing, along with other minimum employment
entitlements. Whether an unpaid work arrangement is lawful under the Fair Work Act 2009 (FW Act)
depends on:
 whether an employment relationship exists, or
 whether the arrangement involves a vocational placement.
Vocational placements
A vocational placement is a formal work experience arrangement that is part of an education or training
course. Vocational placements can give students important skills to help them transition successfully from
study to work, while giving industry and business the opportunity to enrich student learning experiences
and increase the number of work-ready graduates.
Vocational placements are lawfully unpaid, regardless of whether an employment relationship exists or
not. This is the case as long as the placement is:
 undertaken with an employer for which a person is not entitled to be paid any remuneration; and
 undertaken as a requirement of an education or training course; and
 authorised under a law or an administrative arrangement of the Commonwealth, a State or a Territory.
Unpaid trials (skill demonstration)

Sometimes a person is asked or required to perform work or undertake a trial to be evaluated for a vacant
position. This skill demonstration is used for the purposes of determining a prospective employee's
suitability for a job. It is often referred to as a work trial.
A brief work trial can be legally unpaid if it is necessary to evaluate someone's suitability for the job, and:
 it involves no more than a demonstration of the person's skills, where they are relevant to a vacant
position
 it is only for as long as needed to demonstrate the skills required for the job. This will be dependent on
the nature and complexity of the work, but could range from an hour to one shift
 the person is under direct supervision of the potential employer (or other appropriate individual) for
the entire trial.
Any period beyond what is reasonably required to demonstrate the skills required for the job must be paid
at the appropriate minimum rate of pay. If an employer wants to further assess a candidate's suitability,
they could employ the person as a casual employee for a probationary period and pay them accordingly
for all hours worked.
Example – Jack legitimately trials for position
Jack applies for a job as a trade’s assistant at a local panel beaters. As part of the applicant screening
process, Jack is advised by the owner that on the day of the interview he'll need to show he knows his way
around a car and a workshop, because it's a minimum requirement of the job. Jack agrees.
To do this, after the interview, Jack is asked to follow one of the tradesmen doing body repairs. The
tradesman watches Jack to make sure he knows how to work safely and use the right tools. Jack shows he
meets the minimum criteria for the role and the owner offers Jack the job. Jack's brief trial was reasonable
to demonstrate his skills and he does not need to be paid for the trial.
Example – Mina performs work beyond trial
Mina applies for a job as a receptionist at a medical centre. After the interview, the manager calls Mina to
ask her to do a trial on the weekend so they can make sure that she can handle working over a busy
period. Mina agrees, and performs a shift on a Saturday morning. On the day, the manager shows Mina
how to answer the phone, transfer calls, book and cancel appointments, and take payments at the end of a
consultation.
Mina spends the morning performing these duties. At the end of her shift, the manager advises that she
has done a good job, but she is not able to offer her the position until she gets it approved at a meeting on
Wednesday. The manager advises Mina that if she could cover the shifts on Monday and Tuesday, it would
show her commitment to the position and give her a better chance of getting the job. The manager advises
Mina she would not be paid for these shifts.
Even though the manager called the period a work trial, in reality the time worked on the Saturday
involved Mina being trained in skills she needed to be able to do the job. It is likely to represent actual
hours of work, rather than a legitimate work trial. Further, the additional time worked on Monday and
Tuesday is likely to represent an unreasonable time for demonstration of skills and abilities. Mina should
be paid for all the hours that she worked.
Unpaid work experience and unpaid internships
A work experience arrangement or internship is when a person works for a business to gain experience in a
particular occupation or industry. These arrangements can be a valuable way for prospective employees to
make the transition from study to work or explore a new career path. Sometimes these arrangements span
several months and can lead to ongoing employment.
An unpaid work experience arrangement or unpaid internship can be lawful if it is a vocational placement)
or if there is no employment relationship found to exist. In particular:
 the person must not be doing “productive” work
 the main benefit of the arrangement should be to the person doing the placement, and
 it must be clear that the person is receiving a meaningful learning experience, training or skill
development.
Example – Council offers legitimate internship
A local council has advertised an internship program for high school or university students interested in
government processes. The internships have been advertised as unpaid positions and students are allowed
to select the hours they spend at the council office over a two week period. The council is careful to ensure
that the role is mainly observational and there is no expectation that the students will perform productive
work during their internship. The student is gaining the main benefit from the arrangement. It is unlikely
that an employment relationship has been created in this case, and the internships are lawfully unpaid.
Volunteering
A volunteer is someone who does work for the main purpose of benefitting someone else, such as a
church, sporting club, government school, charity or community organisation. Volunteers are not
employees and don't have to be paid. As with work experience and internship arrangements, all relevant
factors must be considered to determine whether a person is a genuine volunteer or whether, in fact, an
employment relationship exists even though the worker is called a 'volunteer'. Key characteristics of a
genuine volunteering arrangement include:
 the parties did not intend to create a legally binding employment relationship
 the volunteer is under no obligation to attend the workplace or perform work
 the volunteer doesn't expect to be paid for their work.
The more formalised that volunteer work arrangements become (for instance if the volunteer is expected
to work according to a regular roster) the greater the possibility that an employment relationship will be
found. It is less likely that an employment relationship will be found to exist where the volunteer work is
undertaken for selfless purposes or for furthering a particular belief in the not-for-profit sector.
3.17.4 Restart — employers receive wage subsidy for mature age job seekers
From 1 July 2014, a payment of up to $10,000 is be available to employers who hire a mature age job
seeker (including those on the Disability Support Pension) aged 50 years or over. Payments will commence
after the worker has been employed for at least six months and will be paid in the following instalments:
• $3,000 after 6 months of employment;

• $3,000 after 12 months of employment;
• $2,000 after 18 months of employment; and
• $2,000 after 24 months of employment.
The government has proposed to reduce the length of time over which restart can be claimed to
12 months instead of 24 months. This will mean $6,500 will be paid during a 12 month period and a bonus
of $3,500 will be paid once employment has lasted 12 months.
For more information on Restart access https://www.employment.gov.au/restart
3.17.5 Youth employment package — youth jobs path (prepare — trial — hire)
It is proposed the Government from 2016/17 will provide a Youth Jobs Path program for young job seekers
aged under 25 years to improve youth employment outcomes. The new pathway is designed to enhance
young people’s employability and provide up to 30,000 young people each year with real work experience.
The pathway has three elements:
 Industry-endorsed pre-employment training (Prepare) — from 1 April 2017, training for up to six weeks
will be provided to develop basic employability skills, including those required to identify and secure
sustainable employment.
 Internship placements of up to twelve weeks (Trial) — from 1 April 2017, up to 30,000 internship
placements will be offered each year to enable businesses and job seekers to trial their employment
fit. Job seekers will receive a $200 fortnightly incentive payment and businesses will receive $1,000
upfront to host an intern. Placements will be voluntary and will be organised by employment services
providers. Job seekers must be registered with jobactive, Disability Employment Services or Transition
to Work, and have been in employment services for at least six months to be eligible for the internship
program.
 Youth Bonus wage subsidies (Hire) — from 1 January 2017, employers will receive a wage subsidy
of up to $10,000 for job seekers under 25 years old with barriers to employment and will continue to
receive up to $6,500 for the most job-ready job seekers. Job seekers must be registered with jobactive
or Transition to Work, and have been in employment services for at least six months for employers to
be eligible for the wage subsidy. Funding for this component will be provided from within the existing
funding for wage subsidies.
3.17.6 Sunday penalty rates reduced for some workers in the restaurant industry
On 14 May, 2014 a Full Bench of the Fair Work Commission handed down a landmark decision in which it –
for the first time – accepted that penalty rates were having a negative impact on employment in the
industry and decided to cut penalty rates for some casual workers working under the Restaurant Industry
Award 2010 – MA000119.
The majority judgment concluded that total loadings for casuals on Sundays should be cut from 175% to
150% for the Introductory Grade and Grades 1 and 2. This will equalise the Sunday penalty with the
Saturday penalty for these categories of employees.
The decision represents a marked shift in the approach the Commission has previously taken in penalty
rates cases. All other penalty rates claims filed as part of the Fair Work Commission’s 2 Yearly Review of
Modern Awards failed to achieve substantive award changes.
3.17.7 Understanding casual penalty rates

There are different ways to calculate penalty rates for casual employees. The method to use depends on
the award or agreement that applies. This article explains the 3 most common methods. These are the 3
most common methods.
The default method (code B)

Under most modern awards when a casual employee gets a penalty rate, both the casual loading and the
penalty rates are calculated on the base rate of pay.
The formula for this is: base rate + (base rate x casual loading) + (base rate x penalty)
For example, a casual Food and beverage attendant grade 1 has a base rate of $18.21 under the Hospitality
Industry (General) Award. They also get a 25% casual loading and a 50% penalty for Sunday work.
Using the default method the casual Sunday rate is $31.87 per hour, calculated as follows:
$18.21 + ($18.21 x 25%) + ($18.21 x 50%) = $31.87
The no casual loading method (code C)
Under some awards, penalty rates are paid instead of the casual loading. In these cases, when a penalty
rate applies, casuals don’t get their usual casual loading.
The formula for this is: base rate + penalty
For example, a casual level 6 employee has a base rate of $22.39 under the Hair and Beauty Industry
Award. When working Monday – Friday they get a 25% casual loading, however on Saturdays they get a
33% penalty rate. The 33% Saturday penalty is paid instead of the 25% casual loading.
Using the no casual loading approach the casual Saturday rate is $29.78.
$22.39 + (33% x $22.39) = $29.78
$22.39 + $7.39 = 29.78
3.17.8 Fair Work Templates

The following templates are available at:
Employing staff
 Job advertisement template
 Job description template
 Telephone screening form
 Reference checking form
 Letter of engagement - casual employee
 Letter of engagement - full-time and part-time employees
 Notice to unsuccessful applicants
 Starting a new job checklist
 Induction checklist
Pay slips and record-keeping

 Pay slip template
 Weekly time and wage records template
 Record of employee details
 Leave record
 Staff meeting records template
Hours of work
 Part-time hours of work agreement or variation
 Full-time hours of work variation
 Leave application form
 Roster template
 Timesheet template
Work and family

 Request for flexible working arrangements
 Request for flexible working arrangements - Example letters
 Parental leave request
 Application to vary parental leave - within first 12 months
 Application to extend parental leave - beyond 12 months
 Parental leave extension - approval
 Parental leave extension - refusal
Managing performance
 Successful probation letter
 Unsuccessful probation letter
 Performance agreement template
 First warning letter
 Final warning letter
Ending employment
 Termination of employment letter
 Termination of employment letter - serious misconduct
 Termination of employment letter - redundancy
3.18 Where to Get Help
3.18.1 Contact Fair Work Commission

Fair Work Commission can be contacted as follows:
 Email: Inquiries can be emailed to inquiries@fairwork.gov.au
 Telephone: The national Fair Work Commission Help Line number is 1300 799 675
 Post: Fair Work Commission, GPO Box 1994, Melbourne VIC 3001
 In person: Visit the Fair Work Commission office, our locations are:
Australian Capital Territory South Australia
2nd Floor, CML Building, 17-21 University Level 6, Riverside Centre, North Terrace,
Avenue, Canberra, 2600 Adelaide, 5000
GPO Box 539, Canberra City, 2601 PO Box 8072, Station Arcade, Adelaide, 5000
Telephone: (02) 6209 2400 Telephone: (08) 8308 9863
Facsimile: (02) 6247 9774 Facsimile: (08) 8308 9864
Out of hours emergency: 0408 447 112 Out of hours emergency: 0419 563 601
Email: canberra@fwa.gov.au Email: adelaide@fwa.gov.au
New South Wales Tasmania

Level 10, Terrace Tower, 80 William Street East 1st Floor, Commonwealth Law Courts, 39-41
Sydney, 2011 Davey Street, Hobart, 7000
Telephone: (02) 8374 6666 GPO Box 1232M, Hobart, 7001
Facsimile: (02) 9380 6990 Telephone: (03) 6214 0200
Out of hours emergency: 0419 318 011 Facsimile: (03) 6214 0202
Email: sydney@fwa.gov.au Out of hours emergency: 0418 124 021
Email: tasmania@fwa.gov.au
Northern Territory
10th Floor, Northern Territory House, 22 Mitchell Victoria
Street, Darwin 0800 Level 4, 11 Exhibition Street, Melbourne, 3000
GPO Box 969, Darwin, 0801 GPO Box 1994, Melbourne, 3001
Telephone: (08) 8936 2800 Telephone: (03) 8661 7777
Facsimile: (08) 8936 2820 Facsimile: (03) 9655 0401
Out of hours emergency: 0439593579 Out of hours emergency: 0419 960 157
Email: darwin@fwa.gov.au Email: melbourne@fwa.gov.au
Queensland Western Australia

Level 14, Central Plaza Two, 66 Eagle Street, Floor 16, 111 St Georges Tce, Perth, 6000
Brisbane, 4000 GPO Box X2206, Perth, 6001
PO Box 5713, Central Plaza, Brisbane, 4001 Telephone: (08) 9464 5172
Telephone: (07) 3000 0399 Facsimile: (08) 9464 5171
Facsimile: (07) 3000 0388 Out of hours emergency: 0448 275 936
Out of hours emergency: 0419 335 202 Email: perth@fwa.gov.au
Email: brisbane@fwa.gov.au
People who need help to communicate with Fair Work Commission can use the Translating and Interpreter
Service on telephone number 131 450. Those with hearing, sight or speech impairment, can use the
Speech to Speech Relay through the National Relay Service on 133 677.
3.18.2 Contact the Fair Work Ombudsman
 On-line: Live on-line help is available. On-line link at www.fairwork.gov.au
 On-line: www.fairwork.gov.au
 Telephone: 13 13 94
 Post: Fair Work Ombudsman, GPO Box 9887, In your capital city
 In person: Visit the Fair Work Ombudsman, the locations are:
New South Wales South Australia
Sydney Adelaide
Level 12 255 Elizabeth Street Level 2, 148 Frome Street
SYDNEY NSW 2001 ADELAIDE SA 5000
Switchboard: (02) 8293 4683 Switchboard: (08) 8225 8234
Newcastle Mount Gambier
Suite 2 265 Wharf Road 38 Sturt St
NEWCASTLE NSW 2300 MOUNT GAMBIER SA 5290
Coffs Harbour Tasmania
Level 1 73 Albany Street
Hobart
COFFS HARBOUR NSW 2540
Level 3, 142 - 146 Elizabeth St
Wagga Wagga HOBART TAS 7000
25-27 Tompson Street Switchboard: (03) 6235 9400
WAGGA WAGGA NSW 2650
Launceston
Orange Transit Centre
21 - 29 William Street Cornwall Square
ORANGE NSW 2800 LAUNCESTON TAS 7250
Northern Territory Victoria
Darwin Melbourne
Level 5, 47 Mitchell Street (GPO Box 9887) Level 6, 414 La Trobe Street
DARWIN NT 0801 MELBOURNE VIC 3000
Switchboard: (08) 8943 4500 Switchboard: (03) 9954 2969
Queensland Bendigo
Brisbane Corner Myers Street & Mundy Street
Level 17, 200 Mary Street (Mundy Street entrance)
BRISBANE QLD 4000 BENDIGO VIC 3550
Toowoomba Traralgon
Level 1, 195-197 Hume St, Capital Place Level 1, 6-8 Grey Street
TOOWOOMBA QLD 4350 TRARALGON VIC 3844
Gold Coast Warrnambool
Level 3, The Gateway Building Level 2, 24-36 Fairy Street
50 Appel St SURFERS PARADISE QLD 4217 WARRNAMBOOL VIC 3280
Cairns Western Australia
Level 1,94 - 104 Grafton Street Perth
CAIRNS QLD 4870 Level 10, 140 St Georges Terrace
Rockhampton PERTH WA 6000
Level 1, 36 East Street Switchboard: (08) 9485 3000
ROCKHAMPTON QLD 4700 Bunbury
Australian Capital Territory Unit 36 Bonnefoi Boulevard
Canberra BUNBURY WA 6230
Level 11,
208 Bunda St cnr Akuna Street
CANBERRA CITY ACT 2600
4 WHEN EMPLOYMENT ENDS
An employee should get the following entitlements in their final pay:
 outstanding wages for hours they have worked, including penalty rates and allowances
 any accumulated annual
leave
And if it applies:
 annual leave loading
 accrued or pro rata long
service leave
 redundancy pay.
There is no requirement under

legislation to pay out personal
leave when employment ends.
4.1.1 Employment
Separation
Certificates
Employment Separation
Certificates are needed by
Human Services to enable a
person to claim income support
payments. Employers should
provide a certificate to an
employee if requested within 14
days.
Obtaining and lodging

Employment Separation
Certificates
Employers can:
 provide all the required
information in a letter on
your company letterhead; or
 call 13 11 58, to obtain
further copies of this form;
or
 print the copy of this form from the Human Service’s web site at
http://www.humanservices.gov.au/customer/forms/su001
 submit the certificate online – To do this you will need to register your business with Human Services.
If you are already registered for paid Parental Leave you do not have to register again. For more
information access:
http://www.humanservices.gov.au/business/services/centrelink/employment-status-
verification/employment-separation-certificates or
 hand it back to the employee; or
 fax it to 132 115.
How can employers make enquiries about Employment Separation Certificates?

Human Services provides a direct service to employers through its Business Hot-line. The Hot-line staff will
answer any further questions employers may have about the Employment Separation Certificate. The
direct phone number to the Hot-line is 13 11 58 or fax 13 21 15.
Page 142 Section 4 — When Employment Ends Taxation Seminar

4.2 Notice of Termination and Redundancy Pay
4.2.1 Notice of termination or payment in lieu of notice

An employer must not terminate an employee’s employment unless the employer has given the employee
written notice of the day of the termination (which cannot be before the day the notice is given). The
notice may be given to an employee by:
 delivering it personally; or
 leaving it at the employee’s last known address; or
 sending it by prepaid post to the employee’s last known address.
Required notice periods and payment

The employer must not terminate the employee’s employment unless:
 the time between giving the notice and the day of the termination is at least the period as shown in
the following table; or
 the employer has paid the employee payment in lieu of notice of at least the amount the employer
would have been liable to pay the employee at the full rate of pay for the hours he or she would have
worked had the employment continued until the end of the minimum period of notice as shown in the
following table.
All employees will be entitled to fair notice of termination in accordance with the following scale:
Length of continuous service Minimum period of notice

Less than 1 year At least 1 week
More than 1 year At least 2 weeks
but less than 3 years
More than 3 years At least 3 weeks
but less than 5 years
More than 5 years At least 4 weeks
Where an employee is over 45 years of age and has at least 2 years continuous service, the employee will
be entitled to one additional week of notice.
Employees excluded from the notice provisions

Employees not covered by notice provisions include:
 a casual employee
 an employee engaged for a specific period or task
 a seasonal employee engaged for a specific season
 an employee whose employment is terminated because of serious misconduct (for example, an
employee, in the course of their employment, engaging in theft, fraud or assault)
 an employee (other than an apprentice) to whom a training arrangement applies and whose
employment is for a specific period or limited to the duration of the training agreement
 a daily-hire employee working in the building and construction industry (including working in
connection with the erection, repair, renovation, maintenance, ornamentation or demolition of
buildings or structures)
 a daily hire employee working in the meat industry in connection with the slaughter of livestock
 a weekly hire employee working in connection with the meat industry and whose termination is
determined solely by seasonal factors.
A period of unpaid parental leave is included as service for Notice of termination requirements.
No leave accrual for pay in lieu of notice period

Leave entitlements do not accrue over the period where an employee is paid pay in lieu of notice instead
of working out their notice period. On the other hand, when an employee works out there notice period,
leave entitlements continue to accrue up until the employee’s last day of actual work.
Taxation Seminar Section 4 — When Employment Ends Page 143

4.2.2 Resignation - how much notice?
When an employee resigns, they may have to give notice to their employer. The notice starts when the
employee gives notice that they want to end the employment and ends on the last day of employment. An
employee's award, employment contract, enterprise agreement or other registered agreement sets out:
 how much notice (if any) they have to give when they resign
 when an employer can withhold money if they don't give the minimum notice period.
Giving more notice than required

An employee can give more notice than required in the award, registered agreement or contract. An
employer doesn't have to accept this and can choose to only let the employee work for the minimum
notice period. When the employee resigns, the employer should tell the employee if they accept the full
notice period or if they only want them to work the minimum notice period under their award, registered
agreement or contract.
Not giving enough notice

An employer can hold back money from the employee’s final pay only if the employee:
 doesn't give a notice period
 gives part of the minimum notice period.
The amount the employer keeps can’t be more than the amount for the:
 minimum notice period
 remaining minimum notice period (when part of the notice is given).
Employer doesn’t want employee to work out notice period given in resignation letter
In the case where the employer does not want the employee to work out their notice period as stated on
their resignation letter, the employer can instead pay the employee pay in lieu of notice and request that
the employee cease employment immediately, or at another convenient date prior to the requested end
date stated on the employees resignation letter.
If the employee has given too much notice the employer is only required to pay the employee pay in lieu
of notice for the minimum notice period under their award, registered agreement or contract. When an
employer pays an employee pay in lieu of notice the amount is treated as an employer termination
payment (ETP). These will be discussed shortly.
4.2.3 Dismissal - how much notice?

When an employer dismisses an employee, they have to give them notice. The notice starts when the
employer tells the employee that they want to end the employment and ends on the last day of
employment. The minimum notice period that applies when dismissing an employee are those as shown
on the previous page. In some circumstances notice periods may vary, including:
 Minimum notice periods for employees over 45 years old – An employee has to get an extra week of
notice if they’re over 45 years old and have worked for the employer for at least 2 years.
 Longer periods of notice – An award, employment contract, enterprise agreement or other registered
agreement can set out longer minimum notice periods (e.g. 1 month instead of 1 week)
 When an employer gives more notice than needed – An employer can provide more notice than
required in the award, registered agreement or contract. The employee only has to work out the
minimum notice period although they can work out the extra notice if they want to.
Notice of termination given to the employee cannot run concurrently with a period of annual leave
When terminating an employee, the notice of termination given to the employee cannot run concurrently
with a period of annual leave. Fair Work Commission has stated that the notice period is provided to
employees to enable them to seek alternative work whilst they are still working. Therefore if the employee
has leave already booked or is currently on leave then the notice period will commence on the completion
of that leave.

Continuous service
The minimum notice period an employer has to give is based on the employee’s continuous service with
them. Continuous service is the length of time they are employed by the business. Service includes
authorised unpaid leave (e.g. unpaid parental leave). Service will not include any periods of unauthorised
leave or absences.
Example: Counting unpaid parental leave periods when ending employment

Freda has been employed for 5 years and 3 months. This includes a 12 month period of unpaid parental
leave. Freda’s manager needs to terminate her employment due to performance. Freda’s award refers to
the National Employment Standards for notice of termination. Freda’s continuous service for the purpose
of notice would include the time while she was on 12 months unpaid parental leave. Freda will be entitled
to 4 weeks notice of termination given by her employer.
Withholding entitlements if employee leaves during the notice period

If you give an employee notice and they leave before the end of the notice period the employee is seen to
have terminated the employment relationship early. In this scenario you can withhold the value of the
unworked notice if the employee’s award or enterprise agreement allows it.
Example: Peter has worked for Julie for 1.5 years and is covered by the General Retail Industry Award.
Julie gives Peter 2 weeks’ notice of termination as required by the award. 1 week into the notice period
Peter leaves and doesn’t return. Because Peter didn’t give 2 weeks’ notice (as required by the award) Julie
can withhold 1 week of Peter’s pay.
4.2.4 Leave during notice period (applies to resignation and dismissal)

An employee can take annual leave during a notice period if the employer agrees to the leave. Similarly, an
employee can take sick leave during a notice period if they give:
 notice of the leave as soon as possible
 evidence if the employer asks for it (e.g. medical certificate).
An employer can't force an employee to take leave as part of the notice period. An employee who has
used up all their personal leave can take unpaid sick leave. They have to give the employer notice and
evidence.
4.2.5 Redundancy Pay
What is a redundancy
Under Commonwealth workplace laws, a person’s dismissal is a 'genuine redundancy' if:
 the employer no longer needs the employee because of changes in the operational requirements of
the business, and
 the employer followed any consultation requirements in the modern award, enterprise agreement or
other industrial instrument that applies.
A dismissal is not a genuine redundancy if it would have been reasonable in the circumstances for the
employee to be redeployed within the employer’s enterprise or an associated entity. An employee may be
entitled to redundancy pay by an employer if their employment is terminated because of the liquidation or
bankruptcy of the employer.
Employees eligible for redundancy

Employees who are made redundant may also be entitled to redundancy pay where:
 they have had continuous service with the employer for 12 months or more; and
 where the employer employs 15 or more employees.
When calculating the number of employees employed at a particular time, all the following factors are to
be taken into account:
 all employees employed by the employer at that time are to be counted;

 a casual employee is not be counted unless, at that time, he or she has been employed by the
employer on a regular and systematic basis;
 associated entities are taken to be one entity; and
 the employee being terminated, and any other employees being terminated at that time are counted.
Employees excluded from the redundancy provisions

Employees not covered by redundancy provisions include:
 an employee employed for a specified period of time, for a specified task, or for the duration of a
specified season; or
 an employee whose employment is terminated because of serious misconduct; or
 a casual employee; or
 an employee (other than an apprentice) to whom a training arrangement applies and whose
employment is for a specified period of time or is, for any reason, limited to the duration of the
training arrangement; or
 an employee who is an apprentice; or
 an employee to whom an industry-specific redundancy scheme in a modern award applies; or
 an employee to whom a redundancy scheme in an enterprise agreement applies.
 an employee prescribed by the regulations.
Payment for redundancy

The amount of the redundancy pay equals the total amount payable to the employee for the redundancy
pay period worked out using the following table at the employee’s base rate of pay for his or her ordinary
hours of work.
Length of continuous service Redundancy pay

Less than 1 year Nil
1 year and less than 2 years 4 weeks’ pay
2 years and less than 3 years 6 weeks’ pay
10 years and over 12 weeks’ pay
Variation of the amount of redundancy payable may apply where:

 the employer obtains other acceptable employment for the employee; or
 cannot pay the amount.
On application by the employer, Fair Work Commission (FWA) may determine that the amount of
redundancy pay is reduced to a specified amount (which may be nil).
Continuity of Employment and Redundancy Pay

Importantly, any service prior to 1 January 2010 does not count as service for the purpose of calculating an
employee’s redundancy entitlement unless the employee had a redundancy entitlement immediately
before 1 January 2010.
Example: John has worked for XYZ since 1 January 2008. From 1 January 2008 through to 1 January 2010,
John worked under a common law contract which contained no redundancy clause. On 1 January 2010
John changed over to the Professional Employees modern award. XYZ made John redundant on
23 March 2017 due to a downturn in the industry.

Under the NES, as stated in the table above, John should have been entitled to 16 weeks’ pay, however,
because his previous industrial instrument did not require the employer to pay redundancy, the employer
only has to take John's service period (for redundancy purposes) from 1 January 2010. John will receive 13
weeks redundancy pay.
4.3 Unfair dismissal

The following employees are able to bring an unfair dismissal claim against an employer. They are:
 an employee who works for an employer who employs 15 or more employees and the employee
bringing the action has been employed for at least 6 months; or
 an employee who works for an employer with less than 15 employees and the employee bringing the
action has been employed for at least 12 months.
Note: If the employee is not covered by an award, the employee must be earning annual remuneration of
less than the high income threshold of $136,700 in order to file an unfair dismissal claim.
 Employees who earn more than the high income threshold and who aren’t covered by a modern award
or enterprise agreement, can’t make an unfair dismissal claim.
 Employees who are covered by a modern award and have agreed to a written guarantee of annual
earnings that is more than the high income threshold, will not get modern award entitlements,
however, they can make an unfair dismissal claim.
4.3.1 What is an unfair dismissal

A person has been unfairly dismissed, when the FWA is satisfied that:
 the person has been dismissed;
 the dismissal was harsh, unjust or unreasonable;
 the dismissal was not consistent with the Small Business Fair Dismissal Code (see over page for more
details); and
 the dismissal was not a case of genuine redundancy.
Whether or not a dismissal is consistent with the Small Business Fair Dismissal Code is only relevant where
the person was employed by a small business i.e. a business with less than 15 employees.
Factors to be considered under a claim

Fair Work Commission will be able to take into account a variety of matters in considering the merits of a
claim, notably:
 whether there was a valid reason for the dismissal related to the person’s capacity or conduct;
 whether the employee was notified of the reason;
 whether the employee was given an opportunity to respond;
 any unreasonable refusal by the employer to allow the employee to have a support person present;
 whether the employee had been warned about any unsatisfactory performance before the
termination (if relevant);
 the degree to which the size of the employer’s enterprise or the absence of dedicated human resource
management specialists would be likely to impact on the procedures followed in effecting the
termination;
 any other relevant matters.
Process of lodging an unfair dismissal claim

A claim for unfair dismissal must be made within 21 days of the dismissal, including general protections
complaints. Fair Work Commission will review the application and call the parties together for a
conference to determine the matter. Fair Work Commission will have local offices in regional and suburban
areas and will be able to go to a workplace or another agreed venue to conduct the conference. Fair Work
Commission will ask the parties for their views about how and where the conference should proceed.
During the conference Fair Work Commission will be required to reach a conclusion about whether the
dismissal was unfair, considering all the circumstances of the dismissal, including the conduct of the
parties. Fair Work Commission will be able to ask the parties questions and seek their views about the
issues raised. There will be no formal written submissions, no cross examination and no hearing. The
parties may have a representative or support person present, however the employer and employee will be
required to respond directly to questions from Fair Work Commission.
Where an employee has been dismissed unfairly, Fair Work Commission will be required to determine an
appropriate remedy. The remedy will be reinstatement, unless reinstatement is not in the interests of the
employee or employer’s business. In those circumstances, compensation may be ordered which will be
capped at the lesser of 6 months pay or $68,350 (for 2015/16).
4.3.2 Unlawful Dismissal

Unlawful dismissal occurs when an employee is dismissed for reasons that offend community standards
reflected in particular protections in the law. For example, dismissal on grounds such as family
responsibilities, pregnancy, disability, race or trade union activity will be considered unlawful.
Where an employee is terminated for the purpose or effect of an employer avoiding their obligations
under the Act, then the termination will also be deemed to be unlawful. Fair Work Commission will include
a separate division with jurisdiction to hear and determine unlawful dismissal claims. This means that
unlawful dismissal matters will not be heard in the Federal Court or Federal Magistrates’ Court.
4.3.3 The Fair Dismissal Code for Small Business

Small business with less than 15 employees needs to comply with the Fair Dismissal Code in relation to the
termination of an employee. The Code sets out the steps which a small business employer needs to take in
order for a dismissal to be fair and includes a checklist, which should be carefully filled out (see questions
over page). If a small business operator complies with the Code, a dismissal cannot be found to be unfair.
Small business employees cannot make a claim for unfair dismissal in the first 12 months following their
engagement. If an employee is dismissed after this period and the employer has followed the Code then
the dismissal will be deemed to be fair.
Employees who have been dismissed because of a business downturn or their position is no longer needed
cannot bring a claim for unfair dismissal. However, the redundancy needs to be genuine.
Summary Dismissal
It is fair for an employer to dismiss an employee without notice or warning when the employer believes on
reasonable grounds that the employee’s conduct is sufficiently serious to justify immediate dismissal.
Serious misconduct includes theft, fraud, violence and serious breaches of occupational health and safety
procedures. For a dismissal to be deemed fair it is sufficient, though not essential, that an allegation of
theft, fraud or violence be reported to the police. Of course, the employer must have reasonable grounds
for making the report.
Other Dismissal
In other cases, the small business employer must give the employee a reason why he or she is at risk of
being dismissed. The reason must be a valid reason based on the employee’s conduct or capacity to do the
job.
Important Points
 The employer will be required to give the employee a warning about their poor performance or
conduct and give them a ‘reasonable chance’ to respond and improve. Under the Code, only one
warning is required and the warning can be verbal.
 Employees will not be able to claim for unfair dismissal if there has been a “genuine redundancy”.
However the employer will need to prove to FWA that it was not reasonable to redeploy that
employee to other duties within the business and will need to comply with any consultation
requirements that are in their award or collective agreement.
 Those casual employees who are employed on a regular and systematic basis, and have a reasonable
expectation that this employment arrangement will continue, will now be eligible to claim for unfair
dismissal.
4.3.4 Small Business Fair Dismissal Code Checklist
The Checklist is a tool to help small business employers comply with the Small Business Fair Dismissal
Code. Completing the Checklist does not mean that the Code has been complied with, nor is it a
requirement of the Code that the Checklist be completed. However, completing the Checklist will help
small business employers assess and record their reasons for dismissing an employee. It is in the interests
of the employer to complete this checklist at the time of dismissal and to keep it in case of a future unfair
dismissal claim. Employers should read the Code before completing the Checklist, ensuring they
understand their procedural obligations under the Code. Meeting these obligations is an important factor
in complying with the Code.
1. How many employees are employed in the 6. In any discussion with the employee where
business? (Include the dismissed employee dismissal was possible, did the employee
and any other employee dismissed at the request to have a support person present,
same time). who was not a lawyer acting in a professional
UNDER 15 or MORE THAN 15 capacity?
[If under 15 employees, the Fair Dismissal Code applies.] YES or NO
2. Has the employee been employed in this 7. If Yes, did you agree to that request?
business as a full time, part-time or regular YES or NO
casual employee for 12 months or more? 8. Did you dismiss the employee because of the
YES or NO employee’s unsatisfactory conduct,
[If No, the employee cannot make an performance or capacity to do the job?
unfair dismissal claim.] YES or NO
3. Did you dismiss the employee because you If Yes
didn’t require the person’s job to be done by Did you clearly warn the employee (either
anyone because of changes in the verbally or in writing) that the employee was
operational requirements of the business? not doing the job properly and would have to
YES or NO improve his or her conduct or performance, or
If Yes otherwise be dismissed?
a. Did you comply with any requirements to YES or NO
consult about the redundancy in the modern Did you provide the employee with a
award, enterprise agreement or other industrial reasonable amount of time to improve his or
instrument that applied to the employment? her performance or conduct?
YES or NO YES or NO
b. Did you consider if the employee could have If yes, how much time was given?
been redeployed in your business or the Did you offer to provide the employee with any
business of an associated entity? training or opportunity to develop his or her
YES or NO skills?
YES or NO
4. Do any of the following statements apply?
Did the employee subsequently improve his or
I dismissed the employee because I believed her performance or conduct?
on reasonable grounds that: YES or NO
a. The employee was stealing money or goods Before you dismissed the employee, did you tell
from the business. the employee the reason for the dismissal and
YES or NO give him or her an opportunity to respond?
b. The employee defrauded the business. YES or NO
YES or NO Did you keep any records of warning(s) made to
c. The employee threatened me or other the employee or of discussions on how his or
employees, or clients, with violence, or actually her conduct or performance could be
carried out violence in the workplace. improved?
YES or NO YES or NO
d. The employee committed a serious breach of Please attach any supporting documentation.
occupational health and safety procedures. 9. Did you dismiss the employee for some other
YES or NO
reason?
5. Did you dismiss the employee for some other YES or NO
form of serious misconduct? If Yes, what was the reason?
YES or NO 10. Did the employee voluntarily resign or
If Yes, what was the reason?
abandon his or her employment?
If you answered Yes to any question in parts 3, 4 or 5,
YES or NO
you are not required to answer the following questions.
If Yes, please provide details

4.4 Ending employment – other issues
4.4.1 Termination and leave loading

The Fair Work Ombudsman has confirmed that where an employee is entitled to leave loading under an
award, leave loading must be paid on termination of the employee when making payment of accrued
annual leave.
4.4.2 When does the final pay have to be made to the employee
When an employee is terminating you should firstly refer to the employee’s award or agreement to
determine whether there are any clauses regarding the timing of an employee’s final payment. If there are
no specific guidelines in the award or agreement, then Fair Work Australia requires the employer to pay
out all employee entitlements either when they finish work or on the next scheduled pay day.
4.4.3 Terminating a person on sick leave or workers compensation

The Fair Work Act prohibits the dismissal of an employee where the reason is due to the employee’s
temporary absence from work because of personal illness or injury unless the employee’s absence on
unpaid personal/carer’s leave extends for more than 3 months, or total absences of 3 months within a 12
month period. Any absence on paid personal/carer’s leave is not to be included in the 3 month period,
however, a period of absence on workers compensation is included as part of the 3 months.
Workers compensation
Although an employee absent on workers compensation is protected from dismissal under the Fair Work
Act for the first 3 months of their period of absence, many state and territory workers compensation laws
also prohibit the termination of an employee’s employment by the employer within a specified period of
time where the sole or primary reason for the dismissal is because of the employee’s absence on workers
compensation. The ‘specified period’ can range from 6 months (under NSW law), to 12 months (under
Victorian law), or indefinitely (under South Australia law where the employer employs 10 or more
employees). Consult with your relevant Workcover authority to determine whether the employee can be
terminated who is absent on workers compensation.
Sick leave
If an employee has used all their accumulated sick leave and is on unpaid leave for more than 3 months
and they are dismissed by their employer, the termination is not automatically unlawful. The 3 month
absence can include a combination of paid sick leave and unpaid leave over a twelve month period.
The normal rules for a termination still apply and the employee may dispute the termination by:
 making an unfair dismissal application if the reason for the dismissal is harsh, unjust or unreasonable
or
 making a general protections claim if the reason for the dismissal is because of the employee’s
disability.

4.4.4 Managing performance based termination
Step by step guide to managing performance

Fair Work request that employers to adopt a step by step guide to managing underperformance.
 Step 1 Identify the problem
 Step 2 Assess and analyse the problem
 Step 3 Meet with the employee to discuss the problem
 Step 4 Jointly devise a solution
 Step 5 Monitor performance of employment.
For more detailed instruction, checklists and guides, access:
https://www.fairwork.gov.au/employee-entitlements/managing-performance-and-warnings
Warnings
Employers are not required to give an employee an official warning, however, if the employee is
terminated and goes on to make an unfair dismissal claim, Fair Work will consider whether the employee
had an opportunity to address their performance issues. Employers who use warnings should ensure the
warning:
 is in writing;
 clearly states what the warning is for;
 clearly states what is expected and what needs to be done differently;
 is fair and reasonable.
These templates are available at:

 Letter of unsuccessful probation
 Letter of first warning
 Letter of final warning
 Letter of termination of employment with notice
 Letter of termination of employment – serious misconduct / summary dismissal
 Letter of termination of employment redundancy
4.4.5 Termination and serious misconduct

When an employee is terminated on the grounds of serious misconduct, the employer does not have to
provide any notice of termination. However, the employer does have to pay the employee all outstanding
entitlements such as payment for time worked or annual leave.
Serious misconduct is when an employee:
 causes serious and imminent risk to the health and safety of another person or to the reputation or
profits of their employer’s business, or
 deliberately behaves in a way that is inconsistent with continuing their employment.
Examples of serious misconduct include theft, fraud, assault, or refusing to carry out a lawful and
reasonable instruction that is part of the job.
4.5 No HELP or SFSS applied to lump sums on termination

If an employee has a Higher Education Loan Program (HELP) or Student Financial Supplement Scheme
(SFSS) debt as stated on their Tax file number declaration (NAT 3092) or withholding declaration (NAT
3093), The employer is usually required to withhold an extra amount from the additional payment using
the relevant HELP/SFSS tax tables.
This does not apply to lump sums of annual leave and long service leave being paid on termination.

4.6 Taxing Annual Leave on termination
On termination of employment an employer must pay an employee for any untaken annual leave which
has accrued. This includes any payment for accrued or unused annual leave, recreation leave, annual
holidays or holiday pay, as well as any annual leave loading (applicable under some awards) in respect of
that leave.
The treatment of annual leave on termination is as follows:
Reason for leaving employment Annual leave shown in . . . Tax rate

Resignation, retirement or performance based
1
dismissal Gross payments Marginal tax rate
Genuine redundancy, invalidity and ATO approved
early retirement Lump Sum A 32%
1
Note : Where this payment is less than $300, the employer is required to withhold no more than 32% of
the payment.
Leave Loading
When an employer pays leave loading to an employee when the employee takes annual leave, the
employer will also have a liability to pay leave loading in relation to annual leave being paid out on
termination, regardless of what it states in the employee’s award or agreement. Leave loading should be
added to the employee's accrued annual leave and taxed accordingly, as per the table above.
4.6.1 Treatment of annual leave on resignation, retirement or performance based

dismissal
That part of an annual leave lump sum which is being paid out on termination (where the termination is
not a redundancy, invalidity or early retirement) should be shown on the Individual non business payment
summary as part of the gross payments. The amount of tax withheld is calculated in the same way as you
would calculate the tax to be withheld from an annual bonus paid to that employee. This is referred to as a
marginal rate calculation.
The steps to calculate the tax payable on annual leave paid on resignation, retirement or performance
based dismissal are as follows:
1. Divide the annual leave by 52, 26 or 12, i.e. depending on the amount of pay periods per year. You use
the number of pay periods in the whole financial year even if the person have only worked part year.
2. Add the result to the normal gross earnings for a pay period.
3. Calculate the tax withheld on the result of Step 2.
4. Calculate the tax withheld on the normal gross earnings for a pay period.
5. Subtract the result of Step 4 from the result of Step 3.
6. Multiply the result of Step 5 by the number of pay periods used in the calculation in Step 1.

Annual leave paid on resignation
Example: Fred resigns after 8 years service
Employee Name: Fred Bloggs
Date of birth: 21 January 1953 (63)
Start Date: 27 November 2008
Resignation Date: 31 December 2016
Whole years of service: 8 years
Annual salary: $135,000
Weekly salary: $2,596.16
Hourly rate: $68.32
Annual leave accrual as of 31/12/2016 289 hours
Fred resigns from his employment on 31 December 2016 after eight years of service. At that time, he
receives a payment of $19,744.48 in respect of 289 hours of accrued but unused annual leave. The
amount of tax to be withheld is worked out using the marginal rate calculation, as follows:
Step 1: Divide the amount of the payment by the number of pay periods in one year.
$19,744.48 divided by 52 weeks = $379.70
Step 2: Add the result to the normal gross earnings for a pay period.
$2,596.16 + $379.70 = $2,975.86
Step 3 Calculate the tax to be withheld on the result of Step 2.
Tax to be withheld on $2,975.86 per week = $930.00
Step 4 Calculate the tax to be withheld on the normal gross earnings for a pay period.
Step 5 Subtract the result of Step 4 from the result of Step 3.
$930.00 – $782.00 $148.00
Step 6 Multiply the result of Step 5 by the number of pay periods in the financial year.
$148.00 × 52 weeks = $7,696.00
The tax to be withheld from the annual leave lump sum of $19,744.48 is $7,696.00
The whole of the $19,744.48 lump sum will be shown as part of the gross payments on the employee’s
normal 2016/17 payment summary.

Annual leave paid on resignation – normal earnings vary over year
Where a payee’s ordinary hours fluctuates significantly over a number of pay periods, use an average of
gross taxable earnings for the financial year to date over the number of pays received.
Example: Julie resigns after 4 years service working permanent part-time

Employee Name: Julie Smith
Date of birth: 21 December 1985 (31)
Start Date: 1 July 2012
Resignation Date: 30 September 2016
Year to date earnings: $10,192
Hourly rate: $28.00
Julie resigns from her employment on 30 September 2016 after four years of service. At that time she
receives a payment of $1,008.00 in respect of 36 hours of accrued but unused annual leave. Julie does not
have set hours and therefore she does not have normal gross weekly earnings. In this case, earnings are
averaged over the financial year to date ($10,192 divided by 13 weeks). Normal weekly gross is therefore
$784.00. The amount of tax to be withheld is then worked out using the marginal rate calculation, as
follows:
$1008.00 divided by 52 weeks = $19.38
Step 2: Add the result to the normal gross earnings for a pay period. .
$784.00 + $19.38 = $803.38
Tax to be withheld on $803.38 per week = $114.00
Tax to be withheld on $784.00 per week = $107.00
$114 – $107 $7.00
$7.00 × 52 weeks = $364.00
The tax to be withheld from the annual leave lump sum of $1,008.00 is $364.00

Employee retires and is paid out annual leave
The treatment of annual leave paid on retirement is exactly the same as for those employees who resign.
There is no concessional taxing of leave entitlements for retiring employees.
Example: Susan retires after 14 years service

Employee Name: Susan Brown
Date of birth: 21 April 1951 (65)
Hourly rate: $36.95
Susan retires from her employment on 31 December 2016 after fourteen years of service. At that time,
she receives a payment of $7,463.90 in respect of 202 hours of accrued but unused annual leave. The
amount of tax to be withheld is worked out using the marginal rate calculation, as follows:
Step 1: Divide the amount of the payment by the number of pay periods in the financial year.
$7,463.90 divided by 52 weeks = $143.53
$1,403.85 + $143.53 = $1,547.38
$373.00 – $322.00 $51.00
$51.00 × 52 weeks = $2,652.00
normal payment summary.

Employee is dismissed during a probationary period due to performance
When an employee is dismissed during a probationary period due to performance, any accrued annual
leave entitlements will need to be paid to the employee.
Example: Emily’s employment is terminated during the 6 months probationary period
Employee Name: Emily Black
Termination Date: 24 December 2016
Whole years of service: Nil
Hourly rate: $46.56
Emily’s employment is terminated on 24 December 2016 after management decide that she is not
suitable for position. Emily has nearly completed her 6 months probationary period. She is entitled to
receive a payment of $3,398.88 in respect of 73 hours of accrued but unused annual leave. The amount of
tax to be withheld is worked out using the marginal rate calculation, as follows:
$3,398.88 divided by 52 weeks = $65.36
$1,769.23 + $65.36 = $1,834.59
$484.00 – $459.00 $25.00
$25.00 × 52 weeks = $1,300.00

Employee retires and requests payment in next financial year
An employee may request to defer the payment of their termination pay. At times the payment may be
deferred to the next financial year if both the employee and employer are in agreement. When this occurs,
the employee’s normal gross earnings, for calculating tax on annual leave remains as it was in the previous
financial year. The normal gross earning is not reduced to nil as a result of the employee not receiving any
other payment in that financial year.
Effectively the employer taxes the annual leave as normal and if the employee is entitled to a refund they
will receive it when they lodge their tax return at the end of the financial year.
Example: Andrew retires after 23 years service
Employee Name: Andrew Brown
Date of birth: 11 March 1951 (65)
Resignation Date: 13 June 2016
Hourly rate: $43.53
Andrew retires from his employment on 13 June 2016 after twenty three years of service. At that time, he
agrees with his employer to defer the payment of $65,947.95 in respect of 1515 hours of accrued but
unused annual leave, to be paid on 10 July 2016. The amount of tax to be withheld is worked out using
the marginal rate calculation, as follows:
$65,947.95 divided by 52 weeks = $1,268.22
$1,653.85 + $1,268.22 = $2,922.07
$909.00 – $414.00 = $495.00
$495.00 × 52 weeks = $25,740.00

4.6.2 Annual Leave for Genuine Redundancy, Invalidity and ATO Approved Early
Retirement
Lump sums of annual leave which are paid out where the termination is due to genuine redundancy or
invalidity or part of an approved early retirement scheme, are included as part of Lump Sum A on the
employee’s payment summary. The amount is not included in the employee’s gross payments on the
Individual non business payment summary. Tax is withheld at a flat rate 32%.
What constitutes a genuine redundancy, invalidity or ATO approved early retirement will be discussed
shortly.
Employee is paid annual leave on redundancy after 14 years of service – genuine redundancy
When all the conditions of a genuine redundancy are met the annual leave is taxed at a flat rate of 32%
and recorded at Lump sum A on the employee’s normal payment summary.
Example: Martha is made redundant after 14 years service
Employee Name: Martha Smith
Hourly rate: $50.11
Martha is made redundant from her employment on 31 December 2016 after fourteen years of service. At
that time, she receives a payment of $9,771.45 in respect of 195 hours of accrued but unused annual
leave. Because it is a genuine redundancy tax is withheld at a flat rate of 32%.
32% x $9,771.45 = $3126.86
The amount of $9,771.45 is shown at Lump sum A on the employee’s normal payment summary and the
tax is shown at ‘Tax withheld’ on the normal payment summary.
Employee is paid annual leave on redundancy after 5 years of service – non-genuine redundancy
When all the conditions of a genuine redundancy are not met (e.g. person has reached 65 years of age) the
annual leave is taxed at the employee’s marginal rate of tax. The amount is shown in gross payment on the
payment summary.
Example: Edward, aged 67, is made redundant after 5 years service
Employee Name: Edward Jones
Hourly rate: $36.44

Edward is made redundant from his employment on 31 December 2016 after five years of service. At that
time, he receives a payment of $3,461.80 in respect of 95 hours of accrued but unused annual leave.
Because it is not a genuine redundancy, as the employee has reached 65 years of age, tax is withheld at
the employee’s marginal rate of tax, as follows:
$3,461.80 divided by 52 weeks = $66.57
$1,384.72 + $66.57 = $1,451.29
$339.00 – $316.00 $23.00
$23.00 × 52 weeks = $1,196.00
The whole of the $3,461.80 lump sum of annual leave will be shown as part of the gross payments on the
employee’s normal 2016/17 payment summary.
4.7 Taxing Long Service Leave on termination

This includes any payment for accrued or unused long service leave. Historically, there have been a
number of legislative changes that have determined how amounts withheld from payments of unused long
service leave on termination of employment are calculated. These changes prescribed two dates as being
critical to calculations:
 16 August 1978, and
 18 August 1993.
The treatment of long service leave on termination is as follows:
Reason for leaving employment Long service leave shown Tax rate
in . . .
Resignation, retirement or performance based dismissal
and:
1
• Accrued after 18 August 1993 Gross payments Marginal tax rate
• Accrued between 16 August 1978 and 17 August 1993 Lump Sum A 32%
• Accrued before 16 August 1978 Lump Sum B 5% taxed at marginal
Genuine redundancy, invalidity and ATO approved early

retirement and
• Accrued after 16 August 1978 Lump Sum A 32%
• Accrued before 17 August 1978 Lump Sum B 5% taxed at marginal
Note1: Where this payment is less than $300, the employer is required to withhold no more than 32% of
the payment.

4.7.1 Last-In-First-Out
The last in – first out principle is only relevant to employees who commenced employment before
17 August 1993 and are terminating due to resignation, retirement or performance based dismissal.
Long service leave is calculated on a last-in-first-out basis (this is opposite to the basis on which annual
leave is calculated). This means that the long service leave already taken by the employee is assumed to be
the long service leave that accrued most recently. This will be clearer after examining the formulas and
examples which are shown on the following pages.
4.7.2 Treatment of long service leave when an employee resigns, retires or is

dismissed as a result of performance.
Employee commenced after 17 August 1993

Example: Fred commenced employment on 27 November 2008 and resigns after 8 years service,
receiving pro-rata long service leave
Employee Name: Fred Bloggs
Hourly rate: $68.32
Long service leave taken Nil
Long service leave accrual as of 31/12/2016 7.016 weeks
Fred resigns from his employment on 31 December 2016 after eight years of service to help care for his
wife who has had a nervous breakdown. At that time, he receives a payment of $18,214.66 in respect of
7.016 weeks accrued pro-rata long service leave. The amount of tax to be withheld is worked out using
the marginal rate calculation, as follows:
$18,214.66 divided by 52 weeks = $350.28
$2,596.16 + $350.28 = $2,946.44
$918.00 – $782.00 = $136.00
$136.00 × 52 weeks = $7,072.00
The tax to be withheld from the $18,214.66 is $7,072.00

Employee commenced before 17 August 1993
Step 1 – Work out the amount of long service leave accrued in each period using the below formula:
Days of long service leave Days in relevant period
accrued during long service LSL that accrued in each
X Days in long service leave =
leave employment period period
employment period
Notes
1. The relevant period can mean the:

− pre-18 August 1993 period (that is, for the period 16 August 1978 to 17 August 1993)
− post-17 August 1993 period (as applicable).
2. Fractions of days - where step 1 results in a fraction in the days applicable in a relevant period
attribute the fraction to the earliest period that LSL has accrued for the employee. (For example - if
the employee has accrued long service leave in all three periods, treat the fraction as having accrued
during the pre-16 August 1978 period)
3. Employee has used LSL in while employed - where this has occurred, the number of days used in the
period will be subtracted from the days of long service leave in that relevant period. Where the days
taken exceed the LSL that has accrued in the relevant period the excess days will then be reduced from
the prior period (For example - it is calculated that an employee has 20 days of LSL relating to post
August 1993 and 20 from August 1978 to August 1993. The employee took 32 LSL days post August
1993. Therefore the post 1993 days will be reduced to 0 and a further 12 days (being 32 less 20 days)
will be deducted from the pre August 1993 days accrued).
4. Long service leave taken at less than full pay - Where an employee has taken LSL at part pay the
number of days LSL that have been used is as follows:
(Actual days of LSL x (rate of pay LSL was taken/ Rate of pay to which the employee was entitled to
when taking leave))
For example - an employee took 100 days of actual LSL at a rate of $30 per hour when normally
entitled to $40 per hour. Using the above formula 100 x (30/40) = 75 days. Therefore the employee is
treated as having used only 75 days.
Step 2 – Work out the payment amount attributable to each period
Use the following formula to work out the payment amount attributable to each period:
Unused long service leave days in
Amount of the payment the relevant period Payment attributable to
X =
each period
Total unused long service leave days
Step 3 – Calculate the amounts to be withheld
How you work out the amount to withhold depends on whether your employee is leaving because of
genuine redundancy or for another reason. Refer to table shown at 4.8.

Example: Mark commences employment on 21 July 1991 and retires after 25 years service, receiving a
long service leave payout
Employee Name: Mark Brown
Resignation Date: 3 July 2016
Hourly rate: $43.53
Total amount of long service leave payment on termination $32,527.92
Long service leave taken (taken in 2001) 10 days
Total Long service leave accrued during service. 108 days
Total Long service leave accrual remaining as at 3 July 2016 98 days
Mark retires from his employment on 3 July 2016 after twenty four years of service. At that time, he
receives a payment of $32,527.92 in respect of 19.668 weeks (98 days) accrued but unused long service
leave. The amount of tax to be withheld is worked out using the marginal rate calculation, as follows:
accrued during long LSL that accrued in each
X Days in long service leave employment =
service leave employment period
period
period
Calculations of Post August 1993 days

8,356
108 X = 99.01 days
9,115
Therefore, Mark has 99.01 LSL days that accrued post August 1993, however we note that Mark has taken
10 days of LSL therefore this is reduced to 89 days. The fraction of 0.01 days is to be added to the pre
August 1993 accrued leave.
Calculation of pre-August 1993 days
759
108 X = 8.993 days
9,115
As stated above, the fraction from the post august 1993 is added to this total, therefore, 8.993 + 0.01,
therefore 9 days relates to pre-august 1993.
Step 2 – Work out the payment amount attributable to each period
Use the following formula to work out the payment amount attributable to each period:
Amount of the Unused long service leave days in the relevant Payment
payment X period = attributable to
Total unused long service leave days each period
Amount relating to post August 1993 days

89
$32,527.92 X = 29,540.66
98
Amount relating to pre- August 1993 days

$32,527.92 – $29,540.66 = 2,987.26

As Mark has retired the following tax will need to be withheld from his LSL payment
Tax on post August 1993 LSL payment
A marginal rate calculation will be used to calculate the tax on this amount as follows:
$29,540.66 divided by 52 weeks = $568.09
$1,653.85 + $568.09 = $2,221.94
$636.00 – $414.00 = $222.00
$222 × 52 weeks = $11,544
The tax withheld from the post 17 August 1993 long service leave amount of $29,540.66 is $11,544
Tax on pre August 1993 LSL payment

The pre August 1993 long service leave amount of $2,987.26 is taxed at a flat rate of 32% and recorded in
the lump sum A field on the normal 2016/17 payment summary.
The tax withheld from the pre August 1993 long service leave amount will be 32% x $2,987.26 = $956.

Employee commenced before 16 August 1978
Example: Sam commences employment on 1 January 1973 and resigned after 44 years’ service,
receiving a long service leave payout
Employee Name: Sam Peterson
Start Date: 1 Jan 1973
Resignation Date: 31 Dec 2016
Weekly salary: $2,400
Total amount of long service leave payment on termination $31,200
Total Long service leave accrued during service. 191 days
Total Long service leave accrual remaining as at 31 December 2016 65 days
Sam resigns from his employment on 31 December 2016 after 44 years of service. At that time, he
receives a payment of $31,200 in respect of 65 days accrued but unused long service leave. The amount
of tax to be withheld is worked out using the marginal rate calculation, as follows:
Days in relevant period
 1 January 1973 to 15 August 1978 2,053 days

 16 August 1978 to 17 August 1993 5,481 days
 18 August 1993 to 31 December 2015 8,537 days
 Total days of employment services 16,071 days
accrued during long service LSL that accrued in each
X Days in long service leave =
leave employment period period
employment period
Calculations of post-August 1993 days

8,537
191 X = 101.47 days
16,071
Therefore, Sam has 101 LSL days that accrued after to post August 1993. The fraction of 0.47 days is to be
added to the pre August 1978 accrued leave.
Calculation of LSL between August 1978 and August 1993
5,481
191 X = 65.14 days
16,071
Therefore, Sam has 65 LSL days that accrued between August 1978 and August 1993. The fraction of 0.14
days is to be added to the pre August 1978 accrued leave.
Calculations of pre-August 1978 days

2,053
191 X = 24.39 days
16,071
Therefore, Sam has 24.39 LSL days that accrued after to pre August 1978. The fractions of 0.47 days and
0.14 days from the above calculations are to be added to the pre August 1978 accrued leave.
24.39 + 0.47 + 0.14 = 25 days of the unused LSL relates to pre August 1978.

Adjustment to the LSL to take in account LSL taken during employment
Reduce the LSL balance by 24 days taken in 1987 from August 78 to August 93 period
 65 days less 24 days = 41 days
Reduce the LSL balance by 102 days taken in 1995 from post August 93 period
 101 days less 102 days = -1 day Insufficient days in post August 93 period therefore remove remainder
from August 78 to August 93 period, therefore 41 days less 1 day = 40 days
Summary of days remaining in each period after adjustments
 Post August 93 Nil days
 August 78 to August 93 40 days
 Pre August 78 25 days
Step 2 – Work out the payment amount attributable to each period using formula
Amount of the Unused long service leave days in the relevant Payment
payment X period = attributable to
Total unused long service leave days each period
Amount relating to post August 78 but before August 93 days

40
$31,200 X = $19,200
65
Amount relating to post pre August 78

25
$31,200 X = $12,000
65

Tax on post August 78 but before August 93 LSL payment
The LSL amount of $19,200 is taxed at a flat rate of 32% and recorded in the lump sum A field on the
normal 2016/17 payment summary. Therefore tax is $6,144.
Tax on pre August 1978 LSL payment
The LSL amount of $12,000 will be included at lump sum B with 5% taxable at the employees marginal tax
rate. $12,000 @5% = $600 will be subject to tax.
A marginal rate calculation will be used to calculate the tax on this amount as follows:
$600 divided by 52 weeks = $11.54
$2,400 + $11.54 = $2,411.54
Tax to be withheld on $2,400 per week = $705.00
$709 – $705 = $4.00
$4 × 52 weeks = $208
The tax withheld from the post 17 August 1993 long service leave amount of $12,000 is $208
Therefore the total tax to be withheld from a LSL payment of $31,200 will be $6,352 ($6,144 + $208).
4.7.3 Long Service Leave for Genuine Redundancy, Invalidity and ATO Approved Early
Retirement
Lump sums of annual leave which are paid out where the termination is due to genuine redundancy or
invalidity or part of an approved early retirement scheme, are included as part of Lump Sum A on the
employee’s payment summary. The amount is not included in the employee’s gross payments on the
Individual non business payment summary. Tax is withheld at a flat rate 32%.
What constitutes a genuine redundancy, invalidity or ATO approved early retirement will be discussed
shortly.
Employee is paid long service leave on redundancy – genuine redundancy

When all the conditions of a genuine redundancy are met the annual leave is taxed at a flat rate of 32%
and recorded at Lump sum A on the employee’s normal payment summary.
Example: Martha receives LSL on redundancy after 24 years service
Employee Name: Martha Smith
Hourly rate: $50.11
Long service leave accrual as of 31/12/2016 20.80 weeks
Martha is made redundant from her employment on 31 December 2016 after twenty four years of
service. At that time, she receives a payment of $39,600.08 in respect of 20.80 weeks of accrued but
unused long service leave. Because it is a genuine redundancy tax is withheld at a flat rate of 32%.
32% x $39,600.08 = $12,672.03
The amount of $39,600.08 is shown at Lump sum A on the employee’s normal payment summary and the
tax of $12,672.03 is shown at ‘Tax withheld’ on the normal payment summary.
Employee is paid pro-rata long service leave on redundancy – non-genuine redundancy

When all the conditions of a genuine redundancy are not met (e.g. person has reached 65 years of age) the
long service leave is taxed at the employee’s marginal rate of tax. The amount is shown in gross payment
on the payment summary.
Example: Edward, aged 67, receives LSL on redundancy after 5 years service
Employee Name: Edward Jones
Hourly rate: $36.44
Pro-rata long service leave accrual as of 31/12/2016 4.770 weeks

Edward is made redundant from his employment on 31 December 2016 after five years of service. At that
time, he receives a payment of $6,604.64 in respect of 4.770 weeks of accrued but unused long service
leave. Because it is not a genuine redundancy, as the employee was over 65 years of age at the time of
dismissal, tax is withheld at the employee’s marginal rate of tax, as follows:
$6,604.64 divided by 52 weeks = $127.01
$1,384.72 + $127.01 = $1,511.73
$339.00 – $316.00 = $44.00
$44.00 × 52 weeks = $2,288.00
The whole of the $6,604.64 lump sum of annual leave will be shown as part of the gross payments on the
employee’s normal 2016/17 payment summary.
Pre 16 August 1978 long service leave being received by employee under genuine redundancy
The pre 16 August 1978 of long service being paid out in the case of genuine redundancy, approved early
retirement or invalidity will be included at Lump sum B on the normal payment summary. One twentieth
of this component will be taxed at the employee’s marginal rate of tax.

4.8 Taxation of Redundancy and related payments
Tax free amounts apply to:
 Genuine Redundancy; and

 Approved Early Retirement Schemes.
This means that payments within a predetermined limit are totally exempt from income tax. Those tax free
limits are discussed in detail shortly. Any amount paid to the employee in excess of that limit is classed as
an Employment termination payment (ETP). Employment termination payments will be discussed in detail
further on.
4.9 Genuine Redundancy

A payment is classed as having been made due to genuine redundancy where a person’s employment has
been prematurely brought to an end as part of a reduction in the work force of his employer, and there is
no arrangement made by the employer for the person’s re-employment. “Redundancy” in this context is a
payment made to an employee who is dismissed because the job they were doing is made redundant. The
term redundancy does not extend to the dismissal of an employee for personal or disciplinary reasons, or
because the employee was inefficient.
There are four necessary components within this requirement:

 The payment must be received in consequence of an employee's termination.
 That termination must involve the employee being dismissed from employment.
 That dismissal must be caused by the redundancy of the employee's position.
 The redundancy payment must be made genuinely because of a redundancy.
4.9.1 Payment must be 'in consequence of' termination

Any payment must be made 'in consequence of' the employee's termination before it can be a genuine
redundancy payment.
A payment is made in consequence of the termination if, but for the termination of employment, the
payment would not have been made to the employee. There must be a connection between the
termination and the payment. The question of whether a payment is made in consequence of the
termination of employment will be determined by the relevant facts and circumstances of each case.
Payments, such as unused annual leave and unused long service leave, may also be made in consequence
of termination however they are specifically excluded from being genuine redundancy payments.
4.9.2 It must be a ‘Dismissal' from employment

The loss of a particular position with an employer is not a dismissal unless all employment with the
employer is severed. A genuine redundancy payment can only arise where there is no suitable job available
for the employee with the employer, meaning that he or she must therefore be dismissed.
Dismissal is a particular mode of employment termination. It requires a decision to terminate employment

at the employer's initiative without the consent of the employee. This stands in contrast to employment
that is terminated at the initiative of the employee, for example in the case of resignation.
A redundancy can still occur even where an employee has indicated that they would be interested in
having their employment terminated, provided that the final decision to terminate employment remains
solely with the employer. Such a case may arise where expressions of interest in receiving a redundancy
package are sought from employees as part of a structured process undertaken by the employer.

Where an employee is given notice from their employer that they will be terminated at a specified time in
the future due to genuine redundancy, that employee will be dismissed because of redundancy. This will
be the case even where an employee, following notification, negotiates with the employer or nominates to
end their employment at an earlier time.
Example – Sue opts to search for future employment after being notified of future redundancy
Sue is advised on 1 August 2016 that her position will be made redundant as at 31 December 2016. Sue
decides to commence searching for future employment in her spare time. On 15 October 2016 she is
offered a position with a new employer. At that time, Sue negotiates with her current employer to leave
the organisation on 1 November 2016.
The termination of employment will still be considered a redundancy.
A 'Constructive dismissal' can also be a redundancy. The simplest example of constructive dismissal is
where an employee resigns under threat (explicit or implicit) of being made redundant. Another example is
where the employee resigns after the employer offers work in an alternative position which is
inappropriate given the employee's particular circumstances (for example, their skills or experience). While
in form this appears to be a termination at the employee's initiative, it is recognised to be a redundancy.
Example – Vera opts to leave employment after being notified of future redundancy
Vera is advised on 1 August 2016 that her position will be made redundant as at 31 December 2016. She
leaves the workplace immediately. At home that night, feeling distressed and hurt, Vera writes her
resignation letter. On returning to the workplace the following day she hands the letter to her superior
and exits the workplace for the final time.
The termination of employment will still be considered a redundancy.
4.9.3 Dismissal must be caused by 'redundancy'

This is the most important factor when determining whether the position is redundant.
An employee's position is redundant when an employer determines that it is superfluous to the employer's
needs and the employer does not want the position to be occupied by anyone. Accordingly, it is
fundamentally the employer's decision that a position is redundant.
In some circumstances, an employer may reallocate the duties and functions attached to a particular
position to another position within the employer's organisational structure. In such cases, the former
position is redundant.
If an employer decides after structural reorganisation to terminate an employee, the former position of
the employee is redundant as long as the reorganisation is the prevailing or most influential cause of the
termination.
A dismissal is not caused by redundancy where personal acts or default are the prevailing or most
influential cause for the termination. For example, a person may be dismissed due to unsatisfactory
performance or behaviour.
In some cases, an employer may decide to restructure their organisation at the same time as identifying
underperformance of particular members of staff or areas within the existing organisational structure. In
the event that employees are dismissed in these circumstances, careful consideration will need to be given
to what was the prevailing or most influential cause of dismissal. For a dismissal to be considered a
redundancy, the decision cannot be due to the ordinary and customary turnover of staff.

4.9.4 It must be a 'Genuine' redundancy
To be treated as a redundancy a redundancy must be genuine. A redundancy is regarded as genuine under
the following circumstances.
Employee is within the age based limits

The dismissed employee must be less than 65 years old at the time of dismissal.
The Tax office introduced a concessional taxing of genuine redundancy payments in order to compensate
employees who were terminated from their employment before retirement age. It is for this reason that
employee’s who have reached 65 years of age cannot receive a tax free amount when made redundant.
The termination is not at the end of a fixed period of employment

A payment made at the end of a fixed period of employment cannot normally be a genuine redundancy
payment. However, some 'rolling' fixed-term contracts may establish an ongoing employment relationship.
The reference to 'rolling' contracts contemplates the situation where fixed-term contracts are renewed on
one or more occasions following the expiry of the contracted term. The completion of a stipulated term in
these circumstances does not necessarily disqualify a payment made at the end of the period from being a
genuine redundancy payment. This is likely to be the exception rather than the rule.
In some cases, particularly those involving multi-disciplinary project-based work, an employee's period of
service may be determined by reference to the achievement of a particular outcome rather than a
specified period of time. The employee's period of service in these circumstances concludes on the
achievement of that outcome.
Roger’s employment ends at the completion of project

Roger was employed on 13 September 2015 to streamline particular computer systems within the
organisation. Whilst there was no specific end date stipulated in his contract, there were specific outcome.
It was stated that Rogers employment would cease once those outcomes were achieved.
Roger left the organisation after achieving the stated outcomes on 23 November 2016. The termination is
not a redundancy.
A genuine redundancy payment may be paid in exceptional cases where the evidence supports the
existence of an ongoing employment relationship, despite employment being terminated on the
achievement of an outcome or the completion of a project.
There is no arrangement to re-employ

An arrangement to employ an employee after his or her termination prevents a dismissal being a genuine
redundancy payment if that arrangement is entered into between either:
 the employer and the dismissed employee; or

 the employer and another entity.
In the second of these two cases, the other entity would commonly be the new employer, for example,
another government body or department within the government.
Dealings must be at arm’s length

The actual amount paid cannot be greater than the amount that could reasonably be expected had the
parties been dealing at arm's length. This condition only needs to be met if it is established that the
employer and employee are not dealing at arm's length in relation to the dismissal.
Payments not in lieu of superannuation benefits

A payment is not a genuine redundancy payment to the extent that it is made in place of superannuation
benefits due at the time or in the future. Superannuation benefits, as defined, are generally made by
reason of a person's entitlement under a superannuation fund, a similar superannuation plan or
superannuation-related legislation.

4.9.5 Tax treatment of amounts paid under a genuine redundancy
Depending on the employee’s employment conditions, for example, what the employer is required to pay
under the industrial agreement or employment contract, a genuine redundancy payment may include:
 payment in lieu of notice
 severance payment of a number of weeks' pay for each year of service
 a gratuity or 'golden handshake'.
The following payments are not included in a genuine redundancy payment:

 Salary, wages or allowances owing for work done or leave already taken for work completed;
 Lump sum payments of unused annual leave or leave loading paid on termination of employment;
 Lump sum payments of unused long service leave paid on termination of employment under a formal
arrangement where entitlement has not been reached;
 Payment of time off in lieu (TOIL), flexi-time or rostered days off; and
 Payments made in lieu of superannuation benefits.
To be included in the tax-free limit, the payment must be more than what the employee would have
received had they left employment voluntarily (e.g. resigned).
Tax-free limit
Any payments that meet the conditions of a genuine redundancy are tax free up to a limit based on an
employee’s years of service with that employer. The tax-free limit is a flat dollar amount plus an amount
for each year of completed service. Extended periods of unpaid leave are not included. Indexation changes
the tax-free limit on 1 July each year.
In 2016/17 the limit is a base amount $9,936 plus $4,969 for each whole year of completed service (part
years don’t count). An employee who has been employed for less than 12 months will have a tax free limit
for redundancy of $9,936. An employee who has been employed for five whole years will have a tax free
limit for redundancy of $34,781 [$9,936 + (5 × $4,969)].
 The monetary amounts of the tax free limits apply to both fulltime and part-time employees. The
amounts are not pro-rated for part-time employees
 Any amount over the tax-free limit is taxed as an employment termination payment (ETP). These will
be discussed shortly. If a redundancy does not meet the genuine redundancy rules (as stated earlier) it
will be taxed as an ETP.
 Any genuine redundancy payments within the employee’s tax free limit are shown at 'Lump sum D' on
the payment summary.
Can the amount be included as a part of the tax free portion of redundancy if within the limit?
Termination payment type paid to employee Included in tax-free limit on redundancy?
who meets genuine redundancy criteria
Annual leave, leave loading. Long service leave No
Accrued sick/personal leave Yes – in the case where employer opts to payout accrued
sick/personal leave only on redundancy
No – If it is normal practice for sick/personal leave to be paid out
on resignation then the payment cannot be included in the tax
free limit when paid out on redundancy
Accrued flexitime / time in lieu / rostered days off No
Pay in lieu of notice Yes
Severance pay/ Redundancy pay Yes
Golden handshake Yes
Bonus as a result of work performed No
Salary and wages No
Superannuation payments No

4.9.6 Redundancy examples
Example: George is made redundant after 23 years service
Employee Name: George Brown
Date of birth: 11 March 1960 (57)
Redundancy Date: 13 June 2017
Annual salary: $86,000.00
Hourly rate: $43.53
Tax free limit [$9,936 + (23 x $4,969)] $124,223.00
George is made redundant by his employer 13 June 2016 after twenty three years of service. His
employer is obligated to pay him the following (excluding leave entitlements and normal pay):
Pay in lieu of notice (5 weeks) $8,269.25
Redundancy pay (12 weeks) $19,846.20
TOTAL $28,115.45
OUTCOME: The total amount of $28,115.45 is within George’s tax free limit. The entire amount is tax free
and shown at lump sum D on his normal 2016/17 payment summary.
Example: Sam is made redundant after 8 years service and is paid an amount in excess of his tax free
limit
Employee Name: Sam Bloggs
Redundancy Date: 31 December 2016
Hourly rate: $70.39
Tax free limit [$9,936 + (8 x $4,969)] $49,688.00
Sam’s position is made redundant on 31 December 2016 after eight years of service. At that time, his
employer is obligated to pay him the following (excluding leave entitlements and normal pay):
Can be included in tax free limit? Amount
Accrued time off in lieu (TOIL) (106 hours) cannot be included in tax free limit $7,461.34
TOTAL $50,825.34
OUTCOME: Only $49,688 of Sam’s final pay will be tax free and shown at lump sum D on his normal
2016/17 payment summary as this is his maximum tax free limit based on the years of service. The
remaining $1,137.34 ($50,825.34 – $49,688.00) will be an ETP and shown only on the ETP payment
summary. The accrued TOIL of $7,461.34 will also be an ETP. ETP’s will be discussed shortly.

Example: Elizabeth, aged 65, is made redundant after 14 years service
Employee Name: Elizabeth Brown
Hourly rate: $36.95
NIL (employee 65 years
Tax free limit of age)
Elizabeth’s position is made redundant on 31 December 2016 after 14 years of service. Her employer is
obligated to pay her the following (excluding leave entitlements and normal pay):
Pay in lieu of notice (5 weeks) cannot be included in tax free limit $7,019.25
Redundancy pay (12 weeks) cannot be included in tax free limit $16,846.20
TOTAL $23,865.45
OUTCOME: None of Elizabeth’s final pay will be tax free as Elizabeth has reached 65 years of age and
therefore has a nil tax free limit for redundancy. The entire amount of $23,865.45 will be an ETP and
shown only on the ETP payment summary. ETP’s will be discussed shortly.
Example: Sandra’s position is made redundant after 5 months service

Employee Name: Sandra Black
Whole years of service: Nil
Hourly rate: $46.56
Tax free limit [$9,936 + (0 x $4,969)] $9,936.00
Sandra’s position is made redundant on 24 December 2016 after management decide tasks associated
with her position can be easily carried out by two other employees. She has completed 5 months and
3 weeks of service. Under the terms of her employment, Emily is entitled to be paid out as follows
(excluding leave entitlements and normal pay):
OUTCOME: The total amount of $7,076.92 is within Sandra’s tax free limit. The entire amount is tax free
and shown at lump sum D on the normal 2016/17 payment summary.

Example: Natasha is made redundant after 4 years service working permanent part-time
Employee Name: Natasha Smith
Date of birth: 21 December 1984 (32)
Redundancy Date: 30 September 2016
Annual wages: $40,768.00
Weekly wages: $784.00
Hourly rate: $28.00
Tax free limit [$9,936 + (4 x $4,969)] $29,812.00
Natasha’s position is made redundant on 30 September 2016 after four years of service. Her employer is
TOTAL $8,624.00
OUTCOME: The total amount of $8,624.00 is within Sandra’s tax free limit. The entire amount is tax free
and shown at lump sum D on the normal 2016/17 payment summary.
Example: Andrea is made redundant after 6 years service and receives termination pay that includes
the payout of flexi-time
Employee Name: Andrea Reed
Start Date: 30 October 2010
Redundancy: 30 November 2016
Hourly rate: $41.50
Tax free limit [$9,936 + (6 x $4,969)] $39,750.00
Andrea’s position is made redundant on 30 November 2016 after six years of service. Her employer is
Accrued time off in lieu (TOIL) cannot be included in tax free limit $6,059.00
TOTAL $23,655.55
OUTCOME: Only $23,655.00 of Andrea’s final pay will be tax free and shown at lump sum D on her normal
2016/17 payment summary. The payout of accrued TOIL ($6,059.00) will be an ETP and shown only on the
ETP payment summary. ETP’s will be discussed shortly.

4.9.7 Approved early retirement schemes
Conditions for approval

Early retirement schemes will generally be approved when three conditions are met. They are:
 the scheme is available to broad groups of employees. Some examples of broad group of employees
could be
− All the employees of the employer
− All employees who have reached a particular age, or
− All employees who have a particular skill, or
− All employees who make up a particular class approved by the Tax Office.
 the employer's purpose in implementing the scheme is to rationalise or re-organise the employer's
operations by making any change to the employer's operations, or the nature of the work force. Some
examples of this could be:
− cessation or reduction of operations output,
− moving location
− changes to technology therefore changes in skill sets required
 the employer applies to the Tax Office for approval of their scheme before making any payment.
To obtain approval from the Tax Office the employer must apply for a class ruling. Information on how to
apply for a class ruling can be found on the Tax Office website by typing 'how to apply for a class ruling' in
the search field. The ATO can also be contacted on 13 28 66 for more information on how to apply. If
approved, the Tax Office will issue a class ruling to the relevant organization confirming the approval. The
Tax Office has advised that approvals can take on average 3 months to obtain.
What is an early retirement scheme payment?

Generally, the criterion that applies to genuine redundancy also applies to termination under an approved
early retirement scheme.
An early retirement scheme payment is so much of a payment received by an employee because the
employee retires under an approved early retirement scheme as exceeds the amount that could
reasonably be expected to be received by the employee in consequence of the voluntary termination of his
or her employment at the time of the retirement. An early retirement scheme payment must satisfy the
following criteria:
(a) the employee retires before the earlier of the following:

(i) the day he or she turned 65;
(ii) if the employee’s employment would have terminated when he or she reached a particular age or
completed a particular period of service — the day he or she would reach the age or complete the period
of service (as the case may be);
(b) if the retirement is not at *arm’s length — the payment does not exceed the amount that could
reasonably be expected to be made if the retirement were at arm’s length;
(c) at the time of the retirement, there was no *arrangement between the employee and the employer, or
between the employer and another person, to employ the employee after the retirement.
Concessional treatment
The concessional treatment of payments under an approved early retirement scheme are the same as
those that apply to payments made to employees terminated under genuine redundancy. Early retirement
scheme payments are tax free up to a limit based on an employee’s completed whole years of service with
that employer. In 2016/17 the limit is a base amount $9,936 plus $4,969 for each whole year of completed
service.

4.10 Employment Termination Payments (ETPS)
The following payments are examples of ETPs:
 payment for accrued or unused sick leave;

 pay in lieu of notice;
 golden handshakes (a gift to the employee on termination);
 payment for unused Rostered Days Off, flexi-time and time in lieu;
 compensation for loss of job;
 compensation for wrongful or “unfair” dismissal (even if paid sometime after the actual termination);
and
 a payment made because of invalidity (not including compensation for personal injury).
The above list is by no means exhaustive, in fact, virtually any amount you pay to an employee on
termination (excluding annual leave, long service leave and genuine redundancy payments within the tax
free limit) will be an ETP.
Some ETP's such as severance pay, redundancy pay and pay in lieu of notice may form a part of the Lump
Sum D tax free limit when paid in relation to a genuine redundancy. When this occurs, those payments are
no longer ETPs.
Where there is a redundancy/severance payment which is in excess of the tax-free limit at Lump sum D,
the excess will be regarded as an ETP.
Payments that are never an ETP

 Annual leave and Long Service leave
 Reimbursement of legal costs where the amount is capable of being identified as relating specifically a
dispute concerning termination of employment (see TR 2012/8 for more information).
 An amount awarded through an appropriate entity (i.e. Human Rights Commission) for pain and
suffering.
 An amount of compensation paid under a “non-compete” restriction clause.
4.10.1 Completing the PAYG Payment Summary - Employment Termination Payment

The employer fills out the PAYG payment summary - employment termination payment following these
steps:
 Complete employee and employer details;

 Fill in the ETP cash payment details at the ‘Taxable component’ and/or Tax free component fields;
 Enter the amount of tax to be withheld (this is discussed further on);
 Record the ETP code as per the instruction on the form – this is now required as a result of the 'Whole
of income cap' and is used for the Tax Office to determine the reason for the employee's termination.
Where more than one code applies due to multiple payments, an ETP payment summary needs to be
completed for each payment to which the different codes relate (this will be discussed shortly)
 Give the employee 1 copy of the PAYG payment summary - employment termination payment within
14 days;
 Send the tax withheld with the next PAYG remittance;
 Keep one copy of the PAYG payment summary - employment termination payment on file and send
one to the Tax Office by 14 August following the end of the financial year.
Generating the payment summary in the payroll software – PAYG payment summary - employment
termination payment forms can be generated in most commercially available payroll software programs.
Contact your payroll software provider to find out how this can be facilitated.
Manually completing a hard copy – An ETP payment summary cannot be downloaded but it can be
obtained by calling the ATO on 1300 720 092 and quoting NAT 70868 - PAYG payment summary -
employment termination payment or by using the on-line ordering system at:
http://business.iorder.com.au/
The ETP Payment Summary is not required if the only amount(s) being paid to the employee are annual
leave, long service leave, leave loading, or any redundancy payments below the tax free genuine
redundancy threshold amounts, as these amounts are not ETPs.
Amounts shown on an employee’s ETP payment summary are not shown on the employee’s PAYG
Individual non business payment summary.

4.11 Treatment of an ETP
The ‘Tax free component’ field on the ETP payment summary only applies to employees who commenced
before 1 July 1983 and / or employees who are being paid an amount for invalidity or death as a part of
the termination. All other amounts are shown in the ‘Taxable component’ field.
Never record the tax free portion of a genuine redundancy in the ‘Tax free component’ field on the ETP
payment summary.
4.11.1 Calculating taxable and tax-free components for employees who commence
employment before 1 July 1983
Where an employee commenced employment prior to 1 July 1983 and is receiving an ETP on termination,
the dollar value of both the taxable and tax free components needs to be calculated. This is the case
because the amount that accrued prior to 1 July 1983 is tax free and shown in the tax free component field
on the ETP payment summary.
The formula used to apportion an ETP is:
Days of employment before 1 July 1983
× Total amount of ETP
Total days of employment
Example – Mark commenced employment in 1980 and receives ETP on termination

Mark commenced employment on 22 February 1980. He is terminated on 15 May 2017 and on termination
he receives an ETP of $146,000. To determine the split between the tax-free and taxable components of
the ETP the above formula is used.
Days of employment before 1 July 1983 = 1225

Total days of employment = 13,598
1,225
× $146,000 = $13,152.67
13,598
The portion that accrued before 1 July 1983 the (tax free component) is $13,152.67. The taxable
component will be determined as follows: $146,000.00 – $13,152.67 = $132,847.33. The taxable
component is $132,847.33
4.11.2 Tax to be withheld from the taxable component of an ETP

Age as at 30 June Rate of tax 2016/17
1
Under preservation age 32% up to $195, 000
49% on excess over $195,000
1
Preservation age or older 17% up to $195, 000
49% on excess over $195,000
1
These rates increase to 49% where the amount is subject to the whole of income cap
What is preservation age?

Date of Birth Preservation age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
From 1 July 1964 60

4.11.3 The whole of income cap
Generally the ‘whole of Income cap’ applies to high income earners who are resigning or retiring and
receiving an ETP. If that ETP brings the employee’s taxable income for the year to over $180,000 (the
whole-of-income cap) the excess over $180,000 will be taxed at the employees’ marginal rate of tax. The
marginal rate for high income earners is 49%. The whole of income cap does not apply to employees who:
 do not receive an ETP on termination;
 receive genuine redundancy payments (or who would have but for existing age or retirement
restrictions on genuine redundancy payments) NOTE: ETP payments made on redundancy which
would have paid to the employee whether or not the employee was made redundant, will still be
subject to the whole of income cap e.g. pay out of RDOs;
 lose their job due to invalidity (regardless of how close to retirement);
 receive compensation due to a genuine employment-related dispute relating to personal injury,
harassment, discrimination or unfair dismissal (where the payment is currently considered an ETP), or
 receive a death benefit ETP.
Amounts included when calculating if an ETP is subject to the whole of income cap
When determining whether an employee has reached the whole of income cap, employers need to include
the following amounts in their calculations:
 salary or wage income (including payments for overtime)

 bonuses
 accrued leave you may have been paid when your job was terminated
 5% of an amount shown at lump sum B on the payment summary
 the taxable component of an employment termination payment not arising from:
− an excess over the tax free portion of a redundancy
− invalidity;
− a compensation payment received due to a genuine employment-related dispute relating to
personal injury, harassment, discrimination or unfair dismissal, or
− death.
Amounts excluded when calculating if an ETP is subject to the whole of income cap
The following amounts will not be included for whole of income cap purposes:
 reportable fringe benefits

 salary sacrifice items
 super guarantee
 reportable employer super contributions
 reimbursements of work-related expenses
 the tax free portion of a redundancy
 taxable component of an ETP arising from:
− an excess over the tax free portion of a redundancy
− invalidity;
− a compensation payment received due to a genuine employment-related dispute relating to
personal injury, harassment, discrimination or unfair dismissal, or
− death.

ETP payment type code
Each ETP payment summary issued by an employer must contain an ETP Code to assist the Tax office in
determining whether or not the ETP payment is subject to the whole of income cap. The most commonly
used codes are ‘R’ and ‘O’.
Code Description
R ETP because of:
• early retirement scheme
• genuine redundancy (even if the employee has not received a tax-free amount because he/she has
reached 65 years of age)
• invalidity or
• compensation for personal injury; unfair dismissal; harassment or discrimination
O Other ETP not described by R, for example, golden handshake, gratuity, payment in lieu of notice, payment
for unused sick leave, payment for unused rostered days off
Multiple payments for same termination

Code Description
S This is a code R payment and you made one of the following payments to your employee in a previous
income year for the same termination:
• a code R payment
• a code O payment
P This is a code O payment and you made one of the following payments to your employee in a previous
income year for the same termination:
• a code R payment
• a code O payment
Death benefit ETP
Code Description
D Death benefit ETP paid to a dependant of the deceased
B Death benefit ETP paid to a non-dependant of the deceased and you made a termination payment to the non-
dependant in a previous income year for the same termination
N Death benefit ETP paid to a non-dependant of the deceased
T Death benefit ETP paid to a trustee of the deceased estate
Whole of income cap examples
Example: Jenny has worked for Slade Pty Ltd. for 11 months. Her annual salary is $54,600. On 15 July 2016,
at age 24 Jenny is terminated by her employer due to poor performance. In addition to her leave
entitlements of $4,300, the company pays her one week’s pay in lieu of notice of $1,050. ETP CODE O
Total paid to employee for financial year Amount
Salary and wages (2 weeks) $2,100
Leave entitlements on termination $4,300
Pay in lieu of notice (ETP) $1,050
Total $7,450
Proportion above whole of income cap $7,450 – $180,000 = $Nil

Outcome: ETP of $1,050 can be taxed at 32% (not 49%) because the total of all payments received falls within the
whole of income cap

Example: Dianne has worked for Sample Pty Ltd. for 11 years. Her annual salary is $164,000. On 30 March
2017, at age 56 she retires early. In addition to her leave entitlements of $21,000, the company pays her a
golden handshake payment of $76,000.ETP CODE O
Salary and wages (39 weeks) $123,000
Golden handshake (ETP) $76,000
Total $220,000
Proportion above whole of income cap $220,000 – $180,000 = $40,000

Outcome: $40,000 of the ETP will be taxed at 49% because this portion falls outside the whole of income cap. The
remaining $36,000 (not subject to the whole of income cap) will be taxed at 17% (employee over preservation age).
Income earned after termination will also be included in whole of income cap
Employers only calculate whether an employee is subject the whole of income cap, on amounts that the
employee has received from the employer in the current financial year. In many cases, especially where a
termination occurs earlier in the financial year, an employee would not have reached the whole of income
cap and normal rates apply. However, if that employee goes on to earn income which takes him/her over
the whole of income cap, the Tax Office will adjust the tax rate on the employee’s ETP when they lodge
their tax
Example: Donna has worked for Sample Pty Ltd. for 7 years. Her annual salary is $196,000. On 30 July
2016, at age 46 she resigns to take up a position with a rival firm. In addition to her leave entitlements of
$17,500, the company pays her a 4 weeks pay in lieu of notice.ETP CODE O
Salary and wages (1 month) $16,333
Pay in lieu of notice (ETP) $15,077
Total $48,910
Proportion above whole of income cap $48,910 – $180,000 = NIL$
Outcome: None of the ETP will be subject to the whole of income cap. The ETP of $15,077 will be taxed at 32%.
Donna contacts her new employer to inform them that she can commence her new role immediately. She
commences on the following Monday. Her annual salary is $230,000. She goes on to earn $210,833 with
her new employer for the financial year.
When Donna lodges the her tax return the Tax Office increase the tax rate on the ETP paid by Sample Pty
Ltd to 49% as Donna has now reached the whole of income cap. Donna will receive an additional tax bill for
$2,563.09.

4.12 ETP examples
Example: Sandy is terminated on the grounds of performance and receives pay in lieu of notice and
payment of accrued rostered days off
Employee Name: Sandy Smith
Preservation age (born before 1 July 1960): 60 years
Hourly rate: $32.39
Sandy’s employment is terminated on 31 December 2016 due to performance. She was employed for just
over 2 years. Management request that Sandy finish up immediately. Her employer will pay her 2 weeks
in lieu of notice and 3 days TOIL.
Is the ETP subject to the whole of income cap? Amount
Included payments received during 2016/17
Salary year to date $32,000.00
Annual leave on termination –43 hours $1,392.77
Pay in lieu of notice (ETP) – 2 weeks $2,461.54
Accrued time off in lieu (TOIL) (ETP) – 3 days $738.50
TOTAL $36,592.81
Amount of ETP above the whole of income cap ($36,592.81 — $180,000.00) NIL
OUTCOME: The whole of income cap will not apply. The amounts of $2,461.54 and $738.50 will be shown
on the ETP Payment summary as follows:
ETP taxable ETP tax rate ETP tax withheld ETP
component Code
$3,200 32% (Employee is below preservation age and the ETP $1,024 O
is less than $195,000)

Example: Michael resigns from his position
Employee Name: Michael Shaw
Preservation age (born between 1 July 1951 and 30 June 1952): 57 years
Hourly rate: $76.42
Michael resigns from his position on 31 December 2016 to take up a role with another organisation. He
was employed for just over 12 years. Management request that Michael finish up immediately. He is paid
2 weeks in lieu of notice, leave entitlements and a golden handshake.
Accrued annual leave on termination –43 hours $3,286.06
Accrued long service leave on termination – 10.483 weeks $30,441.06
Golden handshake (ETP) $200,000.00
TOTAL $315,034.82
Amount of ETP above the whole of income cap ($315,034.82 — $180,000.00) $135,034.82
OUTCOME: The whole of income cap will apply as the total taxable income for the year, to date, is more
than whole of income cap. The employee’s ETP of $205,807.70 ($200,000.00 + $5,807.70) will be taxed as
follows and appear on the ETP payment summary as follows:
component Code
$135,034.82 49% (Payment subject to whole of income cap) $66,167.06
$70,772.88 32% (Employee is below preservation age) $22,647.32
$205,807.00 $88,814 O

Example: Elizabeth, aged 65, is made redundant after 14 years service
Employee Name: Elizabeth Brown
Preservation age (born before 1 July 1960): 55
Hourly rate: $36.95
NIL (employee 65 years
Tax free limit of age)
Elizabeth’s position is made redundant on 31 December 2016 after 14 years of service. She is paid:
Pay in lieu of notice $7,019.25
Redundancy pay $16,846.20
$23,965.45
Because Elizabeth is 65 years of age, her tax free limit for redundancy is nil. The whole amount will be an
ETP.
OUTCOME: The whole of income cap will not apply as a result of the termination being a redundancy and
the ETP payments relating only to that redundancy. (This is the case even though the employee is 65
years of age). The entire amount of $23,965.45 will be an ETP and shown on the ETP payment summary.
component Code
$23,965.00 17% (Employee has reached preservation age and ETP $4,074.00 R
is less than $195,000)

Example: Ruth resigns after 8 years service and is paid pay in lieu of notice
Employee Name: Ruth Bloggs
Hourly rate: $68.32
Ruth resigns from her employment on 31 December 2016 after eight years of service giving 2 weeks’
notice. Management request that Ruth finish up immediately. She will receive the notice period as pay in
lieu of notice.
Annual leave on termination – 289 hours $19,744.48
TOTAL $92,436.80
Amount above the whole of income cap ($92,436.80 — $180,000.00) NIL
OUTCOME: The whole of income cap will not apply. The amount of $5,192.32 will be shown on the ETP
Payment summary as follows:
component Code
$5,192.00 17% (Employee has reached preservation age and the $882.00 O
ETP is less than $195,000)

Example: John retires after 19 years service and receives a golden handshake
Employee Name: John Jones
Retirement Date: 31 December 2016
Hourly rate: $58.71
John retires from his employment on 31 December 2016 after nineteen years of service. He worked out
his notice period. Management decide to pay him a golden handshake of $65,000 as a reward for his
years of loyal service.
Annual leave on termination – 180 days $80,307.72
Long service leave on termination $36,734.09
Golden handshake $65,000.00
Total $240,041.81
Amount above the whole of income cap ($240,041.81 — $180,000.00) $60,041.81
OUTCOME: The whole of income cap will apply as the total taxable income for the year, to date, is more
than whole of income cap. The employee’s ETP of $65,000 will be taxed as follows:
component Code
$60,041.81 49% (Payment subject to whole of income cap) $29,420.48
$4,958.19 17% (Employee has reached preservation age) $842.89
$65,000.00 $30,263.37 O

Example: Andrea is made redundant after 6 years service and receives termination pay that includes
the payout of flexi-time
Employee Name: Andrea Reed
Preservation age (born after 1 July 1964): 60
Redundancy: 31 December 2015
Hourly rate: $41.50
Tax free limit [$9,936 + (6 x $4,969)] $39,750.00
Andrea’s position is made redundant on 31 December 2016 after six years of service. Her employer is
obligated to pay her pay in lieu of notice, redundancy pay, accrued leave entitlements and her accrued
flexi-time.
Pay in lieu of notice (4 weeks) Lump sum D excluded for whole of income cap purposes $6,306.96
Redundancy pay (11 weeks) Lump sum D excluded for whole of income cap purposes $17,344.14
Accrued flexi-time – 146 hours (ETP) $6,059.00
Pro- rata long service leave – 5.276 weeks $8,318.88
Accrued annual leave – 174 hours $7,221.00
TOTAL $55,765.54
OUTCOME: The whole of income cap will not apply, as eligible income is not above the whole of income
cap amount of $180,000. The employee’s ETP of $6,059.00 will be shown on the ETP Payment summary:
component Code
$6,059 32% (Employee has not reached preservation age and $1,938 O
the ETP is less than $195,000)

Example: Sam is made redundant after 8 years service and is paid an amount in excess of his tax free
limit
Employee Name: Sam Bloggs
Preservation age (born before 1 July 1960): 55
Hourly rate: $68.32
Tax free limit [$9,9336 + (7 x $4,969)] $44,719.00
Sam’s position is made redundant on 31 December 2016 after 7 years of service. At that time, his
employer is obligated to pay him the following:
 Pay in lieu of notice $12,980.80
 Redundancy Pay $33,750.08
 Accrued flexi-time $7,241.92
 Accrued annual leave $7,788.48
 Accrued long service leave $18,214.66
TAX FREE LIMIT OUTCOME: Only $44,719 of Sam’s final pay will be tax free and shown at lump sum D on
his normal 2016/17 payment summary as this is his maximum tax free limit based on years of service. The
remaining $2,011.88 ($46,730.88 – $44,719) will be an ETP and shown only on the ETP payment summary.
The accrued flexi-time of $7,241.92 will also be an ETP.
Amount tax free at lump sum D excluded for whole of income cap purposes $44,719.00
Amount in excess of tax free limit excluded for whole of income cap purposes (ETP) $2,011.88
Accrued flexi-time –146 hours (ETP) $7,241.92
Pro- rata long service leave – 7.016 weeks $18,214.66
Accrued annual leave – 15 days $7,788.48
TOTAL $100,745.06
ETP OUTCOME: Sam will be issued with two ETP payment summaries as both the ETPs being paid have
different ETP codes. The ETP which is an amount in excess of the tax free limit is a code ‘R’. The ETP for
flexi-time is a code ‘O’. The whole of income cap will not apply to either ETP as the employee’s taxable
income for the year, to date, is less than the whole of income cap. The employees’ ETPs will be taxed as
follows:
ETP ETP Taxable ETP tax rate ETP tax withheld ETP
payment component Code
summary
1 $2,011.88 17% (Employee has reached preservation $342.00 R
age and the ETP is less than $195,000)
2 $7,241.92 17% (Employee has reached preservation $1,231.00 O
age and the ETP is less than $195,000)

ETP Payment Summary 1 – Sam Bloggs
ETP Payment Summary 2 – Sam Bloggs

4.13 Other issues –taxing termination pay
12 Month Rule
A payment must be received within 12 months of the employee's termination date to qualify as an
employment termination payment. However, depending on the circumstances the Tax Office may allow a
payment received after this period to be considered as an employment termination payment for tax
purposes. This is the case where the delay is due to commencement of legal action concerning either
party. All other circumstances will be considered on a case by case basis.
Payments received outside 12 months will be taxed as ordinary income at marginal tax rates and recorded
on the PAYG Individual Non-business Payment Summary.
Eligible Service Period

When paying termination payments, at times, employers must calculate the eligible service period of the
employee. This is used to calculate the dollar amount of each ETP component. The eligible service period is
the total number of calendar days from the date the employee commenced, until the date the employee
ceased being employed.
The total number of days includes weekends, public holidays and periods of annual leave and long service
leave. Periods of unpaid leave are usually not included. Generally, the eligible service period is the
employee’s most recent continuous period of employment with you. If the employee has broken periods
of employment (such as leave without pay or being re-employed after resigning), the employer adds up
the periods that apply to the payment.
Employee has variation notice in place

For termination pay, if an employee has a valid variation of withholding letter in place issued by the Tax
Office, the employer should still withhold from a termination payments at the general rates, not at those
rates stated on the employee's variation letter.
Date calculator
The ‘duration between two dates’ calculator allows employers to calculate the duration between two
dates with ease. Access it on the ATO website at:
http://calculators.ato.gov.au/scripts/axos/axos.asp?CONTEXT=&KBS=Calculate_Days.xr4&go=ok

4.14 Invalidity Payments
This applies where a person’s employment is terminated by reason of his/her physical or mental incapacity
to engage in that occupation. It is a requirement that two legally qualified medical practitioners have
certified that the disability is likely to result in the person being unable ever to be employed in a capacity
for which he or she is reasonably qualified because of that person's training, education or experience.
To qualify, the termination must be before the last date on which the employee would normally have had
to leave that employment, or the employee’s 65th birthday, whichever is the earlier.
4.14.1 Treatment of annual leave and long service leave on invalidity

Where a person’s employment is terminated by reason of his/her physical or mental incapacity, annual
leave and long service leave are treated as follows:
Annual Leave Show at: Tax At:

Accrued before 18 August 1993 Lump Sum ‘A’ 32%
Accrued after 17 August 1993 Lump Sum ‘A’ 32%
Long Service Leave Show at: Tax at:
Accrued before 16 August 1978 Lump Sum ‘B’ 5% × Marginal rate
Accrued after 15 August 1978 but before 18 August 1993 Lump Sum ‘A’ 32%
Accrued after 17 August 1993 Lump Sum ‘A’ 32%
4.14.2 Invalidity ETPs

ETPs paid as a result of invalidity, require the employer to calculate the tax-free and taxable components.
The pre-July 1983 and invalidity amounts are tax-free and the post-June 1983 amount is taxable. The
formula to calculate the tax-free invalidity portion of a payment is:
(𝐴 × 𝐵)
𝐶
where:
A = the full amount of the ETP;
B = the number of whole days between the date of termination and the date of retirement (should
the person have continued working). The male retirement age is 65. The female retirement age
varies depending on the employee's date of birth - see table below;
C = the number of whole days of the employee’s service plus (+) the number of whole days
calculated under (B).
OFFICIAL RETIREMENT AGE Current PROPOSED RETIREMENT AGE Proposed

Female employees retirement Female and Male employees retirement
qualification qualification age
age for younger
Date of Birth Date of Birth workers
1 July 1935 to 31 December 1936 60.5 1 July 1952 to 31 December 1953 65.5
1 January 1937 to 30 June 1938 61 1 January 1954 to 30 June 1955 66
1 January 1949 to 30 June 1952r 65 1 January 1966 onwards 70

Invalidity example
Example – James is 64 years old. His date of birth is 01/04/1952. He commenced employment with his
current employer on 1 January 2003 and left due to invalidity on 1 July 2016 after presenting his employer
with letters from two doctors certifying that he was no longer able to work in his current role due to
illness. He received the following:
 Annual leave $ 4,563.80
 Long service leave $ 8,979.50
 Pay out of time in lieu $ 456.20
 Golden handshake $ 30,000.00
The taxation of his final pay is as follows:
Annual leave and long service is taxed at 32% and shown at Lump Sum A on his normal 2016/17 payment
summary.
The remaining payout of time in lieu and the golden handshake are invalidity ETP’s and are treated as
follows:
($30,456.20 × 275)
= $1,609.43
5,204
The amount of $1,609 is tax free and is shown in the tax free component field on the ETP payment
summary. The remainder ($28,846) is shown in the taxable component field on the ETP payment summary
and taxed at 17%.
ETP Taxable ETP Tax free ETP tax rate ETP tax ETP
component component withheld Code
$1,609.00 Nil $Nil
R
17% (Employee has reached preservation age and
$28,846.00 $4,991.00
the ETP is less than $195,000)

4.15 Lump Sum Payments on Death of an Employee
Who is
Amount
Payment Type receiving the Details on the payment summary Tax to be withheld
2016/17
payment?
Spouse or Not applicable — not recorded on a
Unused All amounts Nil
dependant payment summary
annual leave
and long Trustee of Not applicable — not recorded on a
service leave estate or All amounts payment summary Nil
other
Spouse or Not applicable — not recorded on a
Normal pay for All amounts Nil
dependant payment summary
hours worked,
owing as at Trustee of Not applicable — not recorded on a
date of death estate or All amounts payment summary Nil
other
Dependant or Not applicable — not recorded on a
Up to $195,000 Nil
spouse payment summary
Dependant or Dependant or spouse name recorded
spouse Over $195,000 on ETP payment summary. Amount 49%
shown in taxable component field
All other Trustee of Trustee of estate’s name recorded on
payments — estate All amounts ETP payment summary. Amount Nil
Death Benefit shown in taxable component field
ETP
All other Non-dependant’s name recorded on
cases (non- Up to $195,000 ETP payment summary. Amount in 32%
dependant) taxable component field
All other Non-dependant’s name recorded on
cases (non- Over $195,000 ETP payment summary. Amount 49%
dependant) shown in taxable component field
4.15.1 Other important information in relation to payments after death of an employee
Employees who commenced before 1 July 1983

Where the deceased employee commenced employment prior to 1 July 1983 and a death benefit ETP is
being paid, the payment will be apportioned between pre-July 1983 and post-June 1983. The pre July-1983
component will have no tax applied regardless of who is receiving the payment and how much it is.
Who is a Dependant
A dependant for "death benefit ETP" purposes is:
 a surviving spouse/ex-spouse or de facto spouse (including a same sex partner);

 a child of the deceased, who is under 18 years old;
 any person who is financially dependent on the deceased employee at the time of the employee's
death, or at the time of the payment of the ETP - Financially dependent on the deceased means the
deceased employee contributed all, or the majority, of the financial support. Children over 18 must be
financially dependent to qualify as dependants.
Amounts paid to the Trustee of the Estate

Although there is no requirement for an employer to withhold from an ETP death benefit paid to the
'Trustee of the Estate', the amounts paid to the 'Trustee of the Estate' will eventually be taxed at the
appropriate rate by the Tax Office depending on whether the recipient is a dependant or a non-dependant.

4.16 Summary of all Payments on Termination
Payment type REASON FOR TERMINATION
All Cases (excluding
Redundancy, Approved Early
Redundancy, Approved
Retirement & Invalidity
Retirement & Invalidity)
Where to show Where to show
on normal Tax on normal Tax
payment Withholding payment Withholding
summary summary
Gross
Annual Leave & leave loading** Marginal* Lump Sum ‘A’ 32%
payments
Long Service Leave**
5% × 5% x
Accrued before 16/08/78 Lump Sum ‘B’ Lump Sum ‘B’
Marginal* Marginal*
Accrued between 15/08/ and 18/08/93 Lump Sum ‘A’ 32% Lump Sum ‘A’ 32%
Gross
Accrued after 17 August 1993 Marginal* Lump Sum ‘A’ 32%
payments
Tax Free Amounts - Genuine
Redundancy and Approved Early
N/A N/A Lump Sum ‘D’ Nil
retirement schemes - up to set
limit***
* These amounts are subject to withholding at the employee’s marginal rate of tax. To calculate the
correct tax to withhold, use the same method as for bonuses, and treat the lump sum payment as
being applicable to a 12 month period.
** No tax is withheld from accrued leave paid to a deceased employee and no amount is recorded on
the PAYG payment summary **
*** For 2016/17 the set limits are a base amount of $9,936 plus $4,969 for every whole year of
service
EMPLOYMENT TERMINATION PAYMENTS (ETPs) 2016/17 ****
Where to show on ETP Tax

ETP accrued after 30/06/83
payment summary Withholding
Over preservation age - up to and including $195,000 Taxable component 17%

Over preservation age - above $195,000 Taxable component 49%
Under preservation age- up to and including $195,000 Taxable component 32%
Under preservation age - above $195,000 Taxable component 49%
High income employees resigning/retiring where total income ETP paid in excess
received from employer including salary/wages, leave of whole of income
Taxable component
entitlements and ETP is over the whole of income cap of cap ($180,000)
$180,000 taxed at 49%
ETP accrued before 01/07/83 Tax-free component Nil

ETP invalidity component Tax-free component Nil
**** - DEATH BENEFITS - For all deceased employee scenarios see table on previous page

5 THE SUPERANNUATION GUARANTEE
All payers/employers in Australia are required to contribute a certain minimum amount towards
superannuation support for their workers/payees.
In most cases, superannuation contributions are a tax deduction for the payer. However, payers who do
not provide the required minimum level of superannuation support are subject to the Superannuation
Guarantee Charge, which is not a tax deduction for the employer.
This Superannuation Guarantee Charge is based on the shortfall in employer superannuation contributions
and has to be paid to the Tax Office, along with an administrative charge and an amount representing lost
superannuation fund earnings.
5.1 Types of Superannuation funds

Accumulation funds (these type of funds are covered here)
Most Australians have their superannuation in an accumulation fund. They are called ‘accumulation’ funds
because members' money grows or ‘accumulates’ over time. The value of the member's superannuation
depends on:
 How much money the employer contributes;
 How much extra the employee contributes;
 How much the fund earns from investing the members super;
 The amount of fees charged; and
 The investment option chosen by the member.
Investment profits are added to the members account, and investment losses are taken out. In an
accumulation fund the member bears the risk that their super payout will be lower if financial markets
drop.
Defined benefit funds

Defined benefit funds are less common than accumulation funds. Most defined benefit funds are
corporate or public sector funds and many are now closed to new members. Some defined benefit funds
are very generous and the value of the members retirement benefit is defined by the fund rules. Member’s
benefits are not dependent solely on contributions and earnings but instead on:
 How much money is contributed by the employer;
 How much extra the employees contributes;
 How long the employee has worked for the employer; and
 The employee’s salary when they retire.
In a defined benefit fund, the employer or the fund generally takes on the investment risk.
Hybrid super funds

Super funds which can provide a combination of both accumulation benefits and defined benefits are
known as hybrid funds. Hybrid funds can provide a:
 a defined benefit (which is a percentage of your final average salary), which may be defined by a
formula based on your final super salary, your length of contributory service and your age at exit
 an accumulation benefit based on the member’s own contributions plus earnings on those
contributions.
Constitutionally protected funds

Constitutionally protected funds (CPFs) are untaxed super funds that do not pay income tax on
contributions or earnings they receive. CPFs are operated by some state governments in Australia for their
employees. Under the Australian constitution, state government assets can’t be taxed, so different
arrangements apply to concessional contributions to CPFs. Funds created for members of the judiciary are
also often constitutionally protected funds.
Taxation Seminar Section 5 — The Superannuation Guarantee Page 195

5.2 Minimum Level of Superannuation Guarantee Contributions
The superannuation guarantee will remain at the current 9.5% until the 2020/21 financial year; it will then
increase at a rate of 0.5% per year from 1 July 2021 until reaching 12% on 1 July 2025.
Year Minimum Contribution Year Minimum Contribution

2015/16 9.5% 2021/22 10.0%
2016/17 9.5% 2022/23 10.5%
2017/18 9.5% 2023/24 11.0%
2018/19 9.5% 2024/25 11.5%
2019/20 9.5% 2025/26 12.0%
2020/21 9.5% 2026/27 12.0%
5.2.1 Which rate to apply

The applicable superannuation guarantee rate is based on the date the employees are paid their wages.
Example 1 - Monthly payroll is paid on 15 July 2021 for the period 15 June 2021 to 15 July 2021. The wages
were paid in the 2021/22 financial year therefore the superannuation guarantee rate of 10% will be
applied for the full months’ pay. This is the case even those a portion of the wages were earned in the
2020/21 financial year.
Example 2 - Fortnightly payroll is paid to employees on 25 June 2021, however the superannuation
contributions were not paid into the employees’ superannuation funds until 7 July 2021. The 9.5% rate will
apply to this pay, as wages were paid prior to 1 July 2021 in the 2020/21 financial year.
5.2.2 SG percentage increase– impact on salaried/packaged employees

Employers will need to review contracts to determine whether any changes need to take place to
employee’s contracts prior to the increase in the superannuation guarantee rate. Review wording in
employment contracts and take action where needed.
 Contract states ‘Salary plus the minimum superannuation guarantee contributions required to avoid
the superannuation guarantee charge’ – no amendments will be required to these clauses to reflect
the increases. All employers need to do in this case is ensure that superannuation contributions are
made at the correct rates. This will result in an increase in the employees' overall remuneration
although the salary will remain the same.
 Contract states ‘Salary plus the minimum superannuation guarantee contributions required under
the Superannuation Guarantee Act (1992)’ – no amendments will be required to these clauses to
reflect the increases. All employers need to do in this case is ensure that superannuation contributions
are made at the correct rates. This will result in an increase in the employees' overall remuneration
although the salary will remain the same.
 Contract states ‘Salary plus 9.50% superannuation’ – Employers must make contributions in line with
the increases. This will result in an increase in the employees' overall remuneration although the salary
will remain the same. A variation to existing employment contracts can be sought so that they no
longer specify an incorrect superannuation rate. Instead, the variation could require contributions at
the minimum level required to avoid the superannuation guarantee charge. This could be
implemented with employee agreement, for example, at pay review time.
 Contract states ‘Total Remuneration Package (TRP), inclusive of superannuation’ – Under this kind of
formulation, the employee's cash take home pay may be able to be reduced to absorb the increase to
the superannuation guarantee contribution. However, this approach is likely to result in questions or
complaints. Whether the employer decides to maintain an employee's cash take home pay or decrease
the employee’s cash take home pay, the employees’ contract will have to be varied to reflect the new
pay structure.
Page 196 Section 5 — The Superannuation Guarantee Taxation Seminar

5.2.3 Determining the superannuation guarantee portion of an all-inclusive amount
There are times when an employer will need to determine which part of an employee’s entire package is
superannuation guarantee. This is also the case where an employee receives an all inclusive bonus or
similar payment.
When this is required, the amount in question is divided by 1.095 as follows:

Example: Employees receive an all inclusive bonus
Sample Co. decides to pay all employees a discretionary bonus after the company performed well over a
particular period. It is decided that each employee, regardless of salary, receive a $2,300 bonus inclusive of
superannuation guarantee. The employer divides the payment into gross wages and superannuation
guarantee as follows:
$2,300/1.095 = $2,100.46 (Bonus excluding superannuation guarantee)

$2,300 - $2,100.46 = $199.54 (Superannuation guarantee)
Check to confirm: $2,100.46 x .095 = $199.54
5.2.4 Tax File Number & Superannuation Funds

When an employee completes a tax file number declaration form (NAT 3092) the employer must pass the
TFN on to the superannuation fund. It must be passed on to the employee's fund by whichever is the later
of the following:
 for new employees – when the first contribution is made for them;
 for existing employees – when the next contribution is made for them; or
 within 14 days after receiving their Tax file number declaration (NAT 3092) form.
This does not apply if the employer does not make employer contributions, for example, where the
employee earns less than $450 in a calendar month.
Employers could face penalties if they do not pass an employee’s TFN within the required time frame.
Similarly, employees may face significant consequences, for example, their employer contributions will be
taxed an additional 34% once those contributions exceed $1,000 in an income year. This includes the first
$1,000. Additionally, super funds may not be able to accept personal contributions where a TFN is not
quoted. This means eligible employees could miss out on receiving a government super co-contribution.
This extra tax is calculated at the end of each year by the superannuation fund.
Superannuation fund will forward no TFN contributions to Tax Office

Where an employer does not forward the employee’s TFN to the superannuation fund, contributions may
be forwarded to the Tax Office. The employer will have 6 months to inform the superannuation fund of the
employees TFN. In the case where the superannuation fund is not informed of the TFN within 6 months,
the fund will be required to send the contributions to the Tax Office. The contributions will be treated as
unclaimed money.
5.2.5 Deadlines for Superannuation Contributions

Please note: The Tax Office do not extend superannuation guarantee payment deadlines under any
circumstances.
For superannuation guarantee purposes, each quarter is considered a contribution period. Therefore,
employers should reconcile their superannuation contributions quarterly to establish whether the
appropriate payments have been made. It is important to remember that the minimum level of support
has to be calculated in respect of each individual employee, and not on a collective basis. If a discrepancy is
found in relation to contribution amounts, employers can make up the difference at the end of each
quarter.

Superannuation Guarantee (Employer Contributions) Deadlines
Employers must pay superannuation guarantee contributions at least every quarter, by the 28th day
following the end of the relevant quarter. Employers’ who have always made more frequent contributions
due to the conditions of their fund, an award obligation, a workplace agreement or through personal
choice, should continue to do so.
Employers who fail to pay the required amount of superannuation support by the due date will be
required to lodge a Superannuation Guarantee Statement and pay the superannuation guarantee charge
to the Tax Office. The due dates for superannuation guarantee contributions are shown in the table
following:
Superannuation Guarantee Quarter Due Date for Payment of Super Guarantee Contributions
1 July - 30 September 28 October
1 October - 31 December 28 January
1 January - 31 March 28 April
1 April - 30 June 28 July
Note: Contributions paid via a clearing house are not considered as having been made until the actual date
that the complying fund receives the payment, with exception of the ATO Small Business Clearing House.
Salary sacrifice employer contributions (Employer Contributions) – No deadlines under superannuation

legislation
There is no requirement for contributions in excess of the superannuation guarantee to be paid quarterly.
These contributions (usually referred to as salary sacrifice) are not subject to the legislation which enforces
the quarterly payment of superannuation guarantee amounts. It is however recommended that these
contributions are paid to the super fund promptly, in accordance with the terms of their employment and
any legal requirement (that is, industrial award conditions).
Voluntary employee super contributions (contributions withheld from net salary –Employee Contributions)
Employers are obligated to send employees’ voluntary superannuation contributions to the
superannuation fund before the 28th of the following month. This requirement prevails over any contrary
provision stated in specific awards. Failure to comply with this requirement may result in the employer
being liable to significant penalties of up to $5,500 for an individual employer or $27,500 for a company.
The relevant Superannuation Circular (Number IA2 Section 64 of SIS - Prompt Remission of Contributions)
can be found in the superannuation section of the APRA website at www.apra.gov.au.
Deadlines in relation to clearing houses

In relation to superannuation guarantee contributions made through a clearing house, it’s counted as
being paid on the date the superannuation fund receives the contribution, not the date the clearing house
receives it (unless contributing through the Small Business Superannuation Clearing House service –
employers should check further on in this Section for more details).
Check with the clearing house to make sure enough time is allowed for superannuation guarantee
payments to be processed before the quarterly cut-off dates. If the clearing house is late in transferring the
payment to the superannuation fund, the employer will incur a superannuation guarantee charge and will
need to complete a Superannuation guarantee charge statement - quarterly (NAT 9599).
Payments can be made up to 12 months in advance

Under the Superannuation Guarantee Act the Tax Office can take into account, for superannuation
guarantee charge purposes, contributions made up to 12 months in advance. Ruling SGD 2003/6 states
that when an employer has made a payment of superannuation in advance, it can be divided into separate
contributions for:
 any quarter which ended within the previous 28 days; or
 the current quarter; or

 any later quarter(s) which start within 12 months of the day on which the payment was made but only
if the employer specifies how to allocate a payment. Where there has been no allocation, the Tax
Office will assume that it is a contribution for the previous quarter.
Important facts about end of year superannuation contributions

 The normal deadline for June SG contributions of 28 July 2017. There are no deadlines for super salary
sacrifice contributions.
 For the employer to claim the tax deduction in the 2016/17 financial year, contributions it must be
paid to the superannuation fund by 30 June 2016. If it's paid after 30 June the tax deduction will be
claimed in 2017/18.
 Any amounts paid after 30 June 2017 will be included in your employees’ concessional cap for 2017/18
not 2016/17. It's not the employer’s responsibility to monitor the effect of this on the employee’s cap.
 Any amounts for salary sacrifice that are deducted from the employee’s pay in the 2016/17 financial
year will still be included in the RESC field on the payment summary for 2016/17 whether they are paid
to the fund before and after 30 June 2017.
5.2.6 The Superannuation Guarantee Charge – Penalty for Overdue Superannuation

Guarantee Contributions
If you have paid late but you generally pay on time
If you have paid superannuation for your employees but paid late and you generally pay on time, the ATO
state on their website that they are unlikely to pursue lodgement of SGC statements if you top up the
employee's fund account with a reasonable amount to compensate for lost interest.
This does not apply to employers who have paid late and generally don't pay on time. In that case the
employer will need to lodge SGC statement.
Employers are required to self-assess whether they have a Superannuation Guarantee shortfall. A shortfall
is simply the difference between the minimum level of superannuation contributions which should have
been made by the employer, and the amount of contributions which were actually made.
Penalties
The superannuation guarantee charge is made up of:
 the employee’s superannuation guarantee shortfall amount (i.e. the superannuation the employer
failed to pay or paid late). Where an employer has paid superannuation contributions late, the full
amount of the late payment is recorded on the Superannuation Guarantee Charge statement in the
‘Late payment offset’ field and offset from the total amount payable by the employer;
 nominal interest of 10% per annum; and
 an administration fee of $20 for each employee with a shortfall.
Under the quarterly superannuation guarantee, the nominal interest component is calculated on an
employer’s quarterly shortfall amount from the first day of the relevant quarter to the date when the
superannuation guarantee charge would be payable.
Unlike normal superannuation contributions, there is no tax deduction available for any component of an
employer’s Superannuation Guarantee Charge assessment; however, the general interest charge is tax
deductible in the year in which it is incurred. The due dates for the late charge and form are one month
after the quarterly cut off dates (that is - November 28, February 28, May 28 and August 28).
How to inform the Tax Office of the shortfall and make the payment
Any employer who has a shortfall is required to complete the Superannuation guarantee charge statement
quarterly (NAT 9599). Employers can complete this form by either:
 Accessing the Tax Offices’ Business Portal using an Auskey – Select ‘online forms’ from the sidebar
then choose ‘Superannuation Guarantee Charge statement’ from the list. The form will be completed
online and submitted electronically to the Tax Office through the portal. Access the Business Portal at:
https://bp.ato.gov.au/ or

 Using the Tax Offices’ Superannuation guarantee charge calculator tool – The Tax Office have
developed a tool to help employers calculate their total superannuation guarantee charge liability on-
line for any applicable employees and produce a statement that can be printed and sent to the Tax
Office. Employers can use the calculator to determine if they need to pay the superannuation
guarantee charge and at the end a statement will be produced only including those employees for
which the superannuation guarantee charge applies. To access the tool go to
https://www.ato.gov.au/Calculators-and-tools/Super-guarantee-charge-statement/ or
 Downloading the Superannuation guarantee charge statement - quarterly (NAT 9599) – print the
form, complete it on paper and post to the Tax Office. The form can be downloaded by accessing:
https://www.ato.gov.au/Calculators-and-tools/Super-guarantee-charge-statement-and-calculator-
tool/
Employers’ pay a
shortfall and
interest to the Tax
Office. The Tax
Office redistributes
this amount to
employees.
Employees who
have an active
superannuation
account will have
their allocation paid
directly to the fund
by the Tax Office.
The fund will
receive the
payment as part of
a remittance
advice. The Tax
Office will then
report details of the
payment to the
employee. If the
Tax Office cannot
identify a member’s
superannuation
fund or where a
fund cannot accept
the direct payment,
the Tax Office will
issue the member
with a letter. The
member can then
take the letter to
their fund and request that the fund claim their superannuation guarantee entitlements on their behalf.
Circumstances under which the Superannuation Guarantee charge may be waived

An employer may attempt to contribute to a superannuation fund under some circumstances and for
reasons outside their control the contribution is not recorded as being received by the due date. In the
following circumstances the superannuation guarantee charge may be waived.
 Where the employee is no longer a member of the superannuation fund;
 A clearing house fails to make a contribution by the due date on behalf of an employer to an
employee’s superannuation fund.
5.2.7 Contributions must be to a Complying Fund
Employer contributions must be vested and preserved on behalf of the employee. 'Vested' means that the
benefits of the fund are entirely for the employees. 'Preserved' means that the benefits can only be paid
on retirement at or after age 55. Contributions must be paid into a complying superannuation fund, and
employers should check with the fund’s trustee(s) to ensure that the fund meets the necessary standards.
Payments made by an employer to a complying superannuation fund are exempt from Fringe Benefits Tax.
Superannuation guarantee contributions cannot be made to a non-complying fund. If contributions are
made to a non-complying fund, then the employer is liable for FBT on the taxable value of those
contributions. A tax deduction is allowed for the contributions and FBT paid. To avoid paying FBT, each
year the employer must confirm that the superannuation fund is a complying fund.
A Register of complying superannuation funds website holds information on all current complying
superannuation entities. The register allows employers to establish the status of the fund into which
contributions are being paid. The site provides the facility to search a particular fund by Australian
Business Number (ABN), Super Fund Number (SFN) or Fund Name. An up to date list of complying
superannuation funds can be found at www.abr.gov.au.
Retirement Savings Accounts

Banks, building societies, credit unions and life insurance companies can provide superannuation without a
trust structure in the form of Retirement Savings Accounts (RSAs). These are required to be “capital
guaranteed”. RSA's can accept deposits made by the employee account holder or by an employer on the
account holder’s behalf. Member benefits in RSA's are fully portable. They may only be opened and
maintained by, or on behalf of, individual beneficiaries. Employers may open individual RSA's in the names
of their employees to meet Superannuation Guarantee obligations, but will not be permitted to prevent
members transferring funds from their RSA's to an alternative complying superannuation fund.
5.2.8 Directors’ personal liability for Superannuation obligations

On 29 June 2012 the Tax Laws Amendment (2012 Measures No. 2) Act 2012 received royal assent. The
legislation was introduced to expand the director penalty regime; making directors now personally liable
for their company’s unpaid superannuation guarantee amounts. In addition, the legislation removes the
ability for directors to discharge their director penalties by placing their company into administration or
liquidation where unpaid superannuation guarantee amounts remain unpaid and unreported three
months after their due date.
Whilst a director can defend a claim by the Tax Office for the recovery of a director penalty, those
defences are limited. In the ordinary course, a director would need to demonstrate that he or she had an
illness that prevented them from participating in the management of the business or that they had taken
all reasonable steps to ensure compliance. For newly appointed directors, they will have three months
from the date of their appointment before the restricted remission provisions apply.
For existing directors, these amendments make it crucial for them to ensure that their company’s
superannuation obligations are reported to the Tax Office within 3 months of the due day. Even if the
disclosed debt is not remitted by the due date, by reporting these obligations to the Tax Office, directors
will still be able to have their liability remitted by placing their company in administration or commencing a
winding up within 21 days of receiving a director penalty notice. For new directors, it is crucial that they
satisfy themselves the company has complied with its superannuation guarantee reporting obligations
within 3 months of commencing their directorship.

5.3 Superannuation data and payment standards – Superstream
Paying the superannuation guarantee for employees can be a complex process, with multiple funds to
contribute to, each with their own specifications for accepting the data and payments. A new Standard
specifies the minimum requirements for dealing with payments and information relating to certain
transactions within the superannuation system including employer contributions and associated reporting
obligations for superannuation purposes. Generally, the standard introduces common data elements and
processes for sending employer contributions.
5.3.1 What is Superstream?

Under Superstream, employers must make super contributions electronically. The contribution data is sent
electronically in a message format to the fund, and the contribution payment is sent electronically through
the banking system. The data message and payment are linked by a payment reference number which
enables reconciliation by the receiving fund.
Many of the key components required for this change, including e-commerce infrastructure and software
solutions, are already in use in the marketplace. Others are currently undergoing development and trials
before being implemented.
What employer processes are covered by Superstream?

Superstream prescribes how employers send the following for contributions processes:
 contributions for your employees to each super fund, irrespective of whether the fund is an
accumulation defined benefit scheme and whether the fund is default or choice
 choice contributions made to self-managed superannuation funds (except for closely held related
parties)
 initial member registration details for default funds
 updating and maintaining employee details over time with all funds (whether default or choice).
What are the main components of Superstream?

The four key elements are:
 a common set of business terms and definitions which are used to describe each element of employee
contributions.
 a common data format for reporting the contributions details for your employees.
 a standard message structure for sending and receiving messages from your funds.
 standard payment methods .
Most employers do not need to understand the technical detail of Superstream – the data requirements
will be sourced from a complying payroll system or other system provided by a service partner usually a
clearing house. For employers who which to peruse the technical requirements, these can be accessed at:
https://www.ato.gov.au/Super/SuperStream/In-detail/Legal-framework/Legislative-instrument/Superannuation-
data-and-payment-standards-and-associated-schedules/
5.3.2 Implementing Superstream
Step 1 - Choose how to pay

To use SuperStream, superannuation must be paid electronically. There are three main options for
employers in relation to paying superannuation to comply with SuperStream:
 Use Superannuation fund services - some superannuation funds will have online payment services that
an employer can use.
 Use a super clearing house - either a commercial or approved clearing house such as the government
Small Business Superannuation Clearing House
 Use the payroll system - liaise with your payroll system provider to ensure it is SuperStream enabled.
It is important that whichever option is chosen the employer has ensured that it is compliant with
SuperStream. The obligation to ensure the superannuation is paid correctly rests with the employer.
Step 2: Collect information
Employers may need to collect further information from employees to use SuperStream. This is in addition
to the information already obtained from the employee to pay super.
Employers will need the following information from employees:

 fund ABN
 tax file number
 unique superannuation identifier (USI) – the USI and SPIN are only for large APRA regulated funds –
small APRA regulated funds and self-managed super funds are not included. A USI identifies the
specific superannuation product for an employee contribution. It helps ensure contributions get to the
right destination. All super funds must have at least one USI. This can be found on the employee’s
latest superannuation fund statement. There is also a Fund USI and SPIN Look-up Table. The table can
be accessed at:
http://softwaredevelopers.ato.gov.au/USIandSPINlookup
Where an employee has a self-managed super fund (SMSF), they will need to provide the employer with:
 fund ABN
 tax file number
 fund bank account details
 fund electronic service address - To receive SuperStream data a SMSF needs an electronic service
address. An email address is not an electronic service address. Employees with a SMSF can get an
electronic service address from an SMSF messaging provider or through your SMSF administrator, tax
agent, accountant or bank. If a SMSF doesn't use a professional service provider, the trustee of the
fund (the employee) will need to register directly with an SMSF messaging provider. The provider will:
− give an employee an active electronic service address (alias), which the employee will pass on to
their employer
− receive contributions messages the employer sends to the your SMSF using the SuperStream
standard
− transfer the employer contributions messages to the employee
If an employee, who has nominated a SMSF as their chosen fund, fails to provide the employer with an
electronic service address after been requested to do so, the employer can refuse the choice of fund
and redirect contributions to the employer’s default fund.
Step 3: Use SuperStream

Employers with 20 or more employees must have been SuperStream compliant since 31 October 2015.
Employers with 19 or fewer employees should be SuperStream ready by 28 October 2016.
5.3.3 Common questions
Can employers meet their Superstream obligation by paying contributions by EFT and communicating with
superannuation funds electronically, without having to use a clearing house?
In the short term employers can continue to operate in this manner but as we approach 2017 employers
will need to move towards engaging a clearing house or using Superstream compliant software to ensure
that all messaging requirements are met.
Can employers meet their Superstream requirements in relation to self-managed superannuation funds
(SMSF) by making EFT payments directly to the employee’s SMSF?
Yes employers can continue paying amounts by EFT directly into the SMSF’s bank account as SMSFs are not
subject to all SuperStream rules. Employers however, do need to request that affected employees provide
them with an electronic service address. The employee must provide this if the employer requests it. The
electronic service address (this is not an email address) allows the employer to integrate the payment to
SMSF into their SuperStream requirements. The employee can obtain an electronic service address from

Australia post or one of several other providers of electronic service addresses. For a list of providers,
access:
https://www.ato.gov.au/super/superstream/self-managed-super-funds/electronic-service-
address/register-of-smsf-messaging-providers/
What is an electronic service address?

See information as provided previously under ‘Implementing SuperStream - Step 2’
How is number of employees calculated?

For the purposes of the standard, all employees at the start date of 1 July 2014 are counted in determining
the size of your business. If actual payroll numbers fall below 20 employees at 1 July 2014, the business will
be classed as a small employer, otherwise it will be a medium or large business.
Example: A business consists largely of seasonal employees – a mix of 5 full-time employees and 17 casual
workers. The business has a total of 22 employees at the start date and will be classed as a medium
employer. The business must be fully compliant by 31 October 2015.
Can employers continue to make contributions using cheques?

Yes, but only up until the extended implementation period. Employers with 20 or more employees must
send electronic payments and messages (in the approved format) by 31 October 2015 (by 30 June 2016 for
small employers). The electronic payment must be linked to the message via a unique payment reference
number that the employer (or clearing house) has generated.
Can employers continue to send a paper notice or form?

Yes, but only up until the extended implementation period. Employers with 20 or more employees must
send electronic payments and messages (in the approved format) by 31 October 2015 (by 28 October 2016
for small employers).
5.3.4 Enforcement of the Standard

The Australian Taxation Office (ATO) have stated that they will provide flexibility to employers in complying
with their obligations under the standard, based on the employer’s efforts to get ready, the business’
capabilities, and the particular arrangements the employer has worked out with their default fund. After
the first 12 months of implementation, the ATO will gradually increase their focus on compliance with the
standard. They will be contacting employers to determine how they are progressing with the standard and
whether they are encountering any difficulties.
Penalties for non-compliance

The imposition and remission of these penalties will occur in line with established principles that the ATO
apply in relation to other administrative penalties, including that, as a general rule, entities should not be
penalised where they have made an honest and genuine attempt to comply. Prosecution action may be
considered where an entity persistently and consistently disregards their obligations under the standard.
SuperStream notification to the Tax Office

An APRA fund may provide a SuperStream notification to the Tax Office when all internal fund processes
have been completed and an employer continues to be non-compliant with their SuperStream obligations
over a number of contribution cycles. All information submitted will be analysed by the Tax Office to
determine an appropriate course of action.
Action undertaken by the Tax Office will range from phone contact to clarify issues and provide guidance
through to the issuing of direction notices and the imposition of penalties.
APRA funds will not be advised about what actions have been taken with an employer.

5.4 Superannuation Guarantee liability for Specific Workers /
Payments
5.4.1 Employees/payees for whom Superannuation does not have to be paid

In a given contribution period, an employer is not required to provide Superannuation Guarantee support
for the following:
 non-resident employees paid for work done outside Australia;
 resident employees employed by non-resident employers for work done outside Australia;
 employees receiving salary or wages under the Commonwealth Government Community Development
Employment Program (CDEP);
 employees receiving salary or wages of less than $450 in a month (determined on the basis of salary or
wages actually paid to the employee in the month). This $450 figure is for Superannuation Guarantee
purposes only. Please note: Some awards contain an earnings threshold lower than this, please check
the employee’s award;
 where a scheduled international social security agreement is in place that provides for superannuation
exemption. Under these agreements the employer is exempt from making SG (or equivalent)
contributions in the country the employee is temporarily working in, provided they remain covered by
compulsory SG arrangements in the country from which they came. For example, when an Australian
employee is temporarily working overseas they may still be covered by SG law and the employer may
have to continue to make SG contributions for them. Agreements are in place with Austria, Belgium,
Chile, Croatia, the Czech Republic, Finland, Germany, Greece, Hungary, Ireland, Japan, the Republic of
Korea, the former Yugoslav Republic of Macedonia, the Netherlands, Norway, Poland, Portugal,
Switzerland and the United States of America.
 employees who are exempt from income tax because of service in the reserve forces;
 part-time employees under 18 years of age working less than 30 hours per week;
 employees paid to do work of a domestic or private nature for no more than 30 hours per week - for
example, a part-time nanny or housekeeper (see SGR 2009/2 and SGR 2005/1)
 foreign executives who hold certain visas or entry permits (see below).
Visa/Entry Permit Exemptions

The following visa/entry permit holders are exempt:
 An employee who has been appointed by a company operating in Australia to be the national
managing executive or deputy national managing executive or a state manager and who is the holder
of a Subclass 456 (Business (Short Stay)) visa, or a Subclass 956 (Electronic Travel Authority (Business
Entrant—Long Validity)) visa, or a Subclass 977 (Electronic Travel Authority (Business Entrant—Short
Validity)) visa.
 The employee must hold a position as a senior executive of a company operating in Australia, or is
establishing a business activity in Australia on behalf of the employer and
− the employee’s position carries substantial executive responsibility; and
− the employee’s qualifications for the position are appropriate; and
− the employee’s position is a full-time position.
 An employee who is the holder of a Subclass 457 (Business (Long Stay)) visa if the employee has been
appointed by a company operating in Australia to be the national managing executive or deputy
national managing executive or a state manager.
 An employee who is the holder of a Subclass 457 (Business (Long Stay)) visa if the employee holds a
position as a senior executive of a company operating in Australia, and
 An employee who is the holder of a Subclass 457 (Business (Long Stay)) visa if the employee is
establishing a business activity in Australia on behalf of the employer; and

5.4.2 Treatment of Certain Workers
Short Term Employees and Casual Workers

There is no minimum employment period before the superannuation guarantee commences. Therefore,
employers must also adhere to superannuation guidelines for short term employees. General
superannuation principles apply equally to casual workers.
Contractors
Generally, there will be a superannuation guarantee liability for amounts paid to contractors when all
three of the following conditions exist, they are:
 the individual contractor is remunerated for a labour component of more than 50% (i.e. materials
make up less than 50% of the total contractor's price);
 the individual contractor must perform the contractual work personally (there is no right of
delegation); and
 the individual contractor is not paid to achieve a result – i.e. the amount paid is in relation to hours
worked, not a fixed sum on completion of the job.
For the purposes of the superannuation guarantee, labour includes mental and artistic effort as well as
physical work. The superannuation guarantee does not apply when a contract is made with someone other
than the person who will provide labour, for example, there is no superannuation guarantee liability if the
contract is with a company or partnership or if the person contracted is free to engage other people to
perform the work. Where there is a superannuation guarantee obligation in respect of a contractor the
superannuation support is calculated only on the labour component of the contract. If the values of the
various parts of the contract are not detailed in the contract, the Tax Office will accept market values
taking into consideration the normal practices within the industry. If the labour portion of the contract
cannot be assessed, superannuation contributions can be based on the total value of the contract.
The superannuation guarantee eligibility decision tool is designed to help employers understand whether
superannuation contributions need to be made for a particular employee (including any contractors who
are treated as employees). The tool is a series of questions which take about 5 minutes to complete. Once
the employer has answered the series of questions, a report will be generated which will contain:
 a decision if an employee is eligible for superannuation for this particular arrangement;

 a summary of the information the employer has provided; and
 a summary of the employer's superannuation obligations relating to the employee.
To use the tool, simply access
http://www.ato.gov.au/Calculators-and-tools/Super-guarantee-eligibility/?default
Taxi drivers
The full Federal Court has confirmed that the relationship between taxi operators and taxi drivers is not
one of employer and employee and those operators therefore have no withholding obligations or
Superannuation Guarantee obligations in respect of their drivers.
Pizza delivery drivers and similar

The ATO has issued an Interpretative Decision stating that pizza delivery drivers, who are required to
provide and maintain their own motor vehicles in performing their deliveries, are employees for the
purposes of the Superannuation Guarantee.
Payments to a Company, Partnership or Trust

Employers have no superannuation guarantee liability where the payment is made to a company,
partnership or trust.

Deceased Employees
Employers are obliged to contribute superannuation guarantee on wages owing to an employee at the
time of death and paid to the deceased estate or beneficiaries. The superannuation guarantee is payable
to a complying super fund by the end of the quarter in which the wages have been paid to the estate or
beneficiaries.
5.4.3 What payroll is counted for Superannuation guarantee purposes (Ordinary Time
Earnings OTE at stated in SGR 2009/2)
Payments To Employee In Relation To… Super Payable?

Awards and agreements
Overtime hours - award stipulates ordinary hours to be worked and employee works additional
No
hours for which they are paid overtime rates
Overtime hours – agreement prevailing over award No
Agreement supplanting award removes distinction between ordinary hours and other hours Yes
No ordinary hours of work stipulated Yes
Shift-loadings Yes
Overtime payments No
Piece-rates – no ordinary hours of work stipulated Yes
Allowances
Allowance by way of unconditional extra payment - e.g. First aid allowance, site allowance,
Yes
danger allowance
Expense allowance expected to be fully expended - e.g. Tool allowance, car allowance, No
Retention allowance Yes
On call allowance as extra amount – not in relation to hours worked No
Hourly on-call allowance in relation to ordinary hours of worked Yes
Payment of expenses
Reimbursement - of exact amount of expense No
Petty cash No
Reimbursement of travel costs No
Leave payments
Annual leave, Long Service Leave, Sick Leave Taken whilst employed Yes
Cashed out Annual, Long Service and/or Sick Leave whilst employed Yes
Parental Leave - maternity, paternity, adoption & no safe job leave No
Ancillary leave – e.g. jury duty, defence forces reserves leave No
Leave Loading that is required to be paid under an award No
Termination payments
In lieu of notice Yes
Unused annual leave, long service leave, sick leave No
Rostered Days Off (RDO's) paid on termination Yes

Payments To Employee In Relation To… Super Payable?
Payments for unfair dismissal No
Redundancy/severance pay No
Bonuses
Performance bonus Yes
Retention bonus Yes
Bonus labelled as ex-gratia but in respect of ordinary hours of work Yes
Christmas bonus Yes
Bonus in respect of overtime only No
Other payments
Fringe Benefits No
Salary Sacrifice Superannuation No
Directors Fees Yes
Workers’ compensation – returned to work Yes
1
Workers’ compensation – not working No
Commission payments Yes
1 Where an award or agreement provides an employee with a more favourable superannuation guarantee, these will
override SGR 2009/2. For example, several modern awards require SG to be paid on Worker’s Compensation
payments even when the employee is not working. This is contrary to the ruling, but more beneficial to the employee
and therefore should be paid.
5.4.4 Concessional contributions cap (for SG & salary sacrifice)

There are limits up to which an employer can make employer contributions to a fund before the
superannuation fund taxes the excess at the employee’s highest marginal tax rate. These limits (includes
the total of all superannuation guarantee and salary sacrifice contributions) are based on an employee's
age at the end of the financial year and are as follows:
Age of employee Concessional Contributions Cap 2016/17
Under 50 years of age $30,000

50 or over $35,000
Age of employee Proposed Concessional Contributions Cap 2017/18
All employees $25,000
Important notes about the concessional cap

 Employer holds no responsibility in relation to the concessional cap – It is the employee’s
responsibility to monitor their own situation in relation to the concessional cap.
 ‘Age’ - is the person’s age on the last day of that financial year.
 Taxation of excess over limits – From 1 July 2013, contributions in excess of the caps shown above are
taxed by the superannuation fund at the employee’s marginal tax rate (plus an interest charge)
regardless of their income or the cause/amount of the breach.
 Taxation of amounts within limits –-Contributions within the caps shown above are taxed by the
superannuation fund at a rate of 15%.

 Taxation of amounts within limits for very high income earners (Division 293) – Employees earning
over $300,000 per annum (proposed to decrease to $250,000 from 1 July 2017) pay a rate of 30% on
all concessional contributions (instead of 15%). The definition of ‘income’ for this purpose includes
concessional superannuation contributions. If an individual’s income excluding their concessional
contributions is less than the $300,000 threshold, but the inclusion of their concessional contributions
pushes them over the threshold, the 30% rate will only apply to contributions in excess of the
threshold.
 Taxation of amounts within limits for low income earners – Employees earning less than $37,000 per
annum will be refunded, into their superannuation account, the tax on their concessional contributions
up to a limit of $500 per year. To be eligible the employee must:
− not hold a temporary resident visa (New Zealand citizens are not considered as temporary
residents);
− gain 10 per cent or more of their total income from business or employment; and
− be entitled to a superannuation tax refund of at least $10.
 Refund of excess contributions – Employees may elect to release up to 85% of their excess
concessional contributions for a financial year from their superannuation fund. Superannuation
providers will usually be required to pay this amount from the superannuation fund.
 Allow catch-up concessional superannuation contributions – From 1 July 2017, the Government
proposes to allow individuals to make additional concessional contributions where they have not
reached their concessional contributions cap in previous years. Access to these unused cap amounts
will be limited to those individuals with a superannuation balance less than $500,000. Amounts are
carried forward on a rolling basis for a period of five consecutive years, and only unused amounts
accrued from 1 July 2017 can be carried forward.
 Contributions made in a financial year but allocated to the employee’s fund in a subsequent
financial year – the contribution is included in the member’s concessional contribution in the
subsequent financial year.
 One cap per employee – If an employee has more than one fund, all concessional contributions made
to all your funds are added together and counted towards the cap.
 Defined benefit funds – Defined benefit funds have special rules when it comes to concessional
contribution caps. For more information please access:
https://www.ato.gov.au/Individuals/Super/In-detail/Growing/Super-contributions---for-defined-
benefit-funds-and-untaxed-funds/?&page=2
5.4.5 Maximum Quarterly Contribution Base

Employers are not required to make superannuation contributions on an employee’s total ordinary time
earnings, once those earnings rise over a certain level. This level is referred to as the maximum
contribution base. This means, that in a situation where an employee earns more than the maximum
contribution base figure, the employer is only obligated to pay superannuation contributions on earnings
up to the maximum contribution base figure. The maximum contribution base for an individual employee
for the 2016/17 financial year is $51,620 per quarter. The figure was 50,810 in 2015/16.
5.4.6 Choice of Funds
Which employees must be offered choice?

Employees can generally choose their superannuation fund if they are:
 employed under a federal award
 employed under a former state award, now known as a ‘notional agreement preserving state award’
 employed under another award or agreement that doesn’t require superannuation support, or
 not employed under any state award or industrial agreement (including contractors paid principally for
their labour).

Proposal to Extend Superannuation Choice to Enterprise Agreements and Workplace Determinations (THIS
BILL HAS LAPSED)
Employees under work place determinations or enterprise agreements made from 1 July 2016 will be able
to choose their own superannuation fund under the measures included in Superannuation Legislation
Amendment (Choice of Fund) Bill 2016. The Bill ensures that, where a work place determination or
enterprise agreement is made on or after 1 July 2016, an employer will need to allow employees to choose
their own superannuation fund, unless other circumstances exempt the employer from doing so.
Which employees are not eligible to choose a super fund?

Employees may not be eligible under the superannuation guarantee to choose superannuation fund if
there superannuation contributions are paid under:
 state industrial award
 preserved state agreement
 federal industrial agreement such as an Australian workplace agreement (AWA)
 pre-reform AWA, pre-reform certified agreement, collective agreement
 old IR agreement, individual transitional employment agreement (ITEA) or
 workplace determination, or enterprise agreement (these are defined terms in Federal industrial
relations law).
Choice is also not available to:
 Employees of a small business (turnover less than $2m p.a.) who are temporary resident employees
 Employees of a small business (turnover less than $2m p.a.) whose superannuation fund has merged.
 Employees who pay into a particular type of defined benefit fund or those who have already reached a
certain level in a defined benefit fund.
When does an employer have to provide choice?

All new employees must be provided with a Standard choice form (NAT 13080) within 28 days from
commencing work. The employee is not required to complete the form if they don’t want to nominate a
fund, but the employer must give them the choice if they are eligible.
The employee is under no obligation to return the form to you within a certain time frame. Employees who
fail to return the form and therefore fail to nominate a fund must have their contributions paid into the
fund the employer identified on the form as the employer nominated fund (default fund).
Employers also have to provide a Standard choice form within 28 days if:
 an existing eligible employee requests a form
 contributions can no longer be forwarded to the chosen fund for a particular reason e.g. it is no longer
a complying fund, or
 the employer’s nominated fund has changed.
How is choice offered and received?

Choice is offered to employees through, what is referred to as, a standard choice form. A standard choice
form is provided to employees in writing by their employer. Follow these steps:
 Prior to distributing the standard choice form to an employee, the employer completes Part B. This
contains details of the superannuation fund into which contributions are made, should the employee
fail to make a choice, access at:
https://www.ato.gov.au/Forms/Superannuation-(super)-standard-choice-form/
 When the employee returns the standard choice form to the employer it must be accompanied by a
letter stating that the employee's chosen fund is a complying fund. Information should also be
attached stating how the employer can pay contributions to the fund.
 The employee is under no obligation to return the form and the form does not have to be returned to
the employer within a certain time frame. Where this occurs the employer contributes to the default
superannuation fund chosen by the employer in Part A.
 The employer has 2 months from the day the employee makes a choice to remit contributions to the
employee's chosen fund.

Example: Sally returns the choice form to her employer (XYZ) on 25 September 2016. XYZ is a quarterly
payer of superannuation. On 10 October 2016 XYZ remits superannuation contributions for all of its
employees for the quarter ending 30 September 2016.
XYZ is not obligated to remit to Sally's newly chosen fund on this occasion because the remittance date is
within a 2 month period of receiving Sally's choice. XYZ will contribute to Sally's newly chosen fund for the
quarter ending 31 December 2016.
Do I have to accept my employee’s choice?

 Employee fails to provide all information and paperwork – An employer does not have to accept an
employee’s choice of fund where the employee has not provided all the required information on their
Standard choice form. Where this has occurred, the employer must ensure that they pay
superannuation contributions to the employer nominated fund for that employee, until the employee
has provided all the required information.
 Employers are not required to become a participating member of chosen fund – Whilst an employer
may be contributing to several superannuation funds, there is no requirement for the employer to
become a member or participating employer of any of the chosen superannuation funds. If a fund
requires an employer to become a member, the employer has the right not to accept that fund as the
employee's chosen fund. You do not have to accept a choice from an employee if the fund is not
willing to accept contributions from you when the choice is made. The definition of participating
employer is: 'a condition placed on an employer by a fund, which means you have to agree to the
fund’s governing rules before the fund will accept your contributions'.
 Unavailable preferred payment method is not grounds for refusing choice – An employer is unable to
reject a valid choice based solely on the fund’s preferred method of receiving contributions (for
example, electronically). If the fund does not offer a method that is convenient to for the employer,
the employer should liaise with the fund about alternative arrangements. Most superannuation funds
now facilitate electronic payments.
 Fund refuses to accept contributions – Where the fund refuses to accept contributions, the employer
should keep a record of this and discuss with the employee about choosing another superannuation
fund.
Default funds must be a ‘MySuper’ product

Employers must make contributions for employees that do not have a chosen fund to a fund that offers a
MySuper product. MySuper is a low cost product.
Funds that do not operate as default funds, such as self managed superannuation funds (SMSFs) or choice
products will not have to comply with these additional standards. There is an exemption for defined
benefit funds that currently do not have to comply with the choice of fund requirements.
For most employers, it is expected their default superannuation fund will offer a MySuper product so they
will not have to change their arrangements for making superannuation guarantee contributions. New
employers, and employers making contributions to a fund that does not offer a MySuper product, have to
select a default fund that offers a MySuper product.
A list of APRA authorised MySuper funds can be found at:

http://www.apra.gov.au/RSE/Pages/default.aspx
Select ’List of my super authorisations’ then open your excel program.

Other Choice of Funds Issues
 Employee wants to choose another fund – An employee must give their employer written notice to
the effect that they want to choose a different fund to the existing fund they have chosen. The
employer can request a written statement from the employee setting out the contact details of the
fund including the employee’s account, membership, fund name and/or any other prescribed
information. Employers do not have to accept a choice if the employee is unable to provide such
information. An employer is not obligated to meet an employee’s request to change their chosen fund
if it has been less than 12 months since the last time the employee chose a fund.
 Employers cannot charge a fee – An employer cannot charge an employee a fee to recoup the cost of
complying with the choice of superannuation fund obligations.
 Status of fund under choice requirements – Employees can only choose a complying fund. A super
fund is complying if it meets specific requirements and obligations under super law. An employer is
able to check that the fund is complying by visiting www.superfundlookup.gov.au. An employer can
also liaise with the superannuation fund’s trustee to check whether the fund is complying. If the fund
confirms in writing that it’s a complying fund and it later is determined it is not, the employer is
protected against penalties for paying contributions to a non-complying fund. The fund must indicate
that they:
− intend to accept the super contributions;
− will continue to meet the relevant legal requirements.
 Minimum insurance requirements for chosen funds – Where an employee does not choose a
superannuation fund, their contributions are made to the employer nominated fund shown at Part A.
The fund nominated by the employer must offer a minimum level of death cover for employees. An
employer can pay superannuation contributions to a fund which provides death cover on an aged-
based benefit level as stated below:
Age Range Level of Life Insurance
Under 20 Nil
from 20 to 34 $50,000
from 35 to 39 $35,000
from 40 to 44 $20,000
from 45 to 49 $14,000
from 50 to 55 $7,000
Over 55 Nil
 Where an employer makes contributions to a fund that does not offer an aged-based benefit level, the
fund must offer death cover at a premium of at least $0.50 per week. These are only minimum levels
of cover. Funds can still offer insurance above these levels. The insurance requirement stated above
need not be met if:
− contributions are made by an employer under a Federal Award;
− contributions are made to a Retirement Savings Accounts (RSA).
− the employer has arranged insurance outside of the superannuation system, provided the
insurance cover is at least consistent with the minimum insurance requirements stated above; or
− the fund does not offer insurance to a particular employee because of the employee’s health,
occupation (for example, a high risk occupation) or hours worked (for example, the employee may
be a casual).
 Not all employers must have a default fund – A default fund is used when employees do not choose
their own fund. Those employers who offered choice prior to 1 July 2005 however, have never had to
have a default fund, as all of their employees are required to choose a fund as a condition of
employment. These employers will not be required to have a default fund.
 Multiple employers and choice requirements – The choice of fund requirements must be met
separately by each employer of an employee. A choice made by an employee under one employer will
not result in that fund being the chosen fund for that employee in respect of another employer.

 No employer liability for damage arising from employee's choice – Employers are protected from
liability to compensate any person for loss or damage arising from anything done by the employer in
complying with the choice of fund requirements. The protection does not extend to things done by the
employer which are not undertaken in complying with the choice of fund requirements.
 Defined benefit funds and choice requirements – Defined Benefit Funds are subject to additional
requirements that are not stated here.
Super Clearing House

The Tax Office provides a Small Business Superannuation Clearing House. The free online clearing house
helps businesses with an annual turnover below $2 million or less than 20 employees, pay superannuation
contributions to all staff funds in one transaction. Further details can be found on the ATO’s website at:
https://www.ato.gov.au/business/super-for-employers/paying-super-contributions/small-business-
superannuation-clearing-house/
The clearing house is contactable 24 hours a day, seven days a week by calling 1300 660 048. Register for
the clearing house at:
https://sbsch.gov.au/poext/super/public/registration/employerRegistration.jsf
Small businesses that register to use the service will have their super guarantee obligation discharged
when payment of the correct amount is accepted by the Government clearing house by the super payment
cut-off date (so long as the payment is not rejected by the fund).
Note - If you pay a super guarantee contribution through a commercial clearing house (i.e. not the Tax
Office), it is counted as being paid on the date the super fund receives it, not the date the clearing house
receives it. Accordingly, employers should ensure the clearing house has sufficient time to process
payments before the quarterly cut-off dates. Where a clearing house is late in transferring the payment to
the super fund, the employer will incur SGC and will need to complete a Superannuation guarantee charge
statement – quarterly (NAT 9599).
Penalties for Failure to Comply with Choice Requirements

There are significant penalties for those employers who fail to meet their choice obligations. Penalties will
not be reduced where the employer has not made any attempt to comply with the requirements of the
law. The decisions will be made on a case-by-case basis.
If the employer does not provide its employees with a choice of funds, the employer will be liable for the
‘choice penalty’. Employers will also be liable for a choice penalty if they make contributions to a fund
other than that fund chosen by the employee. The penalty will not apply to any contributions that are
made after the employee has been offered a choice. This may give rise to an increase in the amount of an
employer’s quarterly shortfall. The 'choice penalty' is 25% of the superannuation contributions which were
paid but did not meet the choice of fund requirements. There is a cap of $500 on the amount of ‘choice
penalty’ that can be applied per employee. This is how the choice penalty is applied.
Example – Lucille is the only employee of Roger. Lucille has chosen a superannuation fund in compliance
with the choice of fund requirements. Lucille’s salary is $36,000 (i.e. $9,000 per quarter). Roger makes an
$855 superannuation contribution for the quarter on behalf of Lucille (i.e. 9.5% × $9,000). The contribution
is not made to the fund chosen by Lucille; however it is made to another fund. The amount of the penalty
can be determined by the following:
25% × [amount that should have been paid into the employee’s chosen fund — *any actual shortfall for the employee]
*This item will always be nil if the superannuation guarantee was paid, but not into a fund chosen by the
employee. Note: If no contributions were made at all for the quarter there will not be a choice shortfall
however there will be the superannuation guarantee charge.
In Roger and Lucille’s case this equates to: 25% × [$855 — $0] = $213.75
Roger now has a quarterly shortfall of $213.75. If Roger continues not to pay into the chosen fund in the
next quarter there be another shortfall of $213.75. If he fails to do so for the 3rd quarter the shortfall will
only be $72.50. This is because the maximum choice penalty per employee is $500.00 ($213.75 + $213.75 +
$72.50 = $500.00).
5.5 Superannuation & Salary Sacrifice
A salary sacrifice arrangement is generally an arrangement under which employees agree to forego part of
their total remuneration package that they would otherwise expect to receive as salary or wages, in return
for their employer providing benefits of a similar value. The main assumption made by the parties is that
the employee is then taxed only on the reduced salary or wages.
The type of benefits provided under salary sacrifice arrangements by employers to employees includes
superannuation contributions, the provision of motor vehicles and expense payment fringe benefits, such
as payment of school fees, childcare costs or loan repayments.
5.5.1 Salary sacrificed superannuation contributions are employer contributions

Salary-sacrificed superannuation contributions are classified as employer superannuation contributions
(not employee contributions). Employer contributions are a tax deduction for the employer. These
contributions are taxed by the superannuation fund, on entry. Employee contributions, however, had tax
withheld by the employer at the employee's marginal rate, therefore no tax is deducted on entry to the
superannuation fund.
5.5.2 How does salary sacrifice work?

The salary sacrificed component of an employee's salary package is not assessable income for the
employee, it is extracted from the employee's package and is not included in gross payments on the
employee’s payment summary and is therefore not subject to PAYG withholding tax. Note: The amount
will be shown in the RESC field on the payment summary.
Example - Salary Sacrifice: Ellen's total package is $45,000 per annum. Ellen asks her employer to redirect
$5,000 of her package to a complying superannuation fund and pay her a salary of $40,000. At the end of
the financial year, the gross salary recorded on Ellen's payment summary is $40,000. The correct amount
of tax has been withheld from this amount. Her assessable income is the amount of $40,000. The $5,000
superannuation contribution is an employer contribution.
Example - Not salary sacrifice: Ellen's total package is $45,000 per annum. Ellen asks her employer to
deduct $5,000 from her after tax salary and remit it to a superannuation fund. At the end of the financial
year, the gross salary recorded on Ellen's payment summary is $45,000, and the correct amount of tax has
been withheld. Her assessable income is $45,000. This means that the $5,000 superannuation
contribution is an employee contribution. Ellen has already paid tax on the $5,000 and the 15%
contributions tax will not apply.
5.5.3 A salary sacrifice arrangement must be 'effective'. How is this achieved?
An agreement should exist between the employee and employer

The relationship between employers and employees start with the entering into of a contract of
employment between the employer and the employee prior to commencement of employment. The
contract should be in writing. The contract of employment would include details of employees’
remuneration including any salary sacrifice arrangement. This contract can be varied by agreement
between the employer and employee. It is advisable that the employer and the employee clearly state and
agree upon all the terms of the salary sacrifice arrangement. Subject to the terms of the agreement,
employees may renegotiate a salary sacrifice arrangement.
It must be an arrangement before services

An effective salary sacrifice arrangement is an arrangement between the employer and the employee
detailing the amount of the package to be sacrificed, and must be entered into before the employee earns
the income. The salary sacrifice arrangement must be entered into prior to the employee performing the
work. Annual leave and long service leave entitlements are earned as the leave accrues. Leave
entitlements can only be sacrificed before the employee has fulfilled the conditions to be eligible to take

leave. Leave entitlements already owed to an employee cannot be sacrificed, but leave entitlements that
they will be entitled to in the future can be sacrificed. If an employee has completed sufficient service to
take long service leave, or has accrued leave time that can be paid in cash on termination of their
employment then a leave entitlement has accrued and the employee cannot sacrifice that entitlement.
Example – Effective Salary Sacrifice Arrangement – Andrew Executive was paid $80,000 in salary plus
$7,600 in employer superannuation contributions in 2014/15. On 30 June 2016, Andrew renegotiated his
employment contract 2016/17 to receive $72,500 salary and $15,100 employer superannuation
contributions to a complying superannuation fund.
The renegotiation of the employment agreement is an effective salary sacrifice arrangement because
Andrew has entered into the arrangement with his employer before performance of services for the
following year of income. The superannuation contributions of $15,100 for 2016/17 are employer
superannuation contributions.
Example – Ineffective Salary Sacrifice Arrangement – Jane is paid every 4 weeks (13 times a year). Under
her employment contract $6,000 per pay period is paid as wages and $1,100 per pay period is contributed
to a superannuation fund. On 5 January 2017 Jane contracts with her employer to alter her 2016/17 salary
package. She arranges to have $5,000 per pay period paid as wages and $2,100 per pay period contributed
to a superannuation fund commencing from 11 December 2016.
The new agreement is an ineffective salary sacrifice arrangement, as the old agreement gave Jane an
entitlement on 5 January 2017 to have wages paid of $6,000 and an employer superannuation
contribution of $1,100 made. The $1,000 portion of the superannuation contribution of $2,100 made by
Jane’s employer on her behalf on 5th January 2017 is considered to be a member contribution. Jane’s
employer is required to withhold tax from this amount and it does not qualify as a deduction for
superannuation purposes. The $1,000 is paid into the fund as an employee contribution.
5.5.4 What salary is the superannuation guarantee based on when an employee salary
sacrifices to a superannuation fund?
Generally, where there is not a salary sacrifice agreement in place, superannuation guarantee (SG)
contributions are based on the gross wages paid to the employee. That is, an amount equal to 9.5% of the
employee’s gross salary will be contributed to a superannuation fund. This can change when an employee
chooses to salary sacrifice to a superannuation fund. There are generally three options in relation to
Superannuation guarantee when an employee salary sacrifices to a superannuation fund.
The three options below are within the scope of the superannuation guarantee legislation. Therefore, in
order to eliminate any misunderstanding between the employer and employee regarding employee
entitlements, all terms of an arrangement between the two parties should be fully and clearly
documented. Both parties need to negotiate the employee's salary in terms of the salary package, not just
in terms of the gross wages.
Option 1 – Employer continues to pay superannuation guarantee based on pre-salary sacrifice wage
Example: John is employed by Acme Co and receives a gross annual wage of $50,000. John chooses to
enter into an effective salary sacrifice agreement to salary sacrifice $5,200 per annum to a superannuation
fund. Acme Co continues to make their superannuation guarantee contributions based on John's pre salary
sacrifice wage of $50,000. John’s annual package is effectively
Wages ($50,000 –$5,200) $44,800
Salary sacrifice $ 5,200
Superannuation guarantee (9.5% x $50,000) $ 4,750
TOTAL AMOUNT OF PACKAGE $54,750

Option 2 – Employer pays superannuation guarantee based on post-salary sacrifice wage
fund. Acme Co makes their superannuation guarantee contributions based on John's wage excluding the
salary sacrifice amount. John’s annual package is effectively
Wages ($50,000 –$5,200) $44,800
Superannuation guarantee (9.5% x $44,800) $ 4,256
Option 3 – Employer uses salary sacrifice amount to reduce superannuation guarantee liability
fund. Acme Co opts to make no superannuation guarantee contributions as they are aware that the
amount salary sacrificed by John can offset the employer’s superannuation guarantee obligation. As the
employer’s superannuation guarantee obligation would generally have been $4,256 (9.5% x $44,800), the
amount that John has salary sacrificed is in excess of this amount. John’s annual package is effectively
Wages ($50,000 –$5,200) $44,800
Superannuation guarantee $ 0
5.5.5 Superannuation contributions made under an effective salary sacrifice

agreement are not fringe benefits
Superannuation contributions made under an effective salary sacrifice agreement and within the aged
based limits are not fringe benefit taxable items and therefore will not be reported for FBT purposes.
There are however, two situations in which superannuation contributions will be subject to FBT and
therefore reportable for FBT purposes, they are:
 when employer contributions have been incorrectly listed as employee contributions; or
 when superannuation contributions are made by an employer for the benefit of an associate of an
employee.
5.5.6 The effect of salary sacrifice on other entitlements

Under a salary sacrifice arrangement, gross payments on the employee’s PAYG payment summary will
show the gross amounts of all salary and wages (excluding salary-sacrificed amounts) and the relevant
total amount of PAYG tax withheld for the year.
Some industrial awards, workplace agreements and employment contracts require the employer to
continue to make other entitlements such as annual leave, long service leave, termination payments, and
superannuation guarantee contributions based upon the earnings that existed prior to entering into the
salary sacrifice agreement. Others base entitlements to these amounts on what is shown at gross
payments on the payment summary. The correct earnings base for an employee is a question of fact. For
this reason, these issues should be addressed in the written agreement between the employer and the
employee, if they are not already addressed under a particular award or workplace agreement.
5.5.7 How much can be salary sacrificed?

There is no limit on the amount an employee can salary sacrifice. Arrangements, in which employees seek
to forego expected salary or wages in exchange for benefits, may reduce the employees’ salary or wage
entitlement below the employees’ minimum entitlement under the relevant industrial award or other
agreement. This is acceptable where the employee has chosen to enter in the salary sacrifice agreement.

5.6 Reportable Employer Superannuation Contributions (RESC)
Where an employee makes superannuation contributions under an effective salary sacrifice arrangement
or the employer makes extra superannuation contributions to a superannuation fund for an employee,
there may be a reporting requirement. The reportable employer superannuation contributions (RESC) are
shown on the individual non-business payment summary. These include contributions to a superannuation
fund or retirement savings account, made on behalf of an employee during an income year, by their
employer or an associate of their employer. Generally, reportable and non-reportable contributions are as
follows.
Reportable superannuation contributions Superannuation contributions – not reportable

Contributions where the employee has The amount the employer has contributed:
influenced the extent to which contributions are • as stated under Superannuation Guarantee provisions i.e. the
made, such as: 9.5%;
• salary sacrifice contributions; • as stated under federal, state or territory legislation, or an
• additional contributions as part of original industrial agreement;
agreement or contract; • from the employee's after tax wage/salary;
• other contributions over which the employee • over which the employee has no influence e.g. contributions
has influenced the amount to be contributed incidentally made on amounts outside OTE.
5.6.1 Reportable Superannuation Contributions

Not all employer contributions are reportable. It is only those contributions made on behalf of an
employee where the employee had some capacity to influence the size of the contribution.
Salary sacrifice contributions

This refers to salary sacrifice contributions designed to reduce the assessable income, built into an
agreement or contract beyond the contribution required under Superannuation Guarantee law. These are
arrangements between an employer and their employee to have prescribed amounts, or a prescribed
percentage, of their salary contributed to superannuation. Only the amount of contributions in excess of
the amount required to be made under superannuation guarantee law would be reportable.
Example: Lisa is an employee of FJH Pty Ltd (FJH). FJH contributes 9.5% of Lisa’s total remuneration to
superannuation under an industrial agreement that was negotiated between FJH and the union
representative. Lisa was not involved in these negotiations and had no involvement in the preparation of
the agreement, aside from voting on it. As such, Lisa would have no capacity to influence this amount of
contribution. However, under the agreement, employees may elect to have an amount of salary paid to
superannuation. This is in addition to the 9.5% contribution required under the agreement. During the
year, Lisa approached FJH to have $5,000 contributed to her superannuation fund as part of an effective
‘salary sacrifice’ agreement. This $5,000 contribution is a reportable employer superannuation
contribution.
Additional contributions as part of original agreement or contract

This refers to additional contributions built into an agreement or contract beyond the contribution
required under Superannuation Guarantee law.
Example: Wei is an employee of TKU Pty Ltd (TKU). During negotiations of Wei’s common law employment
contract, TKU offered Wei increased contributions to superannuation as part of a range of employment-
related benefits. These contributions, which equate to $10,000 of Wei’s total remuneration, were provided
as part of a remuneration package that Wei was allowed to consider and discuss with TKU. TKU made it
clear to Wei that he could negotiate the contents of the additional incentives and that other benefits may
be provided. These dealings are evidence to suggest Wei might reasonably have been expected to have
had capacity to influence the amount of contributions being made on his behalf. The $10,000 contribution
is in addition to contributions being made by TKU under superannuation guarantee law. TKU would be
expected to record the $10,000 superannuation contribution on Wei's payment summary in the year the
contributions are made.
Contributions made for high income earners
For high income earners (employees earning more than $51,620 per quarter), the superannuation
contributed on wages in excess of this limit will be reportable. This is the case unless the employer can
show that a documented policy is in place that does not allow any employee to influence the contributions
the employer makes on their behalf i.e. the employer has clear policy to pay 9.5% superannuation
contributions on all salary and wages of all employees, including those earning beyond the maximum
quarterly contribution base of $51,620 per quarter.
5.6.2 Superannuation contributions which are not reportable
Superannuation contributions made under federal, state or territory legislation

Those contributions which are made by an employer to meet the employer’s requirements under federal,
state or territory legislation are not reportable. Hence, an amount of contributions equating to what an
employer would have been required to make under Superannuation Guarantee provisions would never be
reportable.
In this situation the employee has no influence over the size of the contribution that the employer is
required to make under law, or some other obligation.
Example: Owen is an employee of KZP Pty Ltd (KZP). KZP pays 9.5% of Owens’s ordinary time earnings to
superannuation in accordance with Superannuation Guarantee provisions. This amount is the minimum
amount required to be contributed by KZP on Owens’s behalf so Owen would not have, and could not
reasonably be expected to have, capacity to influence this amount. Owen has not influenced further
superannuation contributions to be made on his behalf by KZP; therefore he has no superannuation
contributions to be reported for the income year.
Superannuation contributions in excess of the superannuation guarantee requirement, made for

administrative simplicity
It is not necessary for contributions to be compelled by law for them to fall outside the definition of
reportable employer superannuation contributions. An employer may make contributions above those
mandated by law, over which the employee has no influence. This may occur where an employer makes a
contribution in relation to an amount that is not considered ordinary times earnings.
Example: Aparna is an employee of GKU Pty Ltd (GKU). Aparna’s ordinary time earnings are $100,000 but
Aparna has earned $1,000 in overtime during the income year. GKU’s payroll system calculates
superannuation contributions on Aparna’s total income of $101,000. However, GKU is only compelled,
under superannuation guarantee law, to make superannuation contributions on $100,000. GKU’s payroll
system does not allow for superannuation contributions to be made on an employee’s ordinary time
earnings alone. Because Aparna has not influenced further contributions to be made on her behalf, she has
no reportable employer superannuation contributions for the income year.
Superannuation contributions in excess of the superannuation guarantee requirement where the employee
had no capacity to influence the size of the contribution
There are also circumstances where an employer makes superannuation contributions on behalf of an
employee under the terms of an industrial agreement. Provided this agreement has been made at arms’
length with the employee and that employee has no influence then those amounts would not be
reportable. This includes if an employer is paying more than the amount required under the agreement for
administrative reasons and the employee could not reasonably be expected to have capacity to influence
the amount of contributions being made on their behalf.
Example: Costa is an employee of PQZ Pty Ltd (PQZ). Costa’s employment conditions are governed by an
industrial agreement that was negotiated between Costa’s employer and the union representative. Costa
was not involved in the negotiations and had no involvement in the preparation of the agreement, aside
from voting on it. The terms of the agreement require PQZ to contribute 15% of Costa’s ordinary time
earnings to superannuation. However, PQZ’s payroll system pays 15% of Costa’s total remuneration
(including overtime). PQZ’s payroll system does not allow for superannuation contributions to be made on

an employee’s ordinary time earnings alone. Because Costa has not influenced further contributions to be
made on his behalf or influenced contributions to be made in such a way that his assessable income is
reduced, Costa has no RESC for the income year.
5.6.3 Other RESC Factors
The reporting period

Employers must report all the reportable employer super contributions made for an employee on their
payment summary for the income year (1 July to 30 June). Reportable employer super contributions are to
be reported for the income year that the contribution relates to. This could be a different year to the year
in which the superannuation fund actually receives the contributions.
Record keeping
The burden of proving that an employee had no capacity to influence falls on the employer. Consideration
will be given to the involvement of the employee in the negotiations concerning the terms of any industrial
agreement governing the employee’s work conditions, and the size of the amount contributed on the
employee’s behalf relative to what amount would be required by superannuation guarantee law.
Employers must keep enough records to prove whether or not employees have influenced the
superannuation contributions made. These records include:
 information on how the reportable employer super contributions have been calculated;
 information on how the employee-influenced portion of the total employer contribution has been
calculated;
 information on how the employee’s salary or OTE has been calculated;
 copies of relevant salary sacrifice agreements;
 copies of relevant industrial agreements.
These records must be kept for five years after they are prepared, obtained or the transactions completed,
whichever occurs last. The records must be in English, or in a form that the Tax Office can access and
understand.
The effect on employees

The extent to which an employee is affected by their reportable employer superannuation contributions
will depend on individual circumstances. Employees in the following situations may be affected.
Employees receiving Family Tax Benefit — The income base for calculating a family's entitlement to
Family Tax Benefit includes reportable employer superannuation contributions. This means that an
employee’s reportable employer superannuation contributions will be added to taxable income to arrive at
the taxpayer’s income for Family Tax Benefit purposes.
Employees making Child Support payments — The income base for calculating child support assessments
includes reportable employer superannuation contributions. This means that an employee’s reportable
employer superannuation contributions will be added to taxable income to arrive at the taxpayer’s income
for child support purposes.
Employees with a HELP or SFSS debt — Superannuation reported on a payment summary will be taken
into account when calculating a person's income for the purpose of the Higher Education Loan Programme
(HELP) or Student Financial Supplement Scheme (SFSS). As liability to repayment and the level of
repayment are linked to a person's income, the inclusion of superannuation will accelerate repayments for
some taxpayers.
Employees avoiding the Medicare levy surcharge — A 1.5% Medicare levy surcharge is imposed on high
income earners (i.e. singles earning over $90,000 and families earning over $180,000) without adequate
private patient hospital insurance. The superannuation contributions recorded on an employee’s payment
summary will now be taken into account when assessing a person’s liability for the Medicare levy
surcharge.

Employees claiming deductions for personal superannuation contributions — Employees are not
generally allowed an income tax deduction for personal contributions to a superannuation fund however,
a 'substantially self-employed person' may be allowed a deduction. A person is substantially self-employed
if the total remuneration he or she receives from an employer who provides superannuation support is
less than 10% of his or her total assessable income. The inclusion of reportable employer superannuation
contributions as assessable income may render some substantially self-employed persons ineligible for
these tax deductions.
Employees receiving rebates for personal superannuation contributions — An employee may be entitled
to a rebate for personal superannuation contributions if their income is under a certain threshold. The
inclusion of reportable employer superannuation contributions as assessable income for rebate purposes
may cause the employee’s or dependant spouse’s income to exceed the threshold resulting in the
reduction or cancellation of the rebate.
Superannuation co-contribution for low income earners — Both the gross salary, reportable fringe benefit
amount and reportable employer superannuation contributions are considered when the Tax Office works
out if a person is entitled to receive a co-contribution.
Employees’ eligibility to the government paid parental leave — Superannuation reported on a payment
summary will be taken in to account when calculating the employees income for the purposes of the
government paid parental leave scheme.
5.7 Other Superannuation Information
5.7.1 Record keeping requirements for superannuation

Employers must keep adequate records showing the amount of super paid for all eligible employees.
Records should include:
 How reportable employer super contributions are calculated
 How each employee’s salary or wages and ordinary time earnings are calculated
 Copies of relevant salary sacrifice agreements entered into by employees
 Copies of relevant industrial agreements with employees
 Evidence that eligible employees have been offered superannuation choice.
 Records must be kept for 5 years and must be in English, or in a form that can be easily accessed and
converted into English.
5.7.2 Non-residents can access their superannuation early

Individuals departing Australia on a permanent basis have a choice of waiting to access their
superannuation entitlements at or after age 55 or accessing their superannuation benefits sooner. Those
who wish to access their benefits sooner should go to:
http://www.ato.gov.au/Forms/Applying-for-a-Departing-Australia-super-payment/
The funds can be accessed after the person has permanently departed from Australia. The funds are
subject to a special rate of taxation and are restricted to persons:
 who entered Australia on an eligible temporary resident visa;
 who have a visa that has expired or been cancelled; and
 who have permanently departed Australia.
A departing person can receive a departing Australia superannuation payment. The payment is subject to
special withholding arrangements and will not form part of assessable income (i.e. will not be declared or
shown on a tax return). Superannuation funds and the like have the responsibility of withholding from the
departing Australia superannuation payments. Such payments will be excluded from the definition of an
ETP and will not trigger the reasonable benefit limit reporting requirements. The taxation of the payment
will be as follows:

Rates of Tax Component
0% Undeducted contribution or Post-June 1994 invalidity component
47% Post-June 1983 untaxed element component
38% The remainder
Non-resident superannuation payments also available on-line – An on-line, secure system for temporary
residents to apply for a departing Australia superannuation payment is available by accessing
www.ato.gov.au/super and selecting the Temporary resident’s access to super prompt. On-line applicants
will not need to obtain a 'Confirmation of Immigration Status' form from the DIMIA, and will not need to
pay the $55 fee to DIMIA. The Tax Office will obtain a statement from DIMIA that the applicant meets the
eligibility criteria, and the Tax Office will also provide any known account details for the applicant to the
relevant fund.
Unclaimed amounts
The Government will transfer the account balance of any unclaimed superannuation of temporary
residents six months after they depart Australia and no longer hold a visa, if the person has not already
taken steps to claim their super on departure.
Departed temporary residents will be able to claim back, at any time, any superannuation that has been
paid to the Commonwealth. No earnings will apply while the benefits are held by the Government but
interest less tax will be paid where a claimant returns to Australia as a permanent resident.
5.7.3 Splitting of superannuation contributions

Individuals are able to split certain superannuation contributions with their spouse. The application to split
eligible contributions can be made by the employee to the superannuation fund once per annum in the
financial year following the year in which the contributions were made, e.g. employees who wish to spilt
any contribution made between 1 July 2015 and 30 June 2016 must make the application on or after 1 July
2016 and no later than 30 June 2017. An employer cannot split contributions between the employee and
their spouse’s fund. The application can be made in the same financial year as the contributions in the
case where the employee has decided to roll-over their superannuation to a new fund.
It is not compulsory for superannuation funds and the like to offer the superannuation contribution
splitting facility, however, most superannuation funds do.
Which contributions can & can't be split?

Splittable contributions include both superannuation guarantee contributions and salary sacrifice
contributions. These are referred to as taxed splittable contributions. Employee contributions (i.e.
contributions from the employee’s net salary) are also splittable but they are referred to as untaxed
splittable contributions. The limit to splitting is 85% of taxed splittable contributions and 100% of untaxed
splittable contributions. The following contributions are not splittable contributions:
 Amounts in the fund that have been rolled over, transferred or allotted;
 Lump sum payments from an eligible non-resident non-complying superannuation fund; and
 Employer ETPs and ETPs resulting from the small business retirement exemption (CGT exempt
components of ETPs).
The superannuation received by a spouse, as a result of a superannuation split, is regarded as rolled-over
amounts. A receiving spouse must not yet have reached preservation age, or if over the preservation age,
must not have retired.
Taxpayers who are eligible to claim a tax deduction for their superannuation contributions should lodge
their intention to claim the deduction with the trustee of the superannuation fund before the
superannuation contributions-splitting application is lodged.

5.7.4 Superannuation Co-contribution for low income earners
If a low or middle-income earner makes personal (after-tax) super contributions to their super fund, the
government will also make a co-contribution (of up to 50 cents in each $1) to a maximum amount of 500.
The amount of government co-contribution received will depend on how much the employee contributes
and what their income is. To be eligible, the employee must, broadly speaking:
 have made or make personal contributions to their super (contributions made from net wages);
 earn an individual income of less than $51,021 per annum in 2016/17 with the full co-contribution
being available to those on an income of less than $36,021 per annum in 2016/17;
 be employed full-time, part-time or on a casual basis;
 be entitled to receive superannuation contributions from their employer (Exception – those not
eligible for superannuation guarantee contributions due to earning less than $450 per month will be
eligible for the co-contribution);
 be under 71 years of age; and
 must not be the holder of a temporary visa at anytime of the financial year unless the employee is a
New Zealand citizen or holder of a prescribed visa.
Super co-contribution for self employed individuals

Self employed individuals can receive the superannuation co-contribution where they made one or more
eligible personal super contributions to their super account during the financial year and they pass the two
income tests. The two income tests being, their total income for the 2015/16 financial year is less than
$50,454 and 10% or more of the total income comes from eligible employment-related activities or
carrying on a business, or a combination of both.
Income for superannuation co-contribution purposes

Total income is the sum of the following:
 assessable income for the financial year
 reportable fringe benefits total (RFBT) for the financial year
 total reportable employer super contributions for the financial year
 less allowable business deductions.
Super co-contribution calculator

The super co-contribution calculator is a tool to help individuals and the self-employed estimate their co-
contribution entitlement and eligibility. The calculator can be accessed at:
http://www.ato.gov.au/Calculators-and-tools/Super-co-contribution-calculator/
Super co-contribution to be abolished as of 1 July 2017

In passing the Mining Tax Repeal Bill, the Senate agreed to continue the 50% superannuation co-
contribution for low income earners, but only until 30 June, 2017. The co-contribution will be abolished
from 1 July 2017.
5.7.5 Requirement to report super payment date on payslips not to go ahead

Treasury has released a Bill to repeal the requirement to report the contribution date and fund for
superannuation guarantee on payslips. This will mean that the law which would have required employers
to report on the payslip, the date on which contributions were made to a superannuation fund, will no
longer go ahead.
5.7.6 Status of Superannuation Fund Expenses Paid by the Employer

In some cases expenses incurred by an employee nominated superannuation fund are paid by an
employer. When this occurs, the expense paid by the employer can be regarded as a superannuation
guarantee contribution.

5.8 References & Further Information
You can access the Tax Office on the Internet, located at www.ato.gov.au. The site has a wide range of
information on all topics in relation to an employer's taxation responsibilities, including those shown
Paying super – a handy reference ATO website
Super – what employers need to know 71038
Employers and tax file numbers ATO website
Standard Choice Form ATO website
Choice of fund - Meeting your obligations ATO website
Award Super and the Superannuation Guarantee ATO website
Employees guide to salary sacrificing for superannuation ATO website
Employers guide to salary sacrificing for superannuation ATO website
Superannuation Guarantee - Contractors ATO website
Superannuation Guarantee & Workers' Compensation ATO website
Superannuation guarantee charge statement - quarterly ATO website
Completing your superannuation guarantee charge statement – quarterly ATO website
Reportable employer super contributions ATO website
The following may also be of benefit:

 What are Ordinary Time Earnings & Salary and Wages (SGR 2009/2)
 Who is an employee (SGR 2005/1)
 Independent Agencies (Employment Agencies) (SGR 93/2)
 Income Tax, Fringe Benefits Tax & Superannuation: Salary Sacrifice Arrangements (TR 2001/10)
Useful Websites
 Unclaimed monies www.fido.asic.gov.au
 Unclaimed super www.ato.gov.au (follow the lost super prompts)

6 FRINGE BENEFITS TAX (FBT)
Fringe benefits tax (FBT) is a tax payable by employers on the value of certain fringe benefits that have
been provided to their employees or associates of those employees for private use. A fringe benefit is
usually non-cash remuneration, e.g. the use of a car or provision of accommodation. To attract liability to
tax, it must be provided in an employment context.
6.1 Liability to FBT

Fringe benefits tax applies to the value of benefits that are provided to an employee or an employee’s
associate (typically, the employee’s spouse or children) for private use by an employer in respect of the
employee’s employment activities. In all cases however, the employer is liable for the tax, not the
employee. The tax even extends to benefits that are provided to future or past employees in connection
with their future or past employment. FBT is paid by employers, irrespective of whether they are sole
traders, partnerships, trusts, corporations, unincorporated associations or government bodies and
irrespective of whether or not they are liable to pay other taxes such as income tax or GST. Where an
employer recoups the FBT payable from the employee, the amount can be deducted from the gross (pre-
tax) wage or salary.
6.1.1 Fringe Benefits Tax Year & Assessment of Liability

The FBT year runs from 1 April to 31 March. Specific rules exist as to the method of calculating the taxable
value of each of the different types of benefits. Employers must self-assess their liability to pay fringe
benefits tax.
6.2 Calculating FBT in Summary

The Tax Office does not determine how much FBT an employer is required to pay. The employer self-
assesses their FBT liability. The current rate of FBT is 49%. The FBT rate is always the same as the highest
marginal income tax rate. To determine the amount of FBT payable:
 Determine the type of fringe benefits provided.
 Calculate the taxable value of each fringe benefit provided to each employee (including those benefits
not reported on the employees’ payment summaries). The rules for calculating the taxable value of a
fringe benefit differ according to the type of benefit.
 Calculate the total taxable value of all the fringe benefits you provide for which you can claim a GST
credit. Multiply this taxable value by 2.1463.
 Calculate the total taxable value of all those benefits provided where a GST credit can’t be claimed (for
example, private health insurance). Multiply this taxable value by 1.9608.
 Add the amounts from steps 3 and 4. This is your total fringe benefits taxable amount.
 Finally, multiply this figure by the FBT rate of 49% to determine the FBT payable.
Taxation Seminar Section 6 — Fringe Benefits Tax (FBT) Page 225

6.3 Classifying Fringe Benefits, Grossing-Up Fringe Benefits &
Calculating of the FBT Payable
FBT is levied on the grossed up value of a fringe benefit. The grossed up value reflects the gross salary that
would have to be earned to purchase the benefit. FBT is calculated on the gross amount, just as income tax
is applied to gross salary or wages.
Employers are required to separate fringe benefits into two groups to determine FBT liability. The first
group is referred to as type 1 fringe benefits. This encompasses those fringe benefits provided where the
employer is entitled to claim an input tax credit in relation to the purchase of the benefit.
The second group is referred to as type 2 fringe benefits. This encompasses all other fringe benefits, that
is, fringe benefits provided where the employer is not entitled to claim an input tax credit in relation to the
purchase of the benefit.
6.3.1 Gross up rates

In 2016/17 the FBT rate remains 49%. This is in line with the amendment that forms part of the
Government's Temporary budget repair levy which resulted in the FBT rate increasing from 47% to 49% for
a period of two years, being 2015/16 and 2016/17.
The gross up rates for 2016/17 are as follows:
 Type 1 gross up rate - 2.1463
 Type 2 gross up rate - 1.9608
Higher gross up rate (Type 1)

The higher gross-up rate is used where the employer is entitled to a GST credit for GST paid on benefits
provided to an employee. These benefits are known as GST-creditable benefits. The higher gross-up rate is
2.1463. Calculated as follows:
Type 1 Fringe Benefits - Those benefits which include GST
The first group is referred to as type 1 fringe benefits. This encompasses those fringe benefits provided
where the employer is entitled to claim an input tax credit in relation to the purchase of the benefit.
 The gross up rate used for these benefits are 2.1463.

 For example, an employer provides a slim line television to an employee valued at $1,000. The benefit
cost includes GST. The grossed up value will be $1,000 × 2.1463 = $2,146.30.
 The FBT payable will be $2,146.30 × 49% = $1051.69
 Formula used by ATO to determine gross up rate for Type 1 benefits
FBT rate + GST rate

× Fringe Benefit Amount
(1 – FBT rate) × (1 + GST rate) × (FBT rate)
. 49 + .10
(1 – .49) × (1 + .10) × (.49)
Page 226 Section 6 — Fringe Benefits Tax (FBT) Taxation Seminar

Lower gross up rate (Type 2)
The lower gross-up rate is used where there is no entitlement to a GST credit.
Type 2 Fringe Benefits - Those benefits which do not include GST
The second group is referred to as type 2 fringe benefits. This encompasses all other fringe benefits, that
is, fringe benefits provided where the employer is not entitled to claim an input tax credit in relation to the
purchase of the benefit.
 The gross up rate used for these benefits are 1.9608

 For example, an employer pays school fees for an employees' child to the value of $1,000. The benefit
does not include GST as educational services are exempt from GST. The grossed up value of the benefit
will be $1,000 × 1.9608 = $1,960.80
 The FBT payable will be $1,960.80 × 49% = $960.79
 Formula used by ATO to determine gross up rate for Type 2 benefits
1
1 – FBT rate
1
1 – .49
The lower gross-up rate of 1.9608 (type 2) will apply in the situation where:
 fringe benefits are GST free (e.g. school fees, private health cover);
 fringe benefits are input taxed (e.g. rent payments & mortgage repayments);
 the goods or services are not acquired by the employer, for example, the goods or services are
manufactured;
 small business employers have opted not to register for the GST (turnover less than $75,000 per
annum); or
 the activities of certain registered employers are input taxed (e.g. financial institutions).
In all of these situations the employer would not be entitled to an input tax credit in relation to the
purchase of the fringe benefit provided.
6.3.2 GST inclusive value is used

The GST inclusive value of fringe benefits (if applicable) must be used when calculating the grossed up
figure.
6.3.3 Summary of current and future year

FBT year 2016/17 2017/18
Gross-up rates
Type 1 2.1463 2.0802
Type 2 1.9608 1.8868
FBT rate 49% 47%
Net exempt benefits – type 1
Taxable Nil Nil
PBI/HPC $14,525 $14,421
Eligible Hospital/ambulance service $8,231 $8,172
Net exempt benefits – type 2
Taxable Nil Nil
PBI/HPC $15,900 $15,900
Eligible Hospital/ambulance service $9,010 $9,010
Gross-up cap for non-profit entities $31,177 $30,000

6.4 Employee cash/expense contribution to fringe benefit
Any amount which the employee pays towards a fringe benefit is subtracted from the taxable value of the
fringe benefit. This is also the case when the employee pays the employer for use of a fringe benefit item
e.g. a company car.
6.4.1 Employee contributes cash

A cash payment by an employee to an employer towards the cost of a fringe benefit is treated as a taxable
supply for GST purposes. The employer is required to pay GST on the employee contribution. The amount
of GST payable on the employee's contribution is equal to one eleventh of the contribution amount. That
calculation relates only to arriving at the employer’s GST liability and does not affect the amount of the
payment in arriving at the employer’s FBT liability.
Example: Sally is provided with a car fringe benefit by her employer, XYZ, who is registered for GST. Sally
makes a total $4,400 cash contribution directly to her employer towards the running costs of the car, in
the period 1 April 2016 to 31 March 2017. XYZ are required to remit $400 (1/11th of $4,400) of that
contribution to the Tax Office. XYZ will deduct the full $4,400 from the fringe benefit amount when
calculating the taxable value of the car fringe benefit provided to Sally.
6.4.2 Employee pays expenses

For there to be a GST implication the employee contribution must be a cash payment to the employer.
Where the employee pays costs for fuel, oil or servicing, the contribution will not be a supply for GST
purposes.
Example: Sally also pays some of the running costs in relation to the car. She paid $3,300 in fuel, oil and
servicing in the period 1 April 2016 to 31 March 2017. This amount, although being an employee payment
for FBT purposes, is not a payment that is a contribution for GST purposes. XYZ is not required to remit one
eleventh of this contribution in GST. XYZ will, however, still deduct the full $3,300 from the fringe benefit
amount when calculating the taxable value of the car fringe benefit provided to Sally. The service station
where she purchased her fuel and had her servicing done remitted $300 (1/11 × $3,300) in GST to the Tax
Office. When XYZ Pty Ltd calculates the taxable value of the car fringe benefit provided to Sally it would
deduct the total of Sally's payments, i.e. $4,400 + $3,300 = $7,700. The total amount of an employee's
payment towards a fringe benefit is deducted from the taxable value of the car fringe benefit whether or
not the employer is liable for GST on the contribution.
6.5 Record Keeping

There is a general requirement that employers must keep sufficient records to enable their FBT liability to
be assessed. These records must be kept for five years from the date of the relevant transaction. There are
also specific record-keeping requirements that must be satisfied if the employer wishes to take advantage
of various exemptions or concessions which reduce the employer’s liability to fringe benefits tax. These
documents will need to be retained for five years from when the relevant FBT return is lodged. Examples
of these records are:
 all documents which the employer is required to obtain from the employee, such as declarations,
invoices and/or receipts, travel diaries, copies of logbooks, odometer records; and
 where the benefit is a car fringe benefit which is valued under the operating cost method, the logbook
records and odometer records.
Some concessions and exemptions require the employer to obtain documentary evidence in respect of
expenditure by an employee. Broadly, the employer is required to obtain the original invoice and/or
receipt from the employee. This must show the date of the receipt or invoice, the date of the expense, the
name of the supplier, what was bought and the amount paid.

6.5.1 Record Keeping Exemption for Small Business
Under record keeping exemption arrangements, employers can elect to have their FBT liability based on
that of records kept in a previous year. That previous year is referred to as the base year. Employers can
make the election if:
 the aggregate fringe benefits amount (total of taxable values of all fringe benefits) in the base year
does not exceed the exemption threshold ($8,286 in 2016/17);
 the aggregate fringe benefits amount for benefits provided in the current year is not more than 20%
greater than the base year unless the difference is $100 or less;
 the employer is not a government body or income tax exempt at any time during the current year;
 the Tax Office has not issued a notice requiring the employer to resume keeping records;
 the employer was in business for the whole of the base year;
 FBT records were kept for the base year;
 the FBT return was lodged by the due date for the base year.
If the employer elects to take advantage of the record keeping exemption arrangements, the base year is
the year on which FBT liability in future years is based.
6.5.2 Declarations
The taxable value of benefits can be reduced in certain circumstances. However, employers must ensure
that all relevant declarations have been completed. Where a benefit is provided to an employee it is
automatically assumed to be for private purposes (and consequently subject to FBT) unless declarations
are obtained. Therefore it is essential that employers obtain declarations (where applicable). Declarations
by the employer must be made no later than the day on which the FBT return is due to be lodged with the
Tax Office. If it is not necessary to lodge a return, they must be made by 21 May. There is no need to notify
the Tax Office of the declaration, the employer’s business records are sufficient evidence of this. The most
commonly completed declarations are as follows.
 No Private Use Declaration — This declaration is made by the employee and can be made once a year.
It is used if an employee is reimbursed for employment-related expenses. The employee would be
entitled to a "once only" income deduction in his/her own return if they had personally incurred the
expenses.
 Fuel Expenses Declaration — When the employee incurs some of the expense themselves, this
declaration enables them to identify the expenses. For example, the expenses involved in running an
employer provided car i.e. fuel, oil and other maintenance costs.
 Loan Fringe Benefit Declaration — This declaration enables the employee to identify whether the loan
was being used for income producing purposes. FBT is only payable on the part of the loan that was
being used for private purposes.
 Living-away-from-home declarations – If paying LAFHA there are four different declarations that may
be required to be prepared depending on the situation of the employee. These declarations are:
− Living away from home declaration – employees who fly-in fly-out or drive-in drive-out
− Living-away-from-home declaration - employees who maintain an Australian home
− Living-away-from-home declaration - employee related expenses
Other Declarations include:

 Airline transport benefit declaration preventative health care, counseling or
 Employee’s car declaration migrant language training
 Employment interview or selection test  Property benefit declaration
declaration – transport in employee’s car  Recurring expense payment fringe benefit
 Expense payment benefit declaration declaration
 Fuel expenses declaration  Recurring property fringe benefit declaration
 No private use – residual benefits declaration  Recurring residual fringe benefit declaration
 Declaration of car travel to work-related  Relocation transport declaration
medical examination, medical screening,  Remote area holiday transport declaration

 Residual benefit declaration  Temporary accommodation declaration
 Residual benefit declaration – vehicles other
than cars
Without these declarations the employer cannot reduce the taxable value of the benefit even if it is known
that the employee incurred expenses that would otherwise be tax deductible. Declarations can be
accessed through the Tax Office link: http://www.ato.gov.au/Forms/Declarations/
6.6 Specific Treatment of Cars & Related Fringe Benefits

Data the ATO obtains from various motor vehicle registering bodies assist them in identifying employers
who have purchased a business registered vehicle but have not registered for FBT.
The ATO are writing to about 5,000 employers who fall into this category, to tell them about car fringe
benefits and what they need to do to comply with FBT obligations. When a car is made available to
employees for private use, there will most likely be an FBT liability. The ATO are particularly highlighting
that:
 if a car is garaged at home, it is taken to be available for private use
 as a general rule, travel to and from work is private use of a vehicle
 there are only limited circumstances where an employee's private use of a car is exempt from FBT.
6.6.1 Determining the taxable value of a motor vehicle

As a general rule, a taxable fringe benefit will arise if an employer’s car (one either leased or owned by the
employer) is made available for the private use of an employee. For that purpose, a “car” is a passenger
car, station wagon, mini-bus, panel van, utility or other commercial vehicle designed to carry less than one
tonne and fewer than nine passengers.
A motor vehicle which is not a car will not give rise to a car benefit. However, it may give rise to a residual
benefit if it is used by an employee. A motor cycle is not a car.
To give rise to a car benefit, a car must be “held” by the employer concerned. A taxi or a short-term hire
car (such as a rental car) is not held by the hirer. Thus, if an employer pays for a taxi to take an employee
on a private trip, or hires a rental car for an employee, the benefit is valued, and any exemption is
determined on the basis that it is an expense payment benefit or a residual benefit. (“Residual” benefits
will be covered later in this Section.)
A car is deemed to be made available for the private use of an employee on any day when:
 it is actually used for private purposes by an employee; or
 the car is not at the employer’s premises, and the employee is allowed to use it for private purposes.
In applying these rules, a car which is garaged at an employee’s home is regarded as being available for the
private use of the employee, regardless of whether or not the employee actually has permission to use it
privately.
Travel between home and work is generally regarded as private use, even if taking the car home is a
condition of employment. Employee use of certain commercial vehicles, such as taxis, panel vans, utilities,
etc. is an exempt benefit where the private use is either work-related travel (including travel between
home and work) or minor, infrequent or irregular.
A car fringe benefit can be valued in one of two ways – by the statutory formula method or by the
operating cost method. An employer may choose a different method each year, and does not have to use
the same method for all cars in a fleet within the same year.

6.6.2 The Statutory Formula Method
Under the statutory formula method the taxable value of the vehicle for FBT purposes is based on a
percentage of the vehicles original cost which is referred to as the base value of the vehicle.
The formula is:
(A x B x C)
Taxable value = −E
D
Where:
A = the base value of the car
B = the applicable statutory percentage
C = the number of days in the FBT year when the car was available for private use of employees
D = the number of days in the FBT year
E = the employee contribution.
Determining the base value of the car (A)

Base value of an owned car – The base value of a car owned by the business is:
 the original cost price paid (excluding registration and stamp duty)
 the cost of any fitted non-business accessories, and
 dealer delivery charges.
All cost and charges include goods and services tax (GST) and luxury car tax where appropriate. Non-
business accessories are fitted accessories not required to meet the special needs of your business
operations. An example of a business accessory is a fitted GPS in a salesman’s car, while alloy wheels, rear
spoilers and seat covers are non-business accessories. Any non-business accessories added after you
purchase the car increase the base value of the car for the year in which they are added and for
subsequent years.
Base value of a leased car – Where the car is leased when first acquired, the base value is the cost price to
the lessor (including GST and luxury car tax). Any non-business accessories added after the lessor bought
the car increase the base value of the car for the year in which they are added and for subsequent years.
Cars under a novated lease are subject to the same car fringe benefit valuation rules as other cars you
lease.
Reducing the base value after four years – The base value of a car is not reduced each year. However, it
can be reduced by one-third in the FBT year that commences after you have owned or leased the car for
four years. That is, the reduction applies from 1 April after the fourth anniversary of the date on which you
first owned or leased the car. The reduction applies only once for a particular car and you then use the
reduced base value for subsequent years. The reduction does not apply to non-business accessories added
after you acquired the car. Example: An employer purchases a car for $30,000 (including GST) on
1 April 2016. The employer can reduce the base value of the car by one-third ($10,000) in the FBT year
beginning 1 April 2021.
Reducing the base value with a trade-in – Where a car is acquired that reflects the value of a trade-in
vehicle provided by the employee, the ‘cost price’ of the car will be reduced by the value of the trade-in. If
it is the employer who provides the trade-in vehicle the cost price will remain the original price of the car.
Reducing the base value with a cash payment made by an employee to a car dealer – Where there has
been an up-front cash payment by an employee to a car dealer, the cost price of the car will be reduced by
the amount of the employee payment.
Reducing the base value with a cash payment made by an employee to an employer – A cash payment by
an employee to an employer, to assist the employer with the purchase of a car, reduces the cost price of
the car by the cash payment whether the employee has made the payment before or after the employer
purchases the car. It is important to note that a cash contribution made by an employee to reduce the
purchase cost of the car should not be confused with an employee contribution that reduces the value of
the provision of the car fringe benefit.

Reducing the base value with manufacturer rebates, fleet Discounts and other sales incentives – Forms
of sales incentive provided to car dealers, Fleet Management Companies, employers or employees by car
manufacturers are a manufacturer rebate, fleet discount or other sales incentives. These can be obtained
through various arrangements, and where they are made available to the purchaser of the car by way of a
reduction in the purchase price or a direct credit, it reduces the cost price of the car for FBT purposes.
Determining the statutory percentage (B) for contracts to purchase/lease a motor vehicle entered into after
10 May 2011
For purchase/leasing contracts entered into after 10/5/2011 the taxable value of the vehicle is generally
the base value multiplied by 20%. The single rate of 20% applies regardless of the distance travelled by the
vehicle.
Determining the statutory percentage (B) for contracts to purchase/lease a motor vehicle entered into on or
before 10 May 2011
For purchase/leasing contracts entered into on or prior to 10/05/2011 the taxable value is the base value
of the vehicle multiplied by one of 4 percentage rates. The actual percentage depends on the total
distance travelled by the car during the year, with the underlying assumption being that the greater the
total distance travelled, the lower will be the private use percentage.
Total kilometres travelled during the year Statutory Percentage

Less than 15,000 26%
15,000 to 24,999 20%
25,000 to 40,000 11%
Over 40,000 7%
Example: On 1 April 2011 an employer purchases a car for $30,000 (including GST). It is available for
private use for the entire FBT year i.e. 1 April 2016 to 31 March 2017. The car’s base value is $30,000. For
the FBT year 2016/17 the car travels a total of 26,000 kilometres. The relevant statutory percentage is
11%. The taxable value (i.e. the private usage) using the statutory formula method is equal to
$30,000 × 11% = $3,300. The taxable value is $3,300.
In some situations, contracts entered into on or before 10/5/2011 will be subject to the new rules. That
includes situations where the employer:
 pays out the lease residual after 10/5/2011;
 refinances the car after 10/5/2011; or
 allows employee to salary package a fleet car after 10/5/2011 that was acquired before 10/5/2011;
And it also includes situations where the employee:

 transfers lease from one employer to another; or
 extends the term of the novated lease.
Determining the number of days available for private use (C)

The statutory formula method is based on the number of days during the FBT year when the car is
available for the employee’s private use or is actually used by the employee for private purposes.
A car is available for private use by an employee on any day that:

 it is actually used for private purposes by the employee, or
 the car is available for the private use of the employee.
A car is treated as being available for private use by an employee on any day that:
 the car is not at your premises, and the employee is allowed to use it for private purposes, or
 the car is garaged at the employee’s home.
A car that is garaged at an employee’s home is treated as being available for the private use of the
employee regardless of whether they have permission to use it for private purposes. Similarly, where the
place of employment and residence are the same, the car is taken to be available for the private use of the
employee. As a general rule, travel to and from work is private use of a vehicle. Where a car is in a

workshop for extensive repairs, for example, following a motor vehicle accident, it is not available for
private use of the employee. However, a car is considered to be available for private use where it is in the
workshop for routine servicing or maintenance.
6.6.3 The Operating Cost Method

The taxable value of the benefit is calculated by applying the actual percentage of private use of the
vehicle to the total of actual and deemed operating costs of the vehicle (determined by the keeping of
detailed records and receipts, and including depreciation and deemed interest). This can be done using
the formula: Taxable value = (A x B) – C
Where:
A is the total operating costs
B is the percentage of private use, and
C is the employee contribution
Calculation
A car is supplied to an employee. The car is owned by the employer (not leased). The log book establishes
that the business use of the car is 75%, and receipts or other acceptable records are held for all of the
expenses.
Registration, Insurance, Fuel, etc. $ 5,326
Depreciation of the vehicle (at 25%) $ 9,500
Deemed interest cost of money used to buy the vehicle $ 2,790
Total operating costs (A) $17,616
multiplied by 25% (percentage of private use as per log book) (B) $ 4,404
Taxable value $ 4,404
However, $1,000 of the fuel costs was paid directly by the employee. Therefore, the taxable value of the
car is reduced by that amount:
Taxable value as above $ 4,404
Less Amount paid by employee (C) $ 1,000
Taxable value after employee payment $ 3,404
The preceding calculation would have been the same if the employee had paid the $1,000 directly to the
employer for the use of the car. Note: The $1,000 (in either situation) would not be tax deductible for the
employee.
Actual operating costs

The actual operating costs (including GST) are those expenses incurred for:
 repairs, but not crash repair expenses met by an insurance company or another person legally
responsible for the damage to the car;
 maintenance;
 fuel;
 registration and insurance (that is, the registration and insurance charges for the year or part of the
year you used the car to provide fringe benefits), and
 leasing costs, if you lease rather than own the car (that is, the leasing costs of the car for the year or
part of the year you used it to provide fringe benefits).
You include operating costs paid by someone else (for example, an employee or associate) when
calculating total operating costs of a car in a year. An exception to this rule is that any crash repair
expenses met by an insurance company or other person legally responsible for the damage to the car are
not included in total operating costs.

Deemed operating costs (not included for leased vehicles)
Deemed costs are relevant only if the car is owned, rather than leased. A car under hire purchase is
considered to be owned by the hirer from the start of the hire purchase agreement.
Depreciation – Deemed depreciation is calculated by multiplying the depreciated value of the car at the
start of the FBT year by the deemed depreciation rate that applied at the time the car was purchased. If
the car was not used to provide fringe benefits for the full year, the depreciation is apportioned to reflect
the period it was used. The income tax depreciation cost limit does not apply for FBT purposes.
The depreciated value of a car for the year in which it is acquired is the cost of the car, excluding
registration and stamp duty charges, but including:
 the cost of non-business accessories;
 GST and luxury car tax;
 dealer delivery charges (including GST).
In a subsequent year, the depreciated value of a car is the cost of the car, reduced by the deemed
depreciation over the previous years. The deemed depreciation rate is calculated using the rate in force at
the time the car was purchased. Those rates are:
Date of purchase Depreciation Rate

Before 1 July 2002 22½%
From 1 July 2002 to 9 May 2006 18¾%
On or after 10 May 2006 25%
Deemed interest costs – Deemed interest costs are those expenses deemed to be incurred for interest
where the car is owned, rather than leased. A car under hire purchase is considered to be owned by the
hirer from the start of the hire purchase agreement. Deemed interest is calculated by multiplying the
depreciated value of the car at the start of the FBT year by the statutory benchmark interest rate
(5.65% in 2016/17).
Using a Log Book to determine the business/private usage

To establish the business use percentage, certain log book rules must be complied with, including the
keeping of a new log book every five years. If these rules are not complied with, the business use will be
taken to be nil and the whole operating cost will be taxed. Essentially, the log book rules require that a log
book be kept recording business journeys for a minimum of 12 continuous weeks for each car. The
odometer readings at the start and end of the 12 week period must be kept. On the basis of the log book
records and any other relevant factors such as fluctuations which would lower the percentage, the
employer may nominate the business percentage which will apply for that year. That percentage may also
be used in subsequent years covered by the current log book provided the business use percentage does
not fall by more than 10% and exceeds 5,000 kilometres during the year. Additional information such as
the car’s make, model, registration number and percentage of business use should be kept as a part of the
business records.
The Tax Office does not produce an official log book, however you can purchase a commercial produced
version or an individually designed version can be used. Regardless of which type of log book is used, all of
the following details must be recorded for each business journey:
 the dates on which the journey began and ended
 the odometer readings at the start and end of each journey
 the kilometres travelled
 the purpose of the journey.
When recording the purpose of the journey, an entry stating ‘business’ or ‘miscellaneous business’ will not
be enough. Your entry should sufficiently describe the purpose of the journey so that it can be classified as
a business journey. Private travel is not required to be shown, but it may be included if it assists with
calculations.

Log book records must be in English and entries should be made at the end of a trip or as soon as
reasonably practicable afterwards. Where two or more business trips are undertaken consecutively on any
day, only one entry for the series needs to be recorded in the log book. For example, an entry for a
salesman who called on 10 customers while working in the Bathurst–Orange area of New South Wales
could record the odometer readings at the start and end of the consecutive journeys and describe the
purpose of the travel as ‘10 customer calls, Bathurst–Orange area’.
The period during which the log book is kept must be specified. This continuous period may overlap two
tax years.
Electronic logbook – A combination of the following items constitutes “log book records”:
 A record of travel undertaken over a representative 12-week period, recorded by an electronic device,
such as a smart phone app or an electronic device that plugs into the car and records distances
travelled, and
 A detailed document recording the details of client visits on each of those days, perhaps in a diary
format — for example, a sales representative’s record of sales made or not made at each visit.
The Tax Office concludes that the separate items will constitute a valid log book, provided each of
requirements of the definition of “log book records” is satisfied by either or both of the items. However,
employers will need to ensure that both information sources are retained for the required record-keeping
period.
Odometer records
Simply, odometer records are a record of the total kilometres travelled by a car during the FBT year or for
that part of the year when it was used to provide fringe benefits. However, the following details must be
recorded for the beginning of each period (that is, year, part-year or log book period) and also for the end
of each period:
 the date the period began, or ended
 the odometer reading at the start of the period.
Replacement cars
If a car is replaced during the year and the business percentage is transferred to a new car, the odometer
records must also include an entry showing odometer readings of the replaced car and the new car on the
replacement date.
Cars that are replaced during the year may be treated as if they were the replaced car for the purposes of
complying with the requirements of the operating cost method. Any requirements to maintain logbooks
and odometer records during the year or in a previous year may be transferred to the new car (if it
remains appropriate) when estimating a business percentage for the replaced car. The transfer of a
business percentage in this way is conditional on the business records the make, model and registration
number of both cars and the date on which the replacement was made being recorded.

6.6.4 FBT Exempt Motor Vehicles
Vehicles that may qualify for the work related use exemption fall into two categories.
Non-cars – There are those vehicles that are not classified as cars because they are designed to carry a
load of one tonne or more, or more than eight passengers.
Cars – Alternatively, under sub-section 8(2), a vehicle may qualify for the exemption if, while classified as a
car, it is a taxi, panel van, utility truck or any other road vehicle that, while designed to carry a load of less
than one tonne, is not designed for the principal purpose of carrying passengers.
Eligibility criteria for exempt vehicles

For both categories stated above an exemption may apply if the employee’s private use of such a vehicle is
limited to:
 travel between home and work
 travel that is incidental to travel in the course of duties of employment
 non-work related use that is minor, infrequent and irregular (for example, occasional use of the vehicle
to remove domestic rubbish).
The exemption also applies to non-work related use by an employee’s associate (i.e. spouse) that is minor,
infrequent and irregular.
Exempt Non-cars
Non-cars are those vehicles that are not classified as a car because they are designed to carry a load of one
tonne or more, or more than eight passengers will be exempt where the above criteria is met. The vehicle
type maybe:
 Single Cab Utes
 Dual Cab Vehicles designed to carry one tonne or more
 Four wheel drives and Wagons (limited)
There is a list of vehicles published by the Tax Office that will qualify for the exemption if the eligibility
criteria are met. The list is not exhaustive. Vehicles are listed by year of the first manufacture of each
model, with that listed model continuing to be a vehicle that may qualify for exemption in subsequent
years. The Tax Office stopped updating the list in 2012. The list can be accessed at:
https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/In-detail/Exemptions-and-concessions/FBT---
exempt-motor-vehicles/
Non-cars ineligible for the exemption – There are some vehicles that the Tax Office deem ineligible for
the FBT exemption regardless of whether the eligibility criteria is met or not. For these vehicles, records
need to be kept and the vehicle needs to be valued for FBT purposes using the statutory formula or
operating cost method. The Tax Office stopped updating the list in 2012. It can be accessed at:
https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/In-detail/Exemptions-and-concessions/FBT---
exempt-motor-vehicles/
Rate per kilometre for non-cars that do not meet eligibility criteria – Where there is additional private
use (i.e. beyond travel to and from home) of a non-car and hence the vehicle is outside the eligibility
criteria for FBT exemption, the following cents per kilometre rates apply for FBT purposes:
Engine capacity Rate per kilometre 2016/17

0 - 2500cc 52 cents
Over 2500cc 63 cents
Motorcycles 16 cents
These rates are from ruling TD 2016/3 Fringe benefits tax: What are the rates to be applied on a cents per
kilometre basis for calculating the taxable value of a fringe benefit arising from the private use of a motor
vehicle other than a car for the fringe benefits tax year commencing on 1 April 2016?

Exempt Cars
A car may qualify for the exemption if it is a taxi, panel van, utility truck or any other road vehicle that,
while designed to carry a load of less than one tonne, is not designed for the principal purpose of carrying
passengers and the eligibility criteria stated at 6.6.4 are met.
Example: Exempt use of a car
An electrical company employee takes the company van (carrying capacity of less than one tonne) home
each night as there is no security at the company premises. The only non-work-related use during the FBT
year was a trip to pick up some furniture and take it to the employee's home. This use of the van would be
exempt from FBT.
If the use of the vehicle exceeds the limits set out above, it is a car fringe benefit. All the private use of the
vehicle, including the travel between home and work, is taken into account in determining the business
percentage under the operating cost method. If no logbook records are maintained, the statutory formula
method must be used to value the car fringe benefit.
Example: Non-exempt use of a car

A council employee takes a utility (carrying capacity of less than one tonne) home each night and on the
weekends. Although the utility is clearly marked as a council vehicle, the employee uses it for shopping and
other private purposes during the week and often for country trips on the weekends.
This use of the utility would not be exempt from FBT and would be treated as a car fringe benefit.
Assuming there are no logbook records, the taxable value of the utility would be calculated using the
statutory formula method.
Dual Cab Vehicles designed to carry less than one tonne

A dual cab that has a designed load-carrying capacity of less than one tonne may qualify for the work
related use exemption only if the vehicle is not designed for the principal purpose of carrying passengers.
To determine whether the majority of the designed load capacity is attributable to passenger-carrying
capacity, multiply the designed seating capacity (including the driver's seat) by 68 kilograms, which is the
remaining 'load' capacity, the vehicle is treated as being designed for the principal purpose figure used for
applying the Australian Design Rules. If the resulting total passenger weight exceeds the remaining 'load'
capacity, the vehicle is treated as being designed for the principal purpose of carrying passengers and so is
ineligible for the work-related use exemption.
Example: Dual cab vehicles
If a vehicle has a gross vehicle weight of 2,000 kgs, a basic kerb weight of 1,400 kgs, and has a designed
seating capacity of five, the vehicle would be considered to be a vehicle designed principally for the
carriage of passengers. This is because the total load capacity is 600 kgs of which the majority is designed
to carry passengers as the passenger weight is 340 kgs (5 passengers weighing an average of 68kg each).
The exemption would not apply.

6.6.5 Novated Leases
The treatment for FBT purposes of a vehicle under a novated lease is little or no different to the
treatment of a vehicle owned directly by the employer. A novated lease allows a motor vehicle to be
purchased in the employee's name whilst still allowing the costs associated with the vehicle to be salary
sacrificed in the same manner as a vehicle that is owned directly by the employer.
Novation is the substitution of a new contract in place of an old one - essentially the employer agrees to
take on the employee’s lease obligations. The employer makes the monthly lease payments to the finance
company and provides a vehicle for the employee’s use as part of a salary packaging arrangement.
Where both parties agree the employee, can choose the make and model, new or used, sedan, wagon,
4WD, etc. purchase the vehicle and then enter into a finance agreement in their own name.
After this, the employee, employer and the finance company all sign a Novation Agreement. The employer
agrees to take on the employee's obligations (repayments) to the finance company, and is responsible for
all of the agreed vehicle expenses. These are deducted from the employee's remuneration as part of your
salary packaging arrangement.
With a Novated Lease, the lease, running costs of the vehicle and Fringe Benefits Tax (FBT) are deducted
from the employee's gross earnings, and PAYG income tax is calculated on the reduced salary. This
effectively increases the employee's net disposable income and they pay less tax.
Full novation
Under this arrangement, an employee leases a vehicle from a financier using a standard finance lease
agreement. The employee, the employer and the financier then enter into a novated lease, which transfers
to the employer for the term of the lease:
 the employee’s obligation to pay the lease payments
 the right to use the vehicle, and
 other obligations under the finance lease.
As the employer in the novated lease, you are entitled to a deduction for lease expenses where the vehicle
is used in the business or provided to an employee as part of a salary packaging arrangement. However,
this rule does not apply to leasing a luxury car. In the case of a luxury car, the deduction is based on an
accrual amount and depreciation is subject to the luxury car depreciation limit.
Split full novation

Under this arrangement, the lessee’s rights and obligations under a finance lease (except the residual
payment obligation) are transferred to the employer.
FBT consequence of full novations or split full novations

A car fringe benefit arises where the employer is the lessee of a car that is provided for the private use of
an employee or associate of the employee. Cars under a full novated lease are subject to the same car
fringe benefit valuation rules as other cars leased by the employer.
FBT consequence of employee purchasing car at less than market value

A residual benefit will arise where the employee purchases the car for less than its market value at the end
of the lease. This is because the opportunity to purchase the car at less than its market value is a residual
benefit and the opportunity to do this is directly or indirectly through the employment relationship.
Transfer of lease to new employer

Upon a terminating event, such as the payment of the last lease payment under the novated lease or
termination of employment, a further novation may occur. Under the further novation, the employer’s
rights and obligations are novated to the employee. The employee becomes the lessee and can take this
lease to another employer. Where an employee transfers a novated lease to a new employer, the base
value of the car is the market value at the time of transfer.

6.6.6 Road Tolls
Road tolls are not included as motor vehicles expenses and must be assessed separately for FBT liability.
When an employer pays for an employee’s road tolls or allows the employee to use their electronic toll
tag, the employee is being provided with a benefit. Employers are required to determine whether FBT is
payable in relation to these benefits.
The types of fringe benefits that may arise in relation to road tolls are:
 expense payment fringe benefits - the employer pays or reimburses an employee’s expenditure on
road tolls; or
 residual fringe benefits - the employer allows an employee to use the organisation's electronic toll tag.
Example 1: Expense payment fringe benefits: employee’s actual road toll expenditure
The employee incurs road toll expenditure when using both their own car and when using the employee's
car for private travel. The employee travels on a toll road on the way to and from work throughout the FBT
year. The employee incurs the road toll expenditure by both cash payments made at a toll booth and by
using an electronic toll tag (the road toll account is in the employee’s name). The employer reimburses the
employee’s road toll expenditure on the production of receipts and electronic toll statements at the end of
each month. The reimbursements of the employee’s expenses will be expense payment fringe benefits and
the taxable value is the amount the employer reimburses the employee.
Example 2: Residual fringe benefit: employer’s actual road toll expenditure
An employee has a salary sacrificed car and on a working day travels from home to work and back on a toll
road. The car is available for the employee’s private use while at home, on weekends and while on
holidays during which road tolls may also be incurred. The car is not used for business purposes and is
available and used by the employee during the whole of the FBT year.
An electronic toll tag (the account is held in the employer's name) is attached to the car and records all
road toll expenditure for that car. Each road toll recorded is a residual fringe benefit provided to the
employee.
All road tolls incurred while undertaking private travel are subject to FBT and the electronic toll statements
provide sufficient details to identify the tolls relating to that car. The total cost of the road tolls shown on
the electronic toll statements is the FBT taxable value.
Does any exemption apply to road to tolls?

An exemption may apply where an employer provides a road toll benefit under the following rules. If an
exemption applies, you do not have to pay FBT on the benefit nor do you have to report the benefit on
your employee’s payment summary.
Minor benefits exemption – Where the value of the road toll is less than $300 and it would be
unreasonable to treat the benefit as a fringe benefit, the minor benefits exemption will apply. For
example, you let your employee use a pool car to travel to and from work on an ad-hoc basis during the
FBT year. Your employee travels on a toll road on the way to and from work. An electronic toll tag (where
the account is held in your name) is attached to the car and records all road toll expenditure for that car.
Your employee takes the car home overnight 10 times during the FBT year (which is 20 tolls). The cost of
each toll is $5.40 including GST. Each road toll recorded when your employee used the car for a private
purpose is a residual benefit. However, the minor benefits exemption would apply to each residual benefit
provided to the employee.
Exempt car benefits – An employee’s use of a taxi, panel van, utility or other commercial car (that is, one
not designed principally to carry passengers) is exempt from FBT under certain circumstances. When an
exempt car (for example, a panel van or a utility truck) is not salary sacrificed, then any road toll benefits
you provide will not be subject to FBT and employee declarations are not required. Where the exempt car
is salary sacrificed, FBT is payable on road tolls incurred while undertaking private travel.

Otherwise deductible rule – Road tolls incurred solely for business purposes are otherwise deductible and
are not subject to FBT. You do not need to have employee declarations in this case. Where the employer
has a policy, which is enforced, that restricts the private use of cars, these can be taken into account when
determining whether road tolls are incurred for business purposes.
Valuation options for road tolls

The following are practical options and examples of how the employer can determine the taxable value of
fringe benefits provided in relation to road tolls. For valuation purposes, road tolls are GST-inclusive and
need to be reported on the employee’s payment summary if subject to FBT.
Here are some alternatives for valuing the amount spent on road tolls for each employee. However, an
employer can use any approach that gives a reasonably based measure of the taxable value of these
benefits.
 Actual value – The taxable value of road toll benefits is the amount paid for each road toll.
 Private use percentage – The private use percentage can be used to determine the taxable value of
road tolls.
 Diary records – Keep a diary or similar record of road toll usage over a four week representative period
which establishes the business/private usage of road tolls over that period and apply the private use
percentage to road tolls for the entire FBT year.
 Other records – Records such as car logbooks, odometer records and running sheets to record car
travel and establish the business and private use of the car in an FBT year can be used. Apply the
percentage of private usage established for an FBT year using these records to the total road tolls
expenditure for the year. Logbooks which comply with the car fringe benefit operating cost method
may only need to be completed every five years.
 Employee’s usual road toll expenditure – Where it is difficult to work out an employee’s expenditure
on road tolls for a pool car, the employee’s usual private road toll expenditure in a normal working
week can be determined and applied to the employee’s working year. Evidence such as electronic tag
records, running sheets and employee attendance records can be used to support the calculation.
6.6.7 Car Parking

There are two types of fringe benefit taxable car parking benefits. They are:
 Car parking fringe benefits; and
 Car parking expense payment fringe benefits.
Car parking provided to an employee that does not fit into either of these categories is exempt from FBT.
Car parking fringe benefit

The provision of certain car parking facilities gives rise to a taxable fringe benefit. The provision of car
parking facilities will constitute a benefit to an employee (or an employee’s associate) only if all the
following conditions apply:
 the car is parked at premises that are owned by, leased by or otherwise under the control of the
provider (usually the employer); and
 a commercial parking station which charges more than $8.48 a day in 2016/17 ($8.37 in 2015/16) is
located within one kilometre of the employer-provided parking facilities; and
 the parking facilities are provided to an employee (or an employee’s associate) in respect of the
employee’s employment; and
 a car is parked at or near the employee’s primary place of employment; and
 the car is parked between 7am and 7pm on a particular day for more than four hours; and
 the car is used to commute between the employee’s home and principal place of employment.
Commercial-type vehicles which do not themselves attract FBT are not subject to car parking fringe
benefits either. The employer-provided parking facilities can include the employer’s business premises or
premises leased by or otherwise under the control of the employer, but not premises used as a place of
residence of an employee or an associate’s employee.

There are five ways to calculate the taxable value of a car parking fringe benefit:
 the commercial parking station method – this method values car parking fringe benefits at the lowest
public all-day parking fee charged in the ordinary course of business by any commercial parking station
within a 1 kilometre radius of the employer-provided car parking facilities, the employer must keep
records of the actual number of car parking fringe benefits provided;
 the market value method – this method uses the market value as determined by an independent
valuer, the employer must keep records of the actual number of car parking fringe benefits provided;
 the average cost method – the method values car parking by reference to an average value of the
lowest fees charged by an operator of a commercial parking station within a one kilometre radius of
the employer’s car parking facilities on the first day of the FBT year and the first day of the next FBT
year, the employer must keep records of the actual number of car parking fringe benefits provided;
 the 12-week register method – once every five years, you must keep records of the use of car parking
spaces for a 12-week period, and value the use as if you had used the commercial parking station
method, the market value method or the average cost method; and
 the statutory formula method – 228 car parking fringe benefits are deemed to arise from the use of
each car parking space during the course of the FBT year and are valued in a way similar to the
commercial parking station method, the market value method or the average cost method.
The commercial parking station method must be used unless you elect to use one of the alternative
methods. You must decide to use an alternative method no later than the day on which your FBT return is
due to be lodged with the Tax Office or, if you do not have to lodge a return, by 21 May. You may elect to
use an alternative method for any or all of your car parking spaces. The use of a particular method in a
previous year does not affect what methods you choose in subsequent years.
Car parking expense payment fringe benefits

In contrast to a car parking fringe benefit, a car parking expense payment benefit may arise if:
 an employee incurs expenditure on car parking, and the employer subsequently reimburses the
employee or pays for the car parking expenses on behalf of the employee, and
 the car is parked at or near the employee’s primary place of employment for more than four hours
between 7am and 7pm on the day the expenses are incurred, and the car is used by the employee to
travel between home and work on that day.
In the case of car parking expense payment benefit, the proximity to a commercial parking station and the
daily fee charged by it are not relevant. The taxable value of a car parking expense payment fringe benefit
is the amount the employer reimburses or pays.
Employers exempt from car parking/car parking expense fringe benefits

The following employers who are otherwise liable to pay FBT are exempt from car parking fringe benefits
and car parking expense payment benefits:
 a scientific institution (other than an institution run for the purposes of profit or gain to its
shareholders or members)
 a religious institution
 a charitable institution
 a public educational institution, and
 a government body, but only in relation to an employee who is employed exclusively in, or in
connection with, a public educational institution.
Small / Medium business car parking exemption

Car parking benefits you provide are exempt from FBT if:
 you don’t provide the car parking in a commercial car park; and
 you aren’t a government body, a listed public company or a subsidiary of a listed public company; and
 the entity’s total ordinary and statutory income for the last income year was less than $10 million.

6.7 Specific Treatment of Other Fringe Benefits
6.7.1 Expense payments

An expense payment benefit arises where an employer pays or reimburses an employee for expenses
incurred. The taxable value of an expense payment benefit is generally the amount of the expenditure
incurred by the employee which is paid or reimbursed by the employer.
Credit card payments

A credit card must have an amount owing on it for an employer payment to be an expense payment fringe
benefit. If there is no amount owing on the card, it would not be an expense payment fringe benefit but
instead, salary and wages.
6.7.2 Other benefits (“residual” benefits)

There is a residual category of benefits not covered by any of the previously mentioned valuation rules.
The only criteria for such a benefit are that there must be something that can be identified as a benefit,
and the necessary employment relationship must exist to make the benefit a fringe benefit. Examples of
residual benefits would include the supply of free or discounted services such as for travel or the
performance of professional or manual work, the use of property and the provision of insurance coverage.
Different fringe benefit valuation rules apply according to whether or not benefits in this residual class are
of a kind that the employer provides to the public in the ordinary course of business. Where the benefits
are of a kind ordinarily provided as part of the employer’s business, the taxable value is 75% of the lowest
price charged to the public less any amount paid by the employee. If the benefits are similar but not
identical to those provided to the public, the value will be based on 75% of the amount that a person could
reasonably have expected to pay as an arm’s length consideration, i.e. broadly, market value.
Where benefits do not relate to things of a kind ordinarily provided to the public as part of the employer’s
business, the taxable value is, generally, the amount by which the cost to the employer of supplying the
item exceeds any amount paid by the employee. If a benefit is not provided directly by the employer, but
the employer incurs expenditure to a third party under an arm’s length transaction in respect of their
provision to the employee (e.g. where the employee uses the employer's credit card to obtain the benefit)
the taxable value is the amount incurred by the employer. In any other case, the taxable value is the
amount the employee could expect to pay for the benefit under an arm’s length transaction, less any
amount paid for the benefit.
6.7.3 Meals & Board

Special rules apply where an employee is provided with board by an employer. An employee is treated as
being provided with board if the employee is entitled to the provision of accommodation and:
 there is an entitlement under an industrial award to at least two meals a day; or
 under an employment arrangement, at least two meals a day are ordinarily provided.
The taxable value of board meals is $2 for each meal to a person 12 years or more at the beginning of the
year of tax and $1 per meal for a younger person, less any amount paid for the meal.
Exemption for meals provided by primary producers in remote areas

Meals provided on a working day to employees of a primary producer in a remote area are exempt from
FBT. If the meals are part of board, the exemption also applies to meals provided to associates of the
employee, such as a spouse or child. The exemption is not available for entertainment meals. The
exemption applies when the meal is not an entertainment meal and is provided:
 by an employer who is a primary producer conducting business in a remote area;
 to an employee working in a primary production business located in a remote area, or to associates of
the employee where the benefit is part of their board; and
 on a working day.
6.7.4 Housing
A housing fringe benefit arises where an employer grants an employee a “housing right”. This is a right to
occupy or use a unit of accommodation as a usual place of residence. The right must subsist for more than
one day. If the accommodation is not the employee’s usual place of residence, the benefit will not be a
housing benefit but will be a residual benefit. The valuation rules applying to housing fringe benefits
depend on whether the accommodation is outside Australia, in a non-remote part of Australia, or in a
remote area of Australia.
Exemptions and reductions for housing are discussed later in this section.
6.7.5 Property and Goods

A property fringe benefit arises where an employee is provided with property, free or at a discount, by an
employer. This is applicable to all types of property, including goods, real property, shares and other
securities or rights, etc. It also covers gas and electricity which is not reticulated (the provision of
reticulated gas and electricity is a residual benefit). Goods supplied to an employee on a working day,
which are consumed on the employer’s premises, or on premises of a related company (i.e. a daily ration
of beer consumed by brewery workers at work) are an exempt property benefit. The Commissioner also
takes the view that the provision of morning and afternoon tea is an exempt property fringe benefit. Light
lunches will be similarly treated, although the more elaborate they become, the less likely it is that they
will qualify for an exemption.
6.7.6 Airline Transport

An airline transport benefit arises where an airline operator provides airline transport to one of its own
employees, an employee of another airline operator or an employee of a travel agent. The value of the
benefit is the market value.
6.7.7 Loans/Debt Waiver

A loan fringe benefit arises where an employer makes a loan to an employee. A loan fringe benefit also
arises where an employer allows a debt owed by an employee to run past the due date for payment. If
interest accrues on the unpaid amount, the loan is deemed to be made at that rate of interest. A loan on
which interest accrues, but where the interest is not payable at least every six months, gives rise to a new
loan of that deferred interest.
The taxable value of a loan fringe benefit is the difference between a notional amount of interest,
calculated on the daily balance of the loan during the year at a statutory interest rate, and any interest
actually accruing on the loan. The so-called “benchmark” interest rate is:
 1/4/2016 to 31/3/2017 5.65%
6.7.8 Entertainment Expenses
Entertainment and FBT categories

There is no category of fringe benefit called an entertainment fringe benefit; however the following
different types of fringe benefit may arise from providing entertainment:
 an expense payment fringe benefit, for example, the cost of theatre tickets purchased by an employee
and reimbursed by the employer;
 a property fringe benefit, for example, providing food or drink;
 a residual fringe benefit, for example, providing accommodation or transport; or
 a meal entertainment fringe benefit, for example providing food or drink that is entertainment to
associates of your employees.

Valuing entertainment
Entertainment of clients, customers, suppliers and any other non-employees is not tax deductible, and is
not subject to FBT. But entertainment provided to an employee (or an employee’s associate) is subject to
fringe benefits tax, and is deductible for income tax purposes. Where the entertainment is provided to
employees and non-employees jointly, it is necessary to determine that part which relates only to the
employees. Employers have a total of three options for determining the value of entertainment:
 The 12-week register method. This is the total taxable value of meal entertainment fringe benefits you
incur in providing meal entertainment to all people (whether employees, clients or otherwise) during
the FBT year, multiplied by the ‘register percentage’. Your total meal entertainment expenditure
includes expenditure that might otherwise be exempt from FBT or not normally subject to FBT. You
must keep the register for a continuous period of 12 weeks. The provision of meal entertainment
during this period must be representative of the meal entertainment you provide during the first FBT
year for which the register is valid. Generally, a register is valid for the year in which you keep it and
the four following years. However, if the period during which you keep the register begins in one FBT
year and ends in the following FBT year, the register is not valid for the first year. If the total expenses
you incur in providing meal entertainment increase by more than 20% in a year, the register is not
valid for any of the years following the year in which the increase occurred.
 The 50-50 split method. The total taxable value of meal entertainment fringe benefits is 50% of the
expenses you incur in providing meal entertainment to all people (whether employees, clients or
otherwise) during the FBT year. Your total meal entertainment expenditure includes expenditure that
might otherwise be exempt from FBT or not normally subject to FBT.
 The actual method – THIS METHOD MUST BE USED FOR ALL SALARY SACRIFICED MEAL
ENTERTAINMENT BENEFITS. The taxable value of meal entertainment fringe benefits is the actual
amount you pay for the benefit of the employee (and/or their associates). Entertainment you provide
to your clients will not be subject to FBT under this valuation method.
Specific information about Christmas parties

Employers may encounter many different circumstances when providing employees with a Christmas
party. Employers who do not use either the 50-50 split method or the 12-week register method for meal
entertainment will use this information to help determine whether FBT implications arise from a Christmas
party. The minor benefit rule does not apply to tax exempt bodies, rules for these organisations will be
covered further on.
Christmas party on the employer's business premises only for employees – Food and drink provided on a
working day on the employer’s business premises will be exempt from FBT if consumed only by current
employees. This is regarded as an exempt property fringe benefit.
All other Christmas parties – Christmas parties held under all other circumstances will be exempt if the
total amount spent per person equates to $300 or less. Employees and each of their associates are entitled
to a benefit limit of up to $300. This is considered to be exempt under the minor benefit rules. When
calculating the total costs for minor benefit purposes, all catering costs must be taken into account and the
cost of gifts such as bottles of wine and hampers distributed at the party. Where the total exceeds $300
per person, a taxable fringe benefit will arise.
Tax deductibility of a Christmas party – Any costs in relation to a Christmas party that are exempt from
FBT (that is, exempt minor benefits and exempt property benefits) cannot be claimed as an income tax
deduction. A deduction can only be claimed in relation to the costs that are subject to FBT. The costs of
entertaining clients are not subject to FBT and are not income tax deductible.
Note: Opting to not claim the employee’s entertainment as a tax deduction does not relieve the employer
of the FBT liability.
Note: Rules for non profit bodies in relation to meal entertainment will be covered further on. Information
for PBIs and the like is also covered further on in this section. Alternatively, the Tax Office provides, on
their website (www.ato.gov.au), specific publications for non-profit organisations, small business and
government in relation to FBT and entertainment.
Entertainment Table
The following table is shown in the Tax Office's Guide to Fringe Benefits. It summarises the FBT and income
tax implications that may arise from the provision of entertainment to employees and others. FOR MORE
DETAILED TABLE SEE TAX OFFICE RULING TR 97/17.
Situation Income Tax FBT

Employee takes two clients to lunch at a restaurant Employee’s portion Employee’s portion
– cost $150 $50 tax deductible $50 fringe benefit
Client’s portion Client’s portion
$100 non-deductible No FBT
Employee has meal in restaurant while travelling on Tax deductible No FBT (‘otherwise
business trip deductible’ rule)
Employee has meal in an ‘in-house canteen’ Tax deductible Exempt from FBT
Employer provides sandwiches and juice for Tax deductible Exempt from FBT
working lunch in office (not entertainment)
Employer provides substantial lunch with wine for Non-deductible Exempt from FBT
employees in office but not in ‘canteen’
Employer provides social function for employees in Non-deductible Exempt from FBT
office
Employer provides social function for employees Cost per employee Cost per employee
and associates in office Non-deductible Exempt benefit
Cost per associate Cost per associate
Tax deductible Taxable fringe benefit
Employer reimburses employee for cost of private Amount reimbursed is tax Taxable fringe benefit
party deductible
Employer provides employee and associates with Tax deductible Taxable fringe benefit
theatre tickets
Grossing-up for meal entertainment expenses

The GST legislation denies input tax credits for various non-deductible expenses, including entertainment
expenses, except when the entertainment expenses are fringe benefits and are therefore deductible for
income tax purposes. Those organisations not using the 50-50 split method are entitled to an input tax
credit to the extent of the expense relating to the actual employee. Those organisations using the 50-50
split method are entitled to an input tax credit on the deductible portion of the entertainment expenses.
Where an input tax credit is claimable, meal entertainment expenses will be grossed-up using the rate of
2.1463.
Only the actual method can be used for valuing salary sacrificed meal entertainment benefits
All salary packaged meal entertainment and entertainment facility leasing expenses (EFLE) benefits cannot
have their taxable value calculated using the elective valuation rules such as 50-50 split method and 12
week register method. Only the actual method can be used to value salary sacrificed meal entertainment
benefits. Those that are not salary sacrificed can be valued using any of the three methods.
6.7.9 Benefits Provided by a Third Party

A benefit provided by a third person to an employee is a fringe benefit if:
 the benefit is provided under an arrangement, which involves an agreement of some kind, between
the employer and the third party (e.g. unilateral action by the third party will be insufficient); or
 the employer knowingly participates in or facilitates a scheme or plan involving, the provision of the
benefit. The definition of a fringe benefit currently includes benefits provided to an employee by a
person other than the employer under an arrangement between the employer and that person or
another person (an employer for these purposes includes an associate of the employer).
Example: John is employed in a travel agency. His employer makes him aware of a special offer by XYZ
Airlines which offers special incentives to travel agents who sell a quota of ticketed seats on their airline.

Over a period of time John books several of his customers on flights run by XYZ Airlines. The airline shows
its appreciation to John by providing him with a free air ticket to the destination of his choice.
An employer will be taken to have known that he or she was participating in, facilitating or promoting the
provision of a benefit if he or she did not actually know but ought reasonably to have known this.
However, an employer will not be liable for FBT if the employer did not agree to, and was not involved in
the provision of the benefit, regardless of whether the employer knew that the benefit had been provided.
6.7.10 Paying salary in bitcoins

Bitcoins are a new digital currency introduced in 2009 and used for online purchases. The ATO has
confirmed that where an employee has a valid salary sacrifice arrangement with their employer to receive
bitcoins as remuneration instead of Australian dollars, the payment of the bitcoins is a fringe benefit and
the employer is subject to the provisions of the Fringe Benefits Tax Assessment Act 1986.
In the absence of a valid salary sacrifice agreement, the remuneration is treated as normal salary or wages
and the employer will need to meet their pay as you go obligations as usual.
6.8 Living-away-from-home allowance (LAFHA)

A LAFHA fringe benefit arises where an employer pays an employee an allowance to compensate for
additional expenses or other additional disadvantages suffered because the employee (with or without
family) has to live away from his or her usual place of residence for employment purposes.
6.8.1 LAFHA eligibility

For a payment to an employee to be considered a LAFHA, all of the following conditions must be met.
 It is an allowance paid to an employee in respect of their employment.
 The duties of their employment require the employee to live away from their normal residence which
is located in Australia – the employee is required to maintain a home in Australia at which they usually
reside. That residence must be available for their immediate use and enjoyment during that period
that their employment requires them to live away from home (with the exception of fly in–fly
out/drive in-drive out workers).
 The payment must be in respect of the first 12 months the employee is living away from home (with
the exception of fly in–fly out/drive in-drive out workers).
 The allowance is compensation for non-deductible additional expenses an employee incurs and other
disadvantages suffered, because the duties of the employee's job require them to live away from their
normal residence.
Guidelines for determining whether an employee is living away from home

Whether or not an employee is living away from home will depend on the facts of each case. However the
Tax Office can apply similar principles to determine if an employee is living away from their normal
residence. For example:
 Has the employee's driver's license or electoral enrolment been changed? – Where an employee
updates the electoral role or their license to the location to which they have moved, the less likely it is
that they are living away from home. These changes may indicate more of a permanent relocation
rather than living away from home.
 Has the employee taken a permanent role when transferring to a new locality or is the appointment of
fixed duration? – An employee would be regarded as living away from their normal residence
provided that they intend to return there at the end of the term of the transfer.
Employees generally regarded as living away from home

Generally, employees in the following kinds of situations would be regarded as living away from their
normal residence:

 construction workers living in camps, barracks or huts
 oil industry employees living on offshore oil rigs
 marine industry employees living on board vessels
 trainee employees, such as trainee teachers, who are living away from home in order to undergo
training courses of extended duration.
6.8.2 Benefits an eligible employee can receive

A living-away-from-home allowance (LAFHA) is an allowance the employer pays an employee to
compensate for additional expenses incurred and any disadvantages suffered because the employee's
duties of employment require them to live away from their normal residence.
The employer can provide an eligible employee with LAFHA either by:
 reimbursing the employee's actual food costs and/or accommodation expenses incurred at the new
location, or
 providing the food or accommodation by paying the supplier directly.
Exempt accommodation component

The accommodation component is the amount of the LAFHA fringe benefit that it is reasonable
compensation for expenses incurred by the employee for accommodation while the employee is living
away from home. The accommodation expenses are for both the employee and any eligible family
members, such as the employee’s spouse and children.
The exempt accommodation component is so much of the accommodation component that equals the
accommodation expenses actually incurred by the employee. Where the expense is incurred by another
family member’s, these expenses will be seen as been incurred by the employee. That family member is
considered to be acting as an agent of the employee.
The employee must substantiate all accommodation expenses. If an employee does not spend all of the
LAFHA provided in respect of the accommodation component, the excess is not an exempt
accommodation component and is taxable.
Example: Accommodation component exempt
Steve receives a LAFHA from his employer which includes an accommodation component of $450 while he
is seconded to Perth for 12 months. His normal residence is in Melbourne, and his Melbourne home
continues to be available for his immediate use during his secondment. Steve resides with his wife, Helen,
who rents a house in Perth for 12 months at a cost of $450 per week. The exempt accommodation
component in this case is $450, provided the substantiation requirements are met.
Example: Part of accommodation component liable or FBT
Steve and his wife Helen both work for the same employer and receive a LAFHA. Each LAFHA includes an
accommodation component of $450 while they are seconded to Perth for 12 months. Steve and Helen's
normal residence is in Melbourne, and their Melbourne home continues to be available for their
immediate use during their secondment. Steve and Helen rent a house together in Perth at a cost of $450
per week.
Steve and Helen's separate exempt accommodation components in this case are $225 each per week,
provided the substantiation requirements are met.
As Steve and Helen are each receiving an accommodation component of $450 per week, but are only
spending $225 each per week, the excess of $225 each per week ($450 - $225) is not an exempt
accommodation component. This excess of $225 each per week will form part of the taxable value of their
respective LAFHA fringe benefits.

Exempt food component
The food component in relation to a LAFHA fringe benefit is the amount regarded as compensation for
expenses to be incurred by the employee for food or drink while the employee is living away from home.
The expenses are for food or drink for both the employee and any eligible family members.
The reasonable amounts for food and drink that can be paid to an employee and their family living away
from home are contained in ruling TD 2016/4. The rates for those within Australia are as follows:
Family Unit Per week 2016/17

One adult $242
Two adults $363
Three adults $484
One adult and one child $303
Two adults and one child $424
Two adults and two children $485
Two adults and three children $546
Three adults and one child $545
Three adults and two children $606
Four adults $605
Example: calculation of reasonable amounts for food and drink - within Australia
Jasper, his wife and their two children (both under 12 years of age) temporarily move to Brisbane from
Sydney for a period of 5 months (from 1 May 2016 to 30 September 2016; 21 weeks and 6 days) for Jasper
to work on a project for his employer. Jasper receives a LAFHA from his employer. Jasper does not need to
substantiate his family’s food and drink expenses during the 5 month period if his total expenses do not
exceed $10,601 ($485 per week multiplied by 21 6/7 weeks). If Jasper’s family’s total food and drink
expenses for the period exceed $10,601, Jasper will have to substantiate all of the expenses incurred, or
his employer will be liable to FBT on the amount of LAFHA paid to Jasper that is in excess of $10,601.
Note: Jasper is not required to substantiate his family’s food expenses during the period he is LAFH as the
amount did not exceed the ATO’s reasonable amount. FBT liability: The table as shown above (taken from
determination TD 2016/4) already excludes the statutory food amounts and therefore no FBT will be
payable where a food allowance is paid up to these limits.
Reasonable food amounts for employee’s outside of Australia

The reasonable amounts for food and drink that can be paid to an employee located outside of Australia
can be viewed in TD 2016/4 as these amounts differ depending on which country the employee is in.
6.8.3 Substantiation of expenses

An employee's accommodation expense incurred must be substantiated in full, regardless of the amount.
Employers should ensure that the employee provides either:
 documentary evidence of the expense (lease agreements, credit card statements, bank statements,
mortgage documents, receipts), or
 declaration/s about the expense in the approved form.

Employers may need to obtain two employee declarations as follows:
 Living away from home declaration – employees who maintain an Australian home states the
employee’s usual place of residence and the actual place of residence during the period of the
allowance.
 Living-away-from-home declaration – employee related expenses is used to provide their employer
with information about accommodation and food or drink expenses. It is not necessary where the
employee has provided their employer with the documentary evidence of the accommodation and
food or drink expenses.
If declaration/s are not obtained, FBT applies the whole amount of the LAFHA.

6.8.4 LAFHA is an exempt benefit only for the first 12 months
With the exception of fly-in fly-out (drive-in drive-out) employees, the fringe benefit has to relate to only
the first 12 months that an employee is living away from home in Australia for the purposes of their
employment. The 12 months do not have to be consecutive.
The 12-month period can be paused – for example, the employee is taking leave, such as annual leave,
long service leave or sick leave. The table below outlines how the 12-month period is affected by various
employment situations.
If… Then…
You pause the 12-month period for the employee and continue to The taxable value of the fringe benefit is not
pay them a LAFHA reduced by any exempt accommodation or
exempt food component during the paused
period.
The full amount of the fringe benefit is taxable
during the paused period.
The employee moves to another location to perform the duties of A new 12-month period starts at the new
employment (the employee’s work location changes), and employment location.
it is unreasonable to expect the employee to commute to the new The balance of the 12-month period is
location from the earlier location for which a LAFHA was provided available if the employee returns to the
previous employment location.
An employee takes up employment with an associate of their The 12-month period is not affected – that is, it
employer, and works in the same employment location is accumulated under both employers; there is
not a new 12 months under the associated
employer.
Any other changes in the nature of the employee’s employment are The 12-month period is not affected.
made within the same work location, such as changes to the
conditions of employment (a promotion of the employee to a
management position, or a change in the employee’s job title)
The employee takes up employment with a different employer, who A new 12-month period starts when the
is not an associate of their previous employer employee changes employers.
Example – 12 months period is paused

Jess receives a LAFHA from her employer while she is seconded to Brisbane for 12 months. Her normal
place of residence is in Canberra. She is living in a serviced apartment in Brisbane. Part of the way through
the secondment, Jess takes a month’s leave. Her employer wants her to complete a full 12-month
secondment in Brisbane and pauses the 12-month period while she is on leave. During the paused period,
Jess does not lease the serviced apartment in Brisbane and her employer does not pay her a LAFHA.
When Jess resumes her secondment in Brisbane, the employer again pays her a LAFHA and the 12-month
period recommences. Had Jess continued to lease the serviced apartment during the pause in the
12-month period, and Jess’s employer continued to pay her a LAFHA during this time, the LAFHA paid for
the period of leave would have been taxable for FBT purposes.
Example – 12 months period restarts at new location

Frank lives and works in Canberra. His employer asks him to work in Sydney for a period of nine months,
for which a LAFHA will be paid. After that period of employment in Sydney, Frank returns to Canberra. The
LAFHA fringe benefit provided to Frank for the nine months relates to part of the first 12 months that
Frank is living away from his Australian home.
At a later time, Frank’s employer asks him to work in Melbourne for a number of months. Because this is a
new work location, a new 12-month period starts for any LAFHA paid to Frank during his time working in
Melbourne.

Example – 12 month period split over 4 years
Ruth lives and works in Brisbane. For three months of the year, her job requires her to live away from her
normal residence and work in Canberra. She returns to her normal residence in Brisbane for the remainder
of the year. This arrangement continues for five years, during which time there is no change to Ruth's
employer, work location and duties.
In this case, the LAFHA paid by Ruth's employer is taxed concessionally in each of the first four years. In
each of those years, only three months of the first 12 months are used. In the last year however, the
LAFHA is subject to FBT as no part of the allowance being paid relates to the first 12 months that Ruth is
living away from home.
6.8.5 Fly-in fly-out/drive-in drive-out workers complete declaration

This declaration (Living-away-from-home declaration - employees who fly-in fly-out or drive-in drive-out)
is used by employees who receive a living-away-from-home allowance or benefit for accommodation and
food or drink and work on a fly-in fly-out or drive-in drive-out basis. These workers are not subject to the
maintain residence rule or the 12 months rule.

6.9 Exemptions, Reductions & Concessions
6.9.1 Benefits to which FBT does not apply

 Payments of salary or wages;
 Approved employee share acquisition schemes;
 Employer contributions to complying superannuation funds;
 Eligible termination payments (e.g. a ‘company’ car given or sold to an employee on termination – the
grossed-up value of this will be shown on the ETP payment summary).
6.9.2 Minor benefits

For the minor benefits exemption to apply, employers must show that the benefit satisfies two
requirements. These requirements are:
 the taxable value of the benefits is less than $300; and
 having taken everything into account, it would be unreasonable to treat the benefit as a fringe benefit.
It would be unreasonable to treat a minor benefit as a fringe benefit where:

 you provide the benefit infrequently and irregularly
 the taxable value of the minor benefit and other similar or identical benefits (if they were treated as
fringe benefits) is low
 the likely total taxable value of the minor benefit and other associated benefits is low – associated
benefits are those provided in conjunction with the minor benefit, for example, accommodation,
board, electricity and telephone benefits provided as part of an accommodation package
 it is difficult to calculate the taxable value of the benefit and any associated benefits
 the benefit is provided as a result of a contingency (for example, unexpected overtime).
The minor benefits exemption is generally not available to tax exempt bodies when valuing meal
entertainment benefits. This rule does not apply to Public benevolent institutions (PBIs) or Public Health
employers.
Tax Office examples

Example 1: The manager of a small business gives flowers to Jane, an employee, on the birth of her
daughter. The flowers have a taxable value of less than $300. This is an exempt minor benefit because the
flowers are provided on an irregular basis. If the manager gave Jane a pram valued at $350 instead of the
flowers, this would not be an exempt minor benefit because the value of the pram is more than $300.
Example 2: The manager of a small business gives flowers to the business’s administrative assistant each
week. The value of the flowers is $15. Because the flowers are provided on a regular basis, this is not an
exempt minor benefit.
Example 3: The manager of a small business gives Graham, an employee, two movie tickets with a total
value of $63. The movie tickets were given to thank Graham for completing a project within a short time
frame. This is an exempt minor benefit because the value of the tickets is less than $300 and the tickets are
not provided on a regular basis. The occasional use of an employer’s vehicle by an employee for a special
purpose, such as rubbish removal or for travel from home to work during a transport strike, is an exempt
benefit provided the employee in question didn’t have a general entitlement to use the vehicle for private
purposes.
In some cases, the benefit would be of sufficient value to override considerations of irregularity or lack of
frequency. For example, a one-off loan of a four-wheel drive vehicle to an employee to travel cross-
country during an extended annual holiday break may not be exempt because the actual value of such a
benefit is not small. A special rule in relation to Christmas parties, see meal entertainment.

6.9.3 Remote Area housing
Boundaries for remote area housing

For most employers, accommodation is in a remote area if it is not in or near an urban centre.
Accommodation is classified as being near or adjacent to an eligible urban area and therefore not remote
where it is situated:
 less than 40 kilometres from an eligible urban area with a census population of 14,000 to less than
130,000, or
 less than 100 kilometres from an eligible urban area with a census population of 130,000 or more.
If the accommodation is in zone A or B (for income tax purposes), to be remote it must be located:
 at least 40 kilometres from an eligible urban area with a census population of 28,000 to less than
130,000, and
 at least 100 kilometres from an eligible urban area with a census population of 130,000 or more.
Note: The zone A and B requirement is not applicable to employees of:

 a public hospital
 a government body where the duties of the employee are exclusively performed in, or in connection
with, a public hospital or a non-profit hospital
 a hospital carried on by a non-profit society or a non-profit association
 a charitable institution
 a public ambulance service, or
 a police service.
For these employees, regardless of whether or not they are located in a zone A or B area (for income tax
purposes), an employee’s housing will no longer be considered adjacent to an eligible urban area (and will
therefore be remote), where it is situated less than 40 kilometres via the shortest practical surface route
from the centre point of an eligible urban area of less than 130,000 people. For eligible urban areas of
130,000 or more, an area adjacent to an eligible urban area (and therefore not remote) will remain as
being within 100 kilometres via the shortest practical surface route from that eligible urban area’s centre
point.
Full exemption where employer leases or owns remote area property

A remote area housing benefit is an exempt benefit. A housing benefit qualifies as a remote area housing
benefit if each of the following conditions is satisfied:
 for the whole of the tenancy period, the unit of accommodation is in a remote area (that is, it is not
located in or adjacent to an eligible urban area); and
 for the whole of the tenancy period, the accommodation is occupied by a person who is your current
employee, and the usual place of employment of the employee is in the remote area.
As well as the above conditions, it must also be necessary for the employer to provide accommodation for
employees or to arrange to provide such accommodation because:
 the nature of your business is such that employees are liable to move frequently from one residential
location to another; OR
 there is insufficient suitable residential accommodation otherwise available at or near the place or
places where the employees are employed; OR
 it is customary for employers in that industry to provide free or subsidised accommodation for
employees.
Exemption for meals provided by primary producers in remote areas

Meals provided on a working day to employees of a primary producer in a remote area are exempt from
FBT. If the meals are part of board, the exemption also applies to meals provided to associates of the
employee, such as a spouse or child. The exemption is not available for entertainment meals. The
exemption applies when the meal is not an entertainment meal and is provided:
 by an employer who is a primary producer conducting business in a remote area;
 to an employee working in a primary production business located in a remote area, or to associates of
the employee where the benefit is part of their board.
Remote Area Concessions
Some benefits provided to employees who work in designated remote areas are valued on a concessional
basis and are as follows:
Remote area loan – If an employer provides a loan fringe benefit connected with a dwelling to an
employee and the employee occupied or used the dwelling as their usual place of residence during part of
the FBT year (the occupation period) when they had to repay some or all of the loan, and the shared
conditions are met, then the employer is entitled to a reduction of 50% of the taxable value of the loan
fringe benefit that relates to the occupation period.
Remote area interest – If an employer provides an expense payment fringe benefit for interest accrued by
their employee on a remote area housing loan connected with a dwelling that employee occupied or used
the dwelling as their usual place of residence during part of the FBT year (the occupation period) when the
interest accrued, and the shared conditions are met, then the employer is entitled to a reduction of 50% of
the taxable value of the expense payment fringe benefit that relates to the occupation period.
Remote area rent – If an employer provides an expense payment fringe benefit for rent accrued by your
employee for a unit of accommodation and the employee used the unit of accommodation as their usual
place of residence during part of the FBT year (the occupation period) when the rent accrued, and the
shared conditions are met, then the employer is entitled to a reduction of 50% of the employee’s
expenditure that relates to the occupation period. The reduction applies to 50% of the employee’s
expenditure (the gross rent), not to 50% of the taxable value.
Remote area residential property expense payment benefit – If an employer provides an expense
payment fringe benefit to an employee and the employee’s expenditure is in respect of a remote area
residential property, then the employer is entitled to reduction of 50% of the taxable value of the expense
payment fringe benefit. The expenditure must be in relation to the:
 employee’s purchase of land on which they intend to build, or complete the building of, a dwelling –
provided they intend to occupy the dwelling as their residence and that they made sustained
reasonable efforts to start building within six months and to occupy the dwelling within 18 months
after they incurred the expenditure;
 building of a dwelling on land held by the employee - provided they intend to occupy the dwelling as
their residence and they made sustained reasonable efforts to start building within six months and to
occupy the dwelling within 18 months after they incurred the expenditure.
 purchase of land on which there is already a dwelling – provided they use the dwelling as their usual
place of residence as soon as reasonably practicable after incurring the expenditure;, or
 extension of a dwelling on the employee’s land by adding a room or part of a room to the dwelling -
provided they use the dwelling as their usual place of residence as soon as reasonably practicable after
incurring the expenditure .
Associated fuel benefits – Residential fuel is any form of fuel (including electricity) used for domestic
purposes. If an employee is provided with residential fuel for use in connection with the employee’s usual
place of residence, the taxable value of the fringe benefit may be reduced. This can occur when the fringe
benefit is an expense payment fringe benefit, a property fringe benefit or a residual fringe benefit and the
employee is the recipient also of:
 a remote area housing fringe benefit;
 a remote area housing benefit which is an exempt benefit;
 a remote area housing loan fringe benefit; or
 a remote area housing rental fringe benefit.
“Fly-in fly-out” arrangements – Instead of providing permanent residential accommodation to their

employees in designated remote areas, some employers choose to provide regular transport between the
employee’s place of residence and the work site. The provision of transport on this basis is exempt from
fringe benefits tax where it would be unreasonable to expect the employee to travel to and from work on
a daily basis.

Remote area holiday travel –Employees working in remote areas may, under an award or industry custom,
be reimbursed for the costs of, or may be provided with, transport in connection with extended recreation
leave (of more than three days) from the work locality to the town from which they were engaged to work
or to the capital city of the State or Territory where the work place is located. In such cases the taxable
value of the resulting fringe benefit will be reduced by 50%.
6.9.4 Concessions for employees posted overseas
Holiday transport – overseas employment

Fringe benefits arising from holiday travel provided in accordance with an award or industry custom to
employees posted overseas, receive concessional treatment. The travel must be in connection with leave
of more than three days and also applies to the employee's family, whether or not they live with the
employee at the overseas post.
Benefits eligible for the reduction are those that arise from providing transport and, where appropriate,
meals and accommodation in connection with that transport. The concession applies to both Australian
employees posted overseas and overseas residents posted to Australia. Where the travel is not to the
home country, the concession is limited to 50% of what is called the ‘benchmark travel amount’. The
benchmark travel amount is normally the cost of a return economy air fare, determined at the
commencement of the employee’s holiday.
Where the travel is to the home country, the 50% discount applies to the actual cost of travel, even if the
cost exceeds the benchmark travel amount. For example, this would occur when an employee travels to
their home country on a first-class flight.
If an employee is provided with more than one overseas holiday trip during an FBT year, the concession is
determined by calculating the 50% discount for each trip and using the highest discount as the concession
for that year. If the holiday travel benefit is in the form of a reimbursement of the employee’s expenses,
the employer must obtain documentary evidence of the expenses by the time you are required to lodge
your FBT return. However, if the benefit is a reimbursement of car expenses on a cents per kilometre basis,
a signed declaration from the employee must be obtained that sets out the make, model and engine
capacity of the car, the number of kilometres it travelled on the holiday, and the number of persons who
travelled in the car.
Education of children – overseas employees

The reduction is available where:
 any part of the full-time education is undertaken by the child when the employee is posted overseas,
and
 the benefits are provided in accordance with an award or industry custom.
The concession applies to both Australian employees posted overseas and overseas residents posted to
Australia. The employee’s child doesn’t have to accompany the employee overseas in order for you to be
entitled to this concession. The full-time education can be provided to a child at a school, college or
university, or by a tutor. Where the child receives their education at a school, college or university, the
employee must be posted overseas for 28 days or more.
Education costs you bear for children of employees who are posted overseas will be reduced
proportionately, in accordance with the extent that the benefit relates to the period of the employee’s
service overseas. If the overseas service commences or ceases during a school term, and the child receives
their education at a school, college or university, the education costs relating to the whole term will be
subject to the reduction. Where the child receives their education by a tutor, the reduction applies to the
education costs relating to the period from the day the posting started to the day the posting ended. For
the purposes of this concession, a child is an employee’s child who is less than 25 years of age at the time
the benefit is provided. If you reimburse the education expenses incurred by the employee, you must
obtain documentary evidence of the expenses before you lodge your FBT return (21 May).

6.9.5 Relocation Exemptions
Temporary accommodation at former location

The concession applies to temporary accommodation at the employee’s former location only if the
temporary accommodation is necessary because the former home is unavailable or unsuitable for
occupancy because of the relocation (for example, furniture removal). In that case, the concession applies
to the temporary accommodation for a maximum 21-day period ending on the day the employee starts
work at the new location.
Temporary accommodation at new location

Where the temporary accommodation is at the new location, the employee must start to make sustained
and reasonable efforts to buy or lease suitable long-term accommodation as soon as reasonably
practicable after starting work at the new location.
The concession is limited to an occupancy period that begins seven days before the day the employee
starts work at the new location and ends when the employee could reasonably be expected to occupy the
home after it has been purchased or leased.
The concession is ordinarily limited to a maximum occupancy period of four months. However, it may
apply for a maximum of 12 months, as follows.
 Where the employee gives you a declaration outlining their efforts to find suitable long-term
accommodation, the concession may apply for a maximum of six months; or
 Where the employee:
 owned a home at the former location but sold it within six months of starting work at the new location
and, during that period, attempted to buy a home at the new location, and gives you temporary
accommodation relating to relocation declaration outlining their efforts to find suitable long-term
accommodation.
In either case, the concession will end before the 4 months, 6 months or 12 months elapse if the employee
stops making reasonable and sustained efforts to buy or lease suitable long-term accommodation.
Engagement of relocation consultant

If a relocation consultant is used to help relocate an employee, or their family members, the employer may
be eligible to access a FBT exemption for costs associated with the engagement of the relocation
consultant. A relocation consultant is a person who helps an employee, or his or her family members,
move and settle into a new location.
Removals and storage of household effects

Where the employer meets the costs of removal and storage of household effects of employees (both new
and existing) who are required to live away from home because their job location changes, the benefit is
exempt. The exemption includes the costs of removal, storage, packing, unpacking and insurance of
household effects (including pets) kept primarily for the personal use of the employee or family. Similarly,
the exemption also applies where the employee’s usual place of residence changes to another location if
the removal takes place or the storage commences, not more than 12 months after the employee begins
employment-related duties at the new location.
Sale or acquisition of dwelling

It is not unusual for employers to bear the cost of various relocation expenses, be it for new employees or
for existing employees who are required to change their job location. Where these relocation expenses are
incidental to the sale and/or purchase of a home by the employee, the expenses may be exempt benefits.
Costs incidental to the sale and/or purchase of a house are stamp duty, advertising, legal fees, agent
commission, discharge of a mortgage, expenses of borrowing or any similar capital expenses.
The exemption applies to the home that is sold only if:

 the sale is made solely because the employee changed their usual place of residence in order to carry
out employment-related duties
 the sale is within 4 years of the relocation
 the house was owned when you notified the employee of the change to the new locality
 the house was the employee’s usual place of residence, and
 the sale contract was made within two years of commencing duty at the new locality.
If the employee doesn’t sell their old dwelling within two years after the day of commencing their new
employment position, the benefit will become FBT liable in the year of tax in which the two year period
expires.
The exemption applies to the home that is purchased only if:

 the employee owned a home at the former locality
 the purchase in within 2 years of the relocation
 the purchase was made solely because of the relocation to another job locality
 the new home was occupied as the employee’s usual place of residence, and
 the contract to purchase was made within four years of commencing duty at the new location.
Costs associated with the connection or reconnection of gas, electricity and telephone services to the new
home are also exempt.
Connection or reconnection of certain utilities

Where an employee is required to live away from home in order to perform employment duties, the costs
of connecting or reconnecting gas, electricity and telephone services to the new residence, may be exempt
benefits. Similarly, where there is a change in the employee’s usual place of residence, these costs may be
exempt benefits.
Transport
Where an employee is required to live away from home, or is required to relocate their usual place of
residence, in order to perform employment-related duties, the costs of providing relocation transport (and
any meals and accommodation en route) to the employee (and family members) are exempt benefits. The
exemption also applies where the employee is returning to their usual place of residence after working at
another location.
This also includes expenditure that is in respect of accident insurance, airport or departure tax, passenger
movement charge, a passport, a visa (the costs of applying for the visa and costs incurred by an
employee of paying an immigration agent to assist in getting the visa application processed) or a
vaccination; or any similar matter or thing in connection with transport.
The exemption doesn’t apply to a reimbursement of the employee’s car expenses where the
reimbursement is calculated by reference to the distance travelled by the car. However, a reduction of the
taxable value may be available.
6.9.6 Work-related items

An exemption (in some circumstances) applies to the following work related items:
 portable electronic device – includes a mobile phone, calculator, personal digital assistant, a tablet
device such as an IPAD, a laptop, portable printer and portable global positioning system (GPS)
navigation receiver.
 item of computer software
 item of protective clothing
 briefcase, and
 tool of trade.

What is a portable electronic device
A portable electronic device is one that:
 is easily portable and designed for use away from an office environment
 is small and light
 can operate without an external power supply, and
 is designed as a complete unit.
Limitations on exemption
The work related items exemption is limited to:
 items primarily for use in the employee’s employment, and
 one item per FBT year for items that have a substantially identical function, unless the item is a
replacement item.
Example: A financial planning company provides its employee with a laptop computer, which is a portable
electronic device. The laptop is intended to be used at client visits to provide advice, and also between
client visits to produce and update reports. The employer does not have a policy restricting personal use,
and expects that there may be incidental private use of the laptop by the employee. There have been no
other laptops provided to the employee during the FBT year. The employer does not have to pay FBT on
the provision of the laptop to its employee as it is exempt from FBT under the work-related items
exemption.
What is 'primarily for use in the employee’s employment'?

An item is primarily for use in the employee’s employment if it is provided principally to enable the
employee to do their job.
When determining whether or not an item is primarily for use in the employee’s employment, the decision
is based on the employee’s intended use at the time the benefit is provided to them. An employer is not
required to look at the employee’s actual usage over the FBT year to determine whether the item is used
primarily in the employee’s employment. However, they must use a reasonable basis to determine
whether an item is primarily for use in the employee’s employment – for example, the employee’s job
description, duty statement or employment contract.
Alternatively, if you are aware that there may be private use of an item, you could document factors such
as those listed below to determine whether the item is primarily for use in the employee’s employment:
 the reason or reasons the item was provided to your employee
 the type of work your employee will be performing
 how the use of the item relates to your employee’s employment duties, and
 your policy and any conditions relating to the use of the item.
Replacing work related items

An item is a replacement item if the previous item is lost or destroyed, or needed replacing because of
developments in technology. A replacement item will be exempt from FBT if the original item it is replacing
met the criteria for exemption.
Only one work related item with a substantially identical function to another work related item can be
exempt in the same FBT year
A work related item listed above will not be regarded as an eligible exempt work related item if, earlier in
the FBT year, the FBT exemption has been claimed by the same employee in relation to another work
related item that has substantially identical functions to the later item.
An employer cannot gain access to the FBT exemption in relation to a portable electronic device if, earlier
in the FBT year, the employer has already provided the recipient employee a portable electronic device
with substantially identical functions. The exemption can apply to more than one item in a category. For
example a mobile phone and a laptop computer will each be a ‘portable electronic device’. As these items
do not have substantially identical functions, both can be considered as ‘eligible work related items’, and
therefore will be considered exempt items.

Can a laptop and a tablet both be considered exempt eligible work related items in the same FBT year?
The new generation of tablet computers, the most prominent of which is currently the Apple iPad, offer a
range of functionalities that are both different and similar to those offered by a traditional laptop
computer. In many cases the differences are a matter of degree (for example, improved functionality or
operating platforms) and in others those differences are more pronounced (for example, the ability to load
external programs).
The ATO considers that a tablet PC hybrid (one with a detachable keyboard) and laptop computer DO have
substantially identical functions to each other. Whereas the regular tablet PC (iPad), laptop computer and
smart phone do not have substantially identical functions to each other.
Whilst the ATO has accepted that the iPad would not have substantially identical functions to a laptop
computer, the ATO states that an employer still needs to be satisfied that an iPad is to be used ‘primarily
for use in the employee’s employment’. This is the case because the fact that an employee has two pieces
of electronic equipment may mean that one or both may be less likely to used primarily for employment
related work. Each situation needs to be assessed on a case by case basis.
Small business can provide employees with work related items with substantially the same function
An FBT exemption from 1 April 2016 can be applied by small businesses with an aggregated annual
turnover of less than $2 million that provide employees with more than one qualifying work-related
portable electronic device, even where the items have substantially similar functions. Please note that the
‘primarily for business use’ requirements must still be adhered to.
6.10 ‘In-house’ fringe benefits

In-house fringe benefits are benefits that are identical or similar to the benefits you provide to customers
in the ordinary course of business. If an employer provides in-house fringe benefits to an employee during
the FBT year, they may reduce the taxable values of the in-house fringe benefits by $1,000. This concession
applies only to:
 in-house expense payment fringe benefits
 in-house property fringe benefits
 in-house residual fringe benefits, and
 airline transport fringe benefits.
An employer does not need to keep specific records of in-house benefits provided to individual employees
if you do not expect the value of the benefits provided in the year to exceed the $1,000 limit. If a particular
fringe benefit is eligible for both this concession and another concession outlined in this chapter, you
reduce the taxable value first by the other concession, and then by this concession.
The most common type of “in-house” fringe benefit is where an employee is provided with goods or
services by the employer at a discount or for free, if they are the type of goods or services which the
employer supplies to the public. These are frequently referred to as “staff discounts”.
Example: A car dealer sells a car (which normally retails to the public for $33,000, but for which the dealer
paid $30,000) to an employee for $25,000. The gross fringe benefit is $5,000, but the taxable fringe benefit
would be only $4,000, because the first $1,000 per employee per annum of such an “in-house” fringe
benefit is exempt.
No 'in-house' exemption for gift vouchers

The situation where a retail store employer provides an employee with a gift card is not considered an in-
house fringe benefit in the eyes of the Tax Office. The Tax office does not consider the gift voucher to be
‘tangible property’ and therefore does not satisfy the definition of ‘in-house property fringe benefit’.
No in-house fringe benefit concession for salary sacrificed items

There is no concessional treatment for ‘In-house’ fringe benefits if they are accessed through a salary
sacrifice arrangement. Salary packaging arrangements’ means arrangements where the employee receives
a benefit
 in return for a reduction in salary or wages that would not have happened apart from the
arrangement; or
 as part of the employee’s remuneration package, and the benefit is provided in circumstances where it
is reasonable to conclude that the employee’s salary or wages would be greater if the benefit were not
provided.
Example: Negotiated salary packaging arrangement
Felicity has just started working for a car company and in negotiating her remuneration package agrees
with her new employer to forego $25,000 of her yearly salary in order to receive the use of a car. As she
has entered into an agreement to reduce her salary and wages, Felicity would be taken to have entered
into a salary packaging arrangement.
However, it also covers situations where a reduction in salary might not have been negotiated but the
employee is given a benefit as part of their employment contract and it is reasonable to assume that the
salary and wages they would have received would have been greater without that benefit being provided.
Example: Implicit salary packaging arrangement
McKenzie has started employment with an IT firm. His job was previously advertised as having a total
remuneration package of $100,000 per year. McKenzie only receives $95,000 in salary and wages but is
given by his employer, free of charge, gaming and photography software of which the notional value
would be $5,000.
In this case, whilst McKenzie has not entered into a separate agreement to reduce his salary and wages,
the salary and wages he would have received would clearly have been greater if the benefit had not been
provided. Therefore, McKenzie has entered into a salary packaging arrangement.
Concessions relating to in-house benefits provided by employers where those benefits are provided
outside of a salary packaging arrangement or are paid for with the employee’s after-tax income are not
affected by this rule.
6.10.1 Long service awards

Awards for long service of at least 15 years are exempt up to a limit of $1,000 plus $100 for each additional
year of service. Employees can salary sacrifice their long service awards up to the limit. For example, John
is employed for 15 years and would normally receive a watch valued at $300 instead John chooses to
salary sacrifice an additional $700 and receives a watch valued at $1,000.
If the employee has received a previous long service award (that is, in recognition of 15 years or more
service) from you, the maximum value of any subsequent award is $100 for each year in excess of 15 years
that is being recognised by the additional award.
Where the value of an award exceeds the relevant maximum value, no part of the award is exempt.
6.10.2 Certain payments to employee entitlement funds

Criteria for exemption from FBT are based on what payments can be made from the fund, which controls
the fund and the extent to which funds are available to be distributed to individual employees. Applicable
funds must be approved. On approval, redundancy payments, annual leave, long service leave and sick
leave payments made into the fund receive FBT exempt status.
6.10.3 Other exemptions

1. Live-in residential care workers. The provision of residential accommodation to specified live-in
residential care workers is exempt from fringe benefits tax.
2. Employment interviews. Benefits relating to travel by a current or future employee for a job interview
or selection test are exempt.
3. Newspapers and periodicals provided to employees for business purposes are exempt.

4. Workers compensation. Provision of workers compensation insurance coverage and provision of
actual compensation for work-related injuries are exempt.
5. Work site medical facilities. Work-related and incidental medical services and health care benefits
provided at a work site, first aid post or medical clinic are exempt.
6. Travel for medical treatment. Certain travel by an employee or family member from a prescribed
developing country in order to obtain medical treatment may be exempt.
7. Occupational health and counselling. Work-related medical tests and preventive health care, work-
related counselling and migrant language training are exempt.
8. Emergency assistance. Benefits such as food, clothing and shelter provided at a time of emergency are
exempt.
9. Taxi travel by an employee if the travel is a single trip beginning or ending at the employee’s place of
work.
10. Safety awards. Awards genuinely relating to occupational safety achievements will be exempt
provided the value is less than $200 per recipient.
11. Australian Traineeship System. Food and accommodation provided to trainees under the Australian
Traineeship System may be exempt.
12. Compassionate travel. Certain travel benefits provided to employees or close relatives at times of
serious illness or death in the family is exempt.
13. Subscriptions to trade or professional journals.
14. Airport lounge memberships.
15. Corporate credit card membership fees.
16. Reward points received from airlines, departments stores etc.
17. Recreational or child minding facilities provided on the employer's business premises either by the
employer or a related company. NOTE: An employee who salary sacrifices this benefit can only do so in
relation to out of pocket expenses and not for that portion for which the employee has received a
government rebate or benefit.
18. In-house canteen
19. Coffee and tea making facilities.
20. Funeral expenses of deceased employee.
21. Car parking expenses for small business turning over less than $10 million per annum where a
commercial parking station is not used and the entity is not government or a public company.
6.10.4 Reducing liability by applying the ‘Otherwise Deductible’ Rule:

This is a common reduction in the taxable value of some fringe benefits, particularly expense payment
fringe benefits (where the employer pays for an expense which has actually been incurred by the
employee) and property fringe benefits (where the employer buys something and then gives ownership of
it to the employee, e.g. tools or uniforms). This rule does not apply to car fringe benefits.
Generally, the exemption from FBT in relation to the “otherwise deductible rule” only applies to benefits
provided directly to employees; it does not apply to fringe benefits provided to associates of employees.
Further advice will need to be sought where benefits are provided in relation to joint ownership i.e.
ownership by both the employee and an associate of the employee.
If the item for which the expense is incurred would have been a tax deduction for the employee if it had
been paid by the employee, then the taxable value of the fringe benefit may be reduced by that
“otherwise deductible” amount. However, because employees are not entitled to claim such things as
deductions in their own tax returns, neither car fringe benefits nor car parking fringe benefits may be
reduced by this “otherwise deductible” rule. Where the taxable value of a fringe benefit has been reduced
on this basis, the employer must generally obtain relevant declarations, receipts and other evidence from
the employee.
Example 1: An employer spends $200 on loose tools, and then gives ownership of those tools to an
employee who needs to use them in his work. This represents a property fringe benefit of $200. However,
if the employee had paid for the tools himself, he would have been able to claim the whole $200 as a tax
deduction. Therefore, the taxable value of the benefit is reduced to nil.
Example 2: An employer pays the whole of an employee’s annual home telephone bill of $800. This is an
expense payment fringe benefit. If the employee used that home phone 25% for work-related purposes,
such as after-hours calls to clients, then he would be entitled to a tax deduction of $200 if he had paid the
bill himself. Therefore, the taxable value of the benefit is reduced to $600.
Example 3: An employer spends $100 on a uniform, and then gives it to an employee to wear at work. This
represents a property fringe benefit of $100. However, if the employee had paid for the uniform herself,
she would have been able to claim the whole $100 as a tax deduction. Therefore, the taxable value of the
benefit is reduced to nil.
Example 4: The employee buys the same uniform from a uniform shop, and the employer reimburses the
$100. This is an expense payment fringe benefit. However, if the employee had not been reimbursed for
the expenditure, she would have been able to claim the whole $100 as a tax deduction. Therefore, the
taxable value of the benefit is nil.
6.10.5 Employees’ Clothing/Uniforms

There are four categories of work-related clothing, each of which is well defined.
 Protective clothing, which is allowable;

 Occupation-specific clothing, which is allowable;
 Compulsory uniform/wardrobe, which is allowable; and
 Non-compulsory uniform/wardrobe, which is sometimes allowable.
Any other type of work-related clothing, or any non-compulsory uniform/wardrobe which does not meet
the conditions following, will be subject to FBT if supplied by an employer for free or at a discount.
Protective Clothing – This is clothing and footwear that an employee wears to protect them or their
clothing from the risk of illness or injury posed by their income earning activities or the environment in
which they are required to carry them out. To be considered protective, the items must provide a
sufficient degree of protection against that risk. Clothing that protects an employee from injury, or
protects an employee's cloths from damage includes:
 safety or steel capped boots;  concreters’ rubber boots;

 safety helmets;  heavy duty shirts and trousers;
 protective gloves;  overalls;
 fire resistant and sun-protection clothing;  dust jackets;
 sun hats and sunglasses;  aprons or smocks; or
 safety-coloured vests;  white coats of the kind worn by dentists and
 non-slip nurses’ shoes; laboratory technicians.
Protective clothing does not include ordinary jeans, shirts, drill trousers or drill shirts that are lacking in
protective qualities or wet weather gear commonly worn for comfort rather than protection.
Occupation Specific Clothing – Occupation specific clothing is clothing that distinctively identifies an
employee as a member of a particular profession, trade, vocation, occupation or calling. The clothing’s
design has to be distinctive, or peculiar and unique, in the sense that by its nature or physical condition it is
readily identified as belonging to that particular occupation or calling. Examples of clothing which is
included under this heading are nurses’ traditional uniforms, traditional chef’s uniform (which is defined as
a set of clothing consisting of a chef’s hat, chef’s checked pants, a chef’s white jacket (long sleeved, double
breasted with the traditional number of white buttons, and double cuffed) and a white neckerchief (neck
tie)), a religious cleric’s clothing, and uniforms for police officers, armed forces etc.
Compulsory Uniform/Wardrobe – Tax Office determination TD 1999/62 sets out the criteria to be
considered in deciding whether clothing items constitute a compulsory corporate uniform/wardrobe. The
cost of acquiring and maintaining a compulsory corporate uniform/wardrobe is deductible and therefore
no FBT will apply where the employee salary sacrifices the value of the uniforms or where the uniforms
are supplied to the employee. According to the Tax Office, the following criteria should be considered:

 objective — a compulsory corporate uniform/wardrobe should be designed to enhance the public
image of an employing organisation and to act as a form of indirect advertising;
 how the wardrobe should be worn — at the time of purchasing a compulsory corporate
uniform/wardrobe there should exist a general understanding among employees that such items are
only to be worn while on official duty, including travel to and from work;
 fabric, colour, style and range — there should only be a limited range of fabrics, colours and styles
used in the uniform/wardrobe because the greater the range used the more likely the wardrobe will
lose its distinctive and unique look;
 corporate identifiers — features that readily identify a particular organisation are not compulsory but
add to the distinctive and unique nature of the uniform/wardrobe;
 durability — the overall concept or look of the wardrobe should be intended to last for a number of
years; and
 accessories — accessory items that do not bear any distinguishable features are considered to be of a
private nature but ones that are made of the same unique fabrics as the other items in the compulsory
corporate uniform/wardrobe, or have clearly visible distinguishing features such as a corporate logo
will form part of the uniform/wardrobe.
Non-compulsory Uniform/Wardrobe – As the name implies, this is a uniform or wardrobe in respect of
which there is no employer policy which compels all employees of a particular class to wear it, or in respect
of which there is such a policy but the policy is not actually enforced. The definition of uniform/wardrobe
is still the same, namely a collection of interrelated items of clothing and accessories which distinctively
identify the wearer as a person associated directly or indirectly with his or her employer.
For the provision of a non-compulsory uniform or wardrobe to be otherwise-deductible to an employee
and therefore not subject to FBT, the design of the uniform/wardrobe must be listed on the Register of
Approved Occupational Clothing which is kept by AUSINDUSTRY.
Applications to AUSINDUSTRY for the design of a non-compulsory uniform or wardrobe may only be made
by an employer. Any subsequent variation at all, no matter how slight, to the design of a uniform or
wardrobe which is listed on the Register necessitates a fresh application.
Once non-compulsory uniforms are registered, a maximum of $300 (including GST) in non-compulsory
uniform/wardrobe clothing items can be provided per employee per FBT year, without incurring FBT. Non-
compulsory uniform/wardrobe clothing expenditure in excess of $300 (including GST) per employee in one
FBT year will incur FBT on the total clothing spend.
Registration of Non-compulsory Uniform/Wardrobe

Employers must submit a request for registration of their design on the application form available from the
Industry Secretary. For applications for a design to be entered on the Register to succeed, the design, as a
whole, must have a distinctive look and a cohesive and obvious identity. If the clothing is considered to be
simply a collection of conventional clothing items the application for registration will fail. The factors which
are taken into account (in great detail) when considering an application for inclusion on the Register,
include:
 The nature of the employer’s business or activities;
 The use of corporate, product or service identifiers;
 Colours, Range, Durability.
Before lodging an application, peruse the fact sheet which can be accessed at:
http://www.business.gov.au/grants-and-assistance/manufacturing/tcf-corporatewear/Pages/Fact-
Sheet.aspx
After obtaining relevant details, applications are available at:
http://www.business.gov.au/grants-and-assistance/manufacturing/tcf-corporatewear/Pages/Application-
Form.aspx
It may also be useful to consult the guide titled Approved Occupational Clothing Guidelines. This is
available on www.ausindustry.gov.au. Refer to 'Uniforms' in the A-Z index. These guidelines detail the
requirements for the occupational clothing category. For more information see Taxation Ruling TR 97/12.
6.11 Salary Sacrifice
It is not possible to be definitive as to whether salary packaging benefits will be of benefit in all
circumstances. The individual circumstances of the employee will need to be considered, including:
 the type of benefit provided;
 the extent to which the benefit is liable for fringe benefits tax (e.g. exempt, concessionally taxed, fully
taxable);
 the level of salary of the employee; and
 the employee’s use of the benefit.
For example, in relation to the salary sacrifice of a motor vehicle the results could differ significantly
depending on the differing circumstances e.g. higher business usage, varied operating costs, different
types of vehicle, different method used for calculating the private usage, as well as many other factors.
Generally, the benefit of packaging fringe benefits will be lost if the benefit would be taxed in the
employee’s hands at a rate lower than the FBT rate of 49%. However, there are still benefits in packaging
concessionally taxed benefits, exempt benefits and, in particular, making recipient’s contributions (or
payments) towards the benefits.
Employees of those concessionally taxed FBT employers such as Public Benevolent Institutions and non-
profit associations will continue to obtain benefits from salary packaging regardless of whether the benefit
is subject to FBT or not.
6.11.1 Important notes about salary sacrifice

Any salary sacrifice agreement should be in writing and must only relate to reducing salary/wages that has
not yet been earned.
 Although the GST inclusive value is always used when calculating the FBT payable on a benefit, for
salary sacrifice purposes the employee's gross wage is reduced by the GST exclusive value. This is
because the employer received an input tax credit for the GST component of the item.
 When determining the taxable value of a motor vehicle it is only the private usage that is a taxable
fringe benefit and therefore a component of the salary sacrifice arrangement. The percentage of
private usage will be determined using either the statutory percentage or by completing a log book for
the relevant motor vehicle.
 Where a provision in a workplace agreement or written contract of employment binds the employee
and the employer to a salary sacrifice arrangement, the employee may receive an amount less than
the minimum wage. For this to occur within the guidelines, the employee must give the employer a
written election, separate to the workplace agreement or contract of employment, for the salary
sacrifice arrangement.

6.11.2 Salary Sacrifice Scenarios
Whether a salary package is suitable for a particular employee will depend on a number of criteria. For
example, in relation to the salary sacrifice of a motor vehicle the results could differ significantly depending
on the differing circumstances e.g. higher business usage, varied operating costs, different types of vehicle,
different method used for calculating the private usage, as well as many other factors.
Employees of those concessionally taxed FBT employers such as Public Benevolent Institutions and non-
profit associations will continue to obtain benefits from salary packaging regardless of whether the benefit
is subject to FBT or not.
Example: Salary sacrificing an exempt laptop
Penny has a salary package of $85,000p.a (excluding a fixed superannuation amount). In recent discussions
with her employer she has been offered the opportunity to acquire a laptop. The details are as follows:
 Laptop is valued at $3,300
 The laptop will be used 70% of the time for work related purposes use.
 Penny has the option of purchasing the computer through a salary sacrifice arrangement or through
her after tax salary.
Salary only Package inclusive of

(no packaging) salary sacrifice
Salary Packaging excluding superannuation $85,000 $85,000
Less: Laptop salary sacrificed $Nil ($3,300)
Add GST credit (it is assumed that this is $300

passed on to employee)
Less FBT (see below) n/a- n/a-
Salary $85,000 $82,000
Less tax plus medicare levy ($21,097) ($19,927)

(2015/ 16 tax rates)
Less purchase of laptop ($3,300) $Nil
Net take home pay $60,603 $62,073
Penny is $1,470 better off by entering into a salary sacrifice arrangement to acquire the laptop than by
purchasing it from her after tax salary
Even though the laptop will only be used for work purposes 70% of the time, the laptop will be fully
exempt from FBT as it will be used primarily for work related purposes.

Example: Paul considers salary sacrifice of motor vehicle
Paul earns $85,000 a year. On 1 April 2016 Paul considers entering into an effective salary sacrifice
arrangement. Under this arrangement, his employer will provide the use of a $40,000 car and pay all the
associated running expenses of $15,000. Paul does not use his car for work purposes.
The car was purchased after 11 May 2011 therefore the statutory percentage will be 20% regardless of
how many kilometres the car travels during the FBT year. The taxable value of the car fringe benefit is
$8,000. The FBT payable will be $8,413 ($8,000 × 2.1463 × 49%). Paul will:
1. in the first scenario, salary sacrifice $nil in the first scenario where no salary packaging arrangement is
entered into; or
2. in the second scenario, salary sacrifice $23,413 (running expenses plus FBT) in the second scenario
where no employee contributions are made; or
3. in the third scenario, salary sacrifice $7,000 (running expenses minus employee contribution) and
make an employee contribution of $8,000 to bring the taxable value back to nil.
The following table illustrates how salary sacrificing and employee contributions work by comparing the
net disposable income for Paul in three scenarios.
 no salary sacrifice arrangement
 a salary sacrifice arrangement without any employee contributions, and
 a salary sacrifice arrangement where employee contributions are provided.
Option 1. Option 2. Option 3.

Salary only (no Salary + car Salary + car
packaging) (without employee (with employee
contributions) contributions)
Annual remuneration $85,000.00 $85,000.00 $85,000.00
Less salary sacrifice $NIL ($23,413) ($7,000.00)

Running expenses plus Running expenses minus
FBT employee contribution
Taxable income $85,000.00 $61,587.00 $78,000.00
Less income tax plus ($21,097.00) ($12,793.00) ($18,457.00)

medicare levy
Income remaining after tax $63,903.00 $48,793.00 $59,543.00

withheld and salary sacrifice
Less employee contribution $NIL $NIL ($8,000.00)

Equivalent to taxable
value
Less car expenses ($15,000.00) $NIL $NIL
Net disposable income $48,903.00 $48,793.00 $51,543.00
Reportable fringe benefits NIL $15,686.40 NIL

amount for employee
payment summary (car fringe benefit taxable
value of $8,000 x 1.9608)
Outcome:
Paul opts to salary sacrifice the car through his employer. If he sacrifices in unison with making an
employee contribution to reduce to taxable value to nil (for FBT purposes), his net pay will be $2,640
higher then what it would have been had he purchased the car himself.

6.12 Employers who are exempt (or partly exempt) from FBT and
employers who receive an FBT rebate
Depending on the type of organisation, certain benefits provided may be either exempt from FBT or
subject to an FBT rebate.
6.12.1 Organisations entitled to full FBT exemption
Religious Institutions
These have unlimited exemption but only to the extent that benefits are provided principally because of
the religious practitioner's pastoral duties or any other duties relating to the practice, study, teaching or
propagation of religious beliefs. There is no limit to exempt fringe benefits provided by religious
institutions.
6.12.2 Organisations entitled to a FBT exemption up to the grossed up capping value of

$31,177
Note: Charitable funds and non-profit companies are not entitled to the FBT exemptions shown here. All
eligible organisations claiming these concessions need endorsement in order to take advantage of the
concessional treatment except public hospitals, non-profit hospitals and public ambulance services.
Public Benevolent Institutions and Health Promotion Charities

A public benevolent institution (PBI) is distinct from a charitable institution. Generally, an organisation will
be recognised as a public benevolent institution if its principal objects are the relief of poverty, sickness,
suffering, distress, misfortune, destitution or helplessness and its activities are carried out without purpose
of private gain for particular persons. An institution with charitable activities, but which does not have as
its principal objects the provision of such relief, is not a public benevolent institution. See Tax Office Ruling
TR 2003/5 for a more detailed definition of PBI.
A PBI has a capping threshold placed on the amount of FBT free benefits that may be provided to
employees. A PBI is liable to pay FBT if the total grossed-up value of certain benefits provided to an
individual employee exceeds $31,177 during the FBT year. The $31,177 capping threshold applies even if
the employee was not employed for the full FBT year. The grossed up limit equates to a taxable value of
benefits per employee as follows:
PBI’s and HPC’s Exempt Limits

FBT year Type 1 Net benefit limit Type 2 New benefit limit Grossed up cap
/Gross up rate / Gross up rate
2016/17 (FBT rate 49%) $14,525 / 2.1463 $15,900 / 1.9608 $31,177
2017/18 (FBT rate 47%) $14,421 / 2.0802 $15,900 / 1.8868 $30,000
Endorsement arrangements for PBIs and Health promotion charities (HPC)

From 3 December 2012, the Australian Charities and Not-for-profits Commission (ACNC) is responsible for
determining PBI and HPC status. The ACNC registers organisations as charities, including particular types of
charities such as PBIs and HPC’s. The ATO accepts that an organisation is regarded as a PBI or HOC if it is
registered by the ACNC as one. Therefore, it is important the organization registers with ACNC to enable
them to be endorsed. Access the ACNC website at www.acnc.gov.au for more information.
Note: The FBT exemption for a PBI employer that an organisation operates does not apply in respect of the
organisation's employees generally. It only applies in respect of the employees of the PBI employer itself
and it is subject to a $31,177 cap per employee.
To access the FBT exemption, the PBI or HPC must be the employer of an employee. It is not enough that
part of an entity is a PBI or HPC, the PBI or HPC must be the relevant employer.

6.12.3 Organisations entitled to a FBT exemption up to the grossed up capping value of
$17,667
Note: Charitable funds and non-profit companies are not entitled to the FBT exemptions shown here. All
eligible organisations claiming these concessions need endorsement in order to take advantage of the
concessional treatment except public hospitals, non-profit hospitals and public ambulance services.
Hospitals (including Public Ambulance Services)

This includes public hospitals and hospitals carried on by a non-profit society or a non-profit association as
well as public ambulance services. There is a limit on the amount of exempt fringe benefits available to
employees of these organisations. The hospital or ambulance service is liable to pay FBT if the total
grossed-up value of certain benefits provided to an individual employee exceeds $17,667 during the FBT
year. The $17,667 capping threshold applies even if the employee was not employed for the full FBT year.
The grossed up limit equates to a taxable value of benefits per employee as follows:
Public/Non-profit hospitals and public ambulance services exempt limits

FBT year Type 1 Net benefit limit Type 2 New benefit limit Grossed up cap
/Gross up rate / Gross up rate
2016/17 (FBT rate 49%) $8,231 / 2.1463 $9,010 / 1.9608 $17,667
2017/18 (FBT rate 47%) $8,172 / 2.0802 $9,010 / 1.8868 $17,000
6.12.4 Employers who are entitled to an FBT rebate of up to $31,177 grossed up
Non-Profit Organisations
Some employers are entitled to have their FBT liability reduced by a rebate equal to 49% of the gross FBT
payable up to a $31,177 grossed up cap. If the total grossed-up taxable value of benefits is more than
$31,177 a rebate cannot be claimed for the FBT liability on the excess amount.
Important change to future cap and rebate percentage to account for the Budget repair levy
The rebate percentage increased from 48% to 49% to be aligned with the FBT rate from 1 April 2015. The
rebate will remain in line with the FBT rate in future years.
Which non-profit organisations are rebatable?

 certain religious, educational, charitable, scientific or public educational institutions
 trade unions and employer associations
 non-profit organisations established to encourage music, art, literature or science
 non-profit organisations established to encourage or promote a game, sport or animal races
 non-profit organisations established for community service purposes
 non-profit organisations established to promote the development of aviation or tourism, and
 non-profit organisations established to promote the development of Australian information and
communications technology resources, and non-profit organisations established to promote the
development of the agricultural, pastoral, horticultural, viticultural, aqua cultural, fishing,
manufacturing or industrial resources of Australia.
Formula to calculate rebate & FBT payable

There is a limit on the amount of rebatable fringe benefits available to employees of rebatable employers.
The total grossed-up value of benefits that can be provided to each employee of a rebatable employer,
without losing the existing concessions, is capped at $31,177. If the total grossed-up value of the fringe
benefits provided to an individual employee exceeds $31,177, a rebate cannot be claimed for the FBT
liability on the excess amount. The $31,177 capping threshold applies even if the employee was not
employed for the full FBT year.

Taking into account the limit on the rebate available to rebatable employers, the method for calculating
the amount of rebate available to eligible rebatable employers is:
rebatable days in year
0. 49 × (gross tax − aggregate nonrebatable amount) ×
amount total days in year
Where:
Gross tax — The FBT that would have been paid by the employer if they had not been entitled to claim a
rebate.
Aggregate non-rebatable amount — The FBT payable on the excess over $31,177, for each employee.
Rebatable days in the year — The number of days during the FBT year that the employer qualified as a
rebatable employer. For the purpose of calculating the rebate, the total days in the year are the number of
days that the claimant was an employer.
Example: Rebatable employer provides an employee with a fringe benefit valued at $10,000
Assume that no input tax credit was claimed in relation to the FBT item. The grossed up value would be
$19,608 (i.e. 1.9608 × $10,000). FBT normally payable on an item with a grossed up value of $19,608 is
$9,607.92 (49% x $19,608).
Applying the formula, the rebate entitlement is equal to:
365
0. 49 × ($9,607.92 – 0) × = $4,707.88
365
The rebate in this case is $4,707.88. In this case the FBT payable is calculated as follows:
$9,607.92 (FBT normally payable) – $4,707.88 (rebate entitlement) = $4,900.04 (Actual FBT payable)
Meal entertainment for non-profit organisations

Below are the rules for meals provided to employees (their associates) and clients of non profit
organisations. The first column confirms whether or not the benefit is categorised as a meal
entertainment fringe benefit. The following three columns show the FBT liability in accordance with who
receives the benefit.

Generally tax exempt bodies cannot use the minor benefit exemption in relation to meal entertainment
benefits – Depending on the standard of entertainment provided, the benefit generally will not qualify the
minor benefits exemption if the entity is a tax-exempt body. For tax-exempt bodies the minor benefit
exemption is available only where:
 the provision of the entertainment is incidental to the provision of entertainment to outsiders and
does not consist of a meal, other than light refreshments, or
 a function is held on your business premises solely as a means of recognising the special achievements
of your employee in a matter relating to the employment of your employee.
Only the actual method can be used for valuing salary sacrificed meal entertainment benefits
From 1 April 2016 all salary packaged meal entertainment and entertainment facility leasing expenses
(EFLE) benefits cannot have their taxable value calculated using the elective valuation rules such as 50-50
split method and 12 week register method. Only the actual method can be used to value salary sacrificed
meal entertainment benefits. Those that are not salary sacrificed can be valued using any of the three
methods.
6.12.5 Benefits wholly or partially excluded from FBT capping measures for PBI’s,
health promotion charities, public hospitals, non-profit hospitals, public
ambulance services and rebatable organisations
Apart from benefits which are exempt for all organisations as mentioned on the previous pages, there are
some other benefits which are specifically exempt for employees of PBI’s, health promotion charities,
public hospitals, non-profit hospitals and public ambulance services and therefore not included in the
$31,177 or $17,667 grossed up capping values.
What is the effect of having these items wholly or partially excluded from the cap
This effectively means that PBI’s, health promotion charities, public hospitals, non-profit hospitals and
public ambulance services can provide employees with salary sacrificed meal entertainment and
entertainment facility leasing benefits up to the grossed up value of $5,000 without it affecting the
employee’s cap. Car parking benefits can be provided by these organisations with no cap and therefore no
fringe benefits tax liability.
Car parking
You will find the definition of car parking in section 6.6.7 in this section. If the parking provided meets the
criteria of car parking fringe benefit, it can be provided by these organisations with no FBT liability. There is
no limit.
Meal entertainment
Meal entertainment can be:
 entertainment by way of food or drink; or
 accommodation or travel in connection with food or drink; or
 the payment or reimbursement of expenses incurred in providing entertainment by the way of food or
drink.
This means that meal entertainment can be packaged over and above the salary packaging limit of
$17,667/$31,177. There is however, a joint $5,000 cap on salary sacrificed meal entertainment and EFLE
benefits from 1 April 2016.
Under the meal entertainment provisions, employees can effectively purchase:
 any eat-in meals and beverages at any restaurant or cafe;
 taxi to and from their residence to the venue where a dine in meal will take place;
 accommodation that is in relation to the provision of the Meal Entertainment.

Meal entertainment does not include items such as:
 travel expenses such as airfares, cruises, sports club memberships, hire cars, taxi’s that are not
transportation to a venue where a dine in meal will take place;
 tours and attraction entry fees;
 the purchase of drinks without a meal.
Entertainment facility leasing expenses (EFLE)

These are expenses incurred in hiring or leasing:
 a corporate box
 boats or planes for providing entertainment, or
 a private function room or hotel room or other premises or facilities for providing entertainment.
‘Entertainment Facility Leasing Expenses’ (EFLE) is more or less Venue Hire. Such expenses may be salary
packaged tax free along with Meal Entertainment expenses.
Like meal entertainment these expenses can be salary packaged tax free in addition to the
$17,667/$31,177 cap. There is however a joint $5,000 cap on these benefits and Meal entertainment
benefits from 1 April 2016.
Expenditure will fall into the definition of EFLE where it constitutes the hire of a premises or facility for the
provision of entertainment by way of meals and/or recreation.
The expenditure that qualifies is the cost of hiring the premises or facility only, and not the meal costs or
other recreation costs that may also be incurred. (However, any meal entertainment costs may be salary
packaged under Meal Entertainment provisions.)
EFLE do not include:

 A trip for business purposes or to attend a funeral. This would not be for recreation purposes and
accommodation on this trip would therefore not qualify;
 Hiring of a venue for business purposes;
 Purchase of a holiday home or time share units;
 The cost of air travel;
 Golf green fees and memberships and other memberships – Such expenses do not constitute hire of
the venue/facility, whereas hiring a whole golf course for a corporate function would qualify;
 Incidental costs incurred in a hotel or similar e.g. dry cleaning, movies, phone calls etc.
Cap for salary sacrificed meal entertainment and EFLE

The Government have introduced a separate single grossed up cap of $5,000 for salary sacrificed meal
entertainment and entertainment facility leasing expenses (ELFE) for employees to apply to such benefits
provided from 1 April 2016. Where salary sacrificed meal entertainment benefits and EFLE benefits,
together, exceed a separate grossed up cap of $5,000, the excess will be counted in calculating whether an
employee exceeds their existing fringe benefits tax (FBT) exemption or rebate cap.
This means that from 1 April 2016 employees can receive such meal entertainment and EFLE benefits
worth between $2,329.59 and $2,549.98 (depending on whether the employer is entitled to GST credits)
without exceeding the $5,000 cap.
Additionally, all salary sacrificed meal entertainment benefits will become reportable in the reportable
fringe benefits field on an employee’s payment summary for benefits provided from 1 April 2016.
The measure will also apply to employees of rebatable not for profit organisations who salary sacrifice
meal entertainment benefits, but receive a partial FBT rebate, up to a standard $31,177 cap.
This measure applies from 1 April 2016 to coincide with the start of the FBT year.

6.13 Reportable Fringe Benefits
Employers are required to identify on payment summaries the grossed-up value of an employee's fringe
benefits that are part of their remuneration package or award, where the taxable value of the benefits
exceeds $2,000 (the equivalent of $3,921.60 grossed up).
For reporting purposes the definition of employee is extended to former employees, future employees,
and persons who receive benefits but no salary or wages in return for employment type services.
The taxation liability for these benefits remains with the employer.
6.13.1 Recordkeeping for reportable fringe benefits

In order for the employer to correctly calculate and report the total amount of fringe benefits provided in
respect of each employee for the FBT year, the employer must keep accurate records to ensure that the
total taxable value of all the fringe benefits supplied during the FBT year is equal to the total taxable value
of the fringe benefits received by the employees during the FBT year.
6.13.2 Treatment of reportable fringe benefits by exempt and rebatable employers

The reporting requirement also extends to benefits provided by:
 Public Benevolent Institutions (PBIs);

 certain employers of live-in carers of disadvantaged or elderly persons and employees whose duties
are performed in public hospitals and hospitals operated by a non-profit society or a non-profit
association; and
 rebatable employers.
As discussed earlier, up to certain limits, the above organisations are exempt from FBT; however, the
reporting requirements do extend to employers providing these exempt benefits in the same manner in
which they apply to employers who are subject to fringe benefits tax.
Exempt benefits provided by religious institutions to religious practitioners principally for their pastoral
duties are not included in these reporting requirements.
6.13.3 Fringe benefits exempt from reporting requirement

Some benefits are exempt from FBT reporting requirements. Although these benefits are excluded from
the FBT reporting requirements, their liability to the payment of fringe benefits tax remains the same.
Those benefits are:
 Non-salary sacrificed meal entertainment by way of food or drink and benefits associated with that
entertainment such as travel and accommodation. Salary sacrificed meal entertainment benefits are
not exempt from the reporting requirement.;
 Non salary sacrificed entertainment facility leasing expenses such as hiring or leasing corporate boxes.
Salary sacrificed entertainment facility leasing expenses are not exempt from the reporting
requirement;
 car parking facilities;
 remote area housing benefits and certain other benefits associated with remote area housing such as
residential fuel and rental payments, freight costs for food provided to employees living in a remote
area, and costs of occasional travel to a major Australian population centre by employees and their
families living in a remote area;
 housing benefits provided to regional employees of charity, police service, or a public or non-profit
hospital, where the housing benefit is located at least 100 km from a town with a population of
130,000 or more; and

 benefits for Australian Defence Force (ADF) personnel, including:
− housing assistance
− reunion travel
− education assistance for school aged children in critical years of schooling
− removal and storage costs
− allowances paid to Defence families with special needs and
− overseas living allowance that compensates for cost of living differences; and
 emergency and essential health care costs incurred by Australian resident employees, or their
associates who are also Australian residents, while the employee is serving overseas (provided the
costs are not covered by Medicare);
 a Commonwealth overseas living allowance paid to an employee to the extent that it contains any of
the following amounts:
− the cost of living adjustment;
− the post adjustment;
− the child supplement;
− the child reunion supplement; and
− 50% of the general adjustment.
 travel between home and work in a marked emergency vehicle. An emergency vehicle is one that is
used by an emergency service (ambulance, fire fighting and police), is visibly marked for emergency
use and is fitted with flashing warning lights and sirens;
 travel between home and work in an unmarked police vehicle fitted with a police radio, warning lights
and sirens;
 the removal and storage of household effects of police officers;
 approved child tuition assistance provided to Australian Defence Force members, where a direction by
the Department of Defence to relocate causes the members children to enroll in a different school;
 benefits associated with conveyancing costs where police officers purchase a dwelling within four
years of being transferred by the police force, whether or not they owned a dwelling at the previous
locality;
 housing benefits provided to police officers residing in housing attached to a working police station,
whether or not the police officer is in a remote area;
 rental subsidies provided to police officers in regional areas; and
 private travel between home and work in unmarked police cars used by police officers employed by
the Australian Crime Commission and similar organisations.
 items that address security concerns relating to the personal security of an employee, or an associate
of the employee, such as:
− residential burglar alarms
− drive-by security patrols
− personal body guards
− personal protective equipment, and
− protective modifications to a motor vehicle.

6.13.4 No reporting required for pooled or shared vehicles
Pooled or shared vehicles are exempt from the FBT reporting requirement. A pooled or shared car for the
purposes of the FBT reporting exclusion is a car:
 held by a provider which is used, or available for use, by more than one employee for private purposes
during the FBT year; and
 where the private use of that car gives rise to a car fringe benefit in relation to that car for more than
one employee during the FBT year.
The car will not be considered pooled or shared if:
 because of the application of the minor benefits exemption, a car fringe benefit in relation to that car
does not arise for more than one employee during the FBT year. Example: A car held by an employer is
used for private purposes by two employees. During the FBT year, the car is almost exclusively used for
private purposes by the first employee, and occasionally used for private purposes by the second
employee. The private use of the car by the second employee was determined to be a minor benefit,
resulting in the second employee receiving no car fringe benefit in relation to that car for the FBT year.
The private use of the car will only be a car fringe benefit for the first employee for the FBT year; or
 the car is used by more than one employee for business purposes, but is only used or available for use
by one employee for private purposes.
6.13.5 Which employees will have a reportable fringe benefit amount
Employees who receive fringe benefits with a taxable value of over $2,000
Any employee who receives fringe benefits with a taxable value of more than $2,000 must have the total
grossed up value of his/her fringe benefits shown in the 'FBT Reporting' field of the Individual non business
payment summary. Where benefits are provided to an associate of an employee, in respect of that
employee’s employment, the value is allocated to the employee, not to the associate.
Applicable employee’s will have a reportable fringe benefits figure on their 2017 Payment Summary based
on the taxable value of fringe benefits the employee received during the FBT year 1 April 2016 – 31 March
2017.
Treatment of Reportable Fringe Benefits for Part-year Employees

If an employee leaves during an FBT year, the amount reported on their payment summary would cover
fringe benefits received in that part of the FBT year in which they were employed. The $2,000 limit for
fringe benefits is not apportioned.
Usually, if a terminating employee requests their payment summary, it is required to be issued within 14
days. However, if the terminating employee has a fringe benefits amount reported on their payment
summary, the employer is not required to issue a payment summary prior to the standard date of issue
(14 July).
6.13.6 Calculating the Reportable Fringe Benefit Amount

The amount shown on the payment summary is the grossed up value of fringe benefits. Generally, this is
the sum of the taxable value of the item and the FBT paid or payable on that item. For FBT reporting
purposes, the employee's individual fringe benefits amount is always grossed up at the lower rate of
1.9608. Before grossing up for reporting purposes remember to exclude items exempt from the reporting
requirement.
Example: Bob receives fringe benefits for the year that amount to $2,900. His employer is required to
record the grossed-up value of this fringe benefit amount on Bob's payment summary. The calculation
would be as follows:
$2,900 x 1.9608 = $5,686
The grossed-up value of $5,686 is recorded on Bob's payment summary.

6.13.7 Use GST inclusive value but only gross up at the lower rate
The FBT gross-up formula and rate of 2.1463 (applicable to provision of fringe benefits where the employer
claims an input tax credit) does not apply to reportable fringe benefits. For reportable fringe benefits
purposes, an employer will always apply the lower gross up rate of 1.9608 to an employee's individual
fringe benefits amount. The higher FBT gross-up rate only applies to the calculation of an employer’s FBT
liability. However, to do the calculation, the GST inclusive value must be used.
Example: Shelley works for XYZ Pty Ltd who provided her GST inclusive benefits of $2,200. XYZ Pty Ltd was
entitled to an input tax credit of $200 for the fringe benefits provided to Shelley. XYZ Pty Ltd will apply the
gross up rate of 1.9608 to the GST inclusive value to determine the grossed up amount. Shelley's
reportable fringe benefit amount will be $4,313.76 ($2,200 × 1.9608). The company however, will be liable
to pay FBT on the grossed up amount of $4,721.86 ($2,200 × 2.1463). The FBT payable is $2,313.71
(49% × $4,721.86).
6.13.8 Where is the Reportable Fringe Benefit Figure Shown

Shown below is the portion of a year 2016 Individual non-business payment summary that relates to the
recording of the FBT reportable amount. This payment summary is applicable to income earned between
1 July 2016 – 30 June 2017. It is also applicable to the reporting of fringe benefits for the period between
1 April 2016 – 31 March 2017.
Please note: Employees must also show their Reportable Fringe Benefits figure on their Tax Return
6.13.9 Reportable Fringe Benefits – The Effect on Employees

The extent to which an employee is affected by their reportable fringe benefit amount will depend on
individual circumstances. Employees in the following situations may be affected.
 Employees making Child Support payments
 Employees with a HELP or SFSS debt
 Employees avoiding the Medicare levy surcharge
 Employees claiming deductions for personal superannuation contributions
 Employees receiving rebates for personal superannuation contributions
 Superannuation co-contribution for low income earners
 Employee’s eligibility to the government paid parental leave

6.14 The Fringe Benefits Tax Return
6.14.1 Lodgement
Employers should be registered for FBT before
they lodge their FBT return. To register for FBT,
lodge an Application to register for fringe
benefits tax (NAT 1055).
Who Must Lodge an FBT Return?

An organisation must lodge a 2016 FBT return
if it has an FBT liability for the FBT year ending
31 March 2016. For organisations that had FBT
instalment obligations during the year and did
not vary those instalments to nil, lodging an
FBT return will allow the Tax Office to update
their records and make your credits available
to the organisation.
Businesses do not need to lodge an FBT return
if the fringe benefits taxable amount for the
year ending
31 March 2016 is nil. Those who registered for
FBT however but don’t need to lodge an FBT
return, must complete a Fringe benefits tax –
notice of non-lodgement (NAT 3094).
When is the FBT return due

Employers must lodge the FBT return by 23
May unless they lodge via a tax agent who are often given a later lodgement date. Those who prepare and
lodge the return themselves can telephone 13 11 42 before 23 May to request extra time to lodge if
required to avoid late lodgement penalties. The penalties for failure to lodge on time are as follows.
Days overdue Large Medium Small

28 days or less $850 $340 $170
29 to 56 days $1,700 $680 $340
57 to 84 days $2,550 $1,020 $510
85 to 112 days $3,400 $1,360 $680
113 days or more $4,250 $1,700 $850
Businesses that do not pay their fringe benefits tax liability by the due date will need to pay the above
penalty and any general interest charge that may apply.
How to lodge the FBT return

Employers may be able to lodge the FBT return on-line using Standard Business Reporting (SBR) -enabled
software. Software providers are progressively SBR-enabling software and forms. Before purchasing or
upgrading software, always check that the software is SBR enabled and includes the forms required. For
more information refer to www.ato.gov.au/sbr.
Alternatively, the return can be lodged in paper form or by a tax agent. A tax agent can lodge the FBT
return via the electronic lodgement service (ELS) on the employer’s behalf. Employers lodging in paper
form will send the completed and signed return to: Australian Taxation Office, GPO Box 9845, IN YOUR
CAPITAL CITY.

6.14.2 Completing the Fringe Benefits Tax Return
Questions 1 to 13 on
the FBT return deal
with employer details,
contact details, bank
details and the like. We
therefore commence
our instruction from
question 14.
Question 14 –
Calculated fringe
benefits taxable
amount
A – Working out the
Type 1 aggregate
amount – A benefit is
type 1 if the employer
received a GST credit
for the benefit provided
to the employee. The
type 1 aggregate
amount is the total of
all the type 1 taxable
benefits provided to all
employees. Multiply
the total by 2.1463.
B – Working out the

Type 2 aggregate
amount – A benefit is
type 2 if the employer
did not receive a GST
credit for the benefit
provided to the
employee. The type 2
aggregate amount is
the total of all the type
2 taxable benefits
provided to all
employees. Multiply the total by 1.9608.
Question 15 – Fringe benefits taxable amount The total of

A + B as discussed above.
Question 16 – Amount of tax payable This is the total shown at question 15 multiplied by 47%.
Question 19 – Sub-total The same figure as shown at Question 16.
Question 20 – Less instalment amounts reported on activity statement
Deduct amount of FBT paid during the year as stated on the FBT portion of the BAS's lodged during the FBT
year.
Question 21 – Payment due OR Question 22 – Credit due to you

Deduct the amount shown at question 20 from the amount shown at question 19. A positive figure (the
Tax office is owed payment) will be shown at question 21. A negative figure (the Tax Office owes the
employer payment) will be shown at question 22.
Question 23 – Details of fringe
benefits provided
There are specific valuation
rules for each category of
fringe benefit. Under this
section the Tax Office seeks
more detailed information
about the fringe benefits
provided and whether the
original benefit has been
reduced by either an employee
contribution or exemptions
and reductions that are stated
in the legislation.
Number – Show the number of
cars, loans or houses (or other
units of accommodation) used
to provide car, loan or housing
fringe benefits at items:
A Cars using the

statutory formula
B Cars using the
operatingcost method
C Loans granted
F Housing – units of
accommodation
provided.
G LAFHA – show the
number of employees
who received a
living-away-from-home
allowance including
the exempt
component.
Numbers are not required for other items.

Gross taxable value (a) – This is the sum of the taxable values of fringe benefits for that particular benefit
category before any reductions (for example, employee contributions). If there are no employee
contributions or reductions, include this figure also in the Taxable value of benefits (a) – (b) – (c) column.
Employee contribution (b) – This is the total of employee contributions made for that benefit category.
Where the taxable value of a benefit has been reduced by an employee contribution, the employee must
make the contribution before the FBT return is lodged. Special arrangements apply where the contribution
is made by a journal entry in the accounts (refer to Miscellaneous Tax Ruling MT 2050). Excess employee
contributions for one benefit cannot be offset off the taxable value of other benefits provided to that
employee or other employees. The excess can be refunded to the employee as a net amount (no tax
applicable) or deferred to the following FBT year against the same fringe benefit.
Value of reductions (c) – This is the total amount where benefits of that category have been reduced:
 under the ‘otherwise deductible’ rule (Declarations, receipts or invoices should be kept to justify these
reductions – These should be obtained before the FBT return is lodged).
 by other means, for example, in relation to in-house fringe benefits.

Taxable value of benefits
(a) minus (b) minus (c) — This is the sum of the taxable values of fringe benefits of that particular benefit
category, after taking into account any employee contributions and/or other reductions for each fringe
benefit. If the employee contributions or reductions are greater than the benefit you provided, show zero
on the FBT return, not a negative amount. When completing this column, make sure the Gross taxable
value (a) column is also completed.
When a mistake is made

A request for an amended assessment will need to be lodged by the employer if it is realised that a mistake
has been made after the FBT return was lodged. Send written requests to the Tax Office at:
Australian Taxation Office

PO Box 3004
PENRITH NSW 2740
Provide the following information:

 name, postal address and contact number
 name and tax file number (TFN) of employer
 FBT year the mistake relates to
 reason for the amendment and sufficient information about the changes to the taxable values of the
affected benefits
 exact adjustment to each benefit category, including the corrected taxable values
 whether the benefits are type 1 or type 2
 amended fringe benefits taxable amount
 a signed and dated declaration as follows – ‘I declare that all the information I have given in this letter,
including any attachments, is true and correct.’
The request must be signed as listed below:
 for an individual the individual must sign
 for a partnership a partner must sign
 for a trust or fund a trustee must sign
 for a company, including an incorporated club, society, association or body of persons, the public
officer must sign (not just a director who is not the public officer)
 for an unincorporated association or body of persons an office holder must sign.
A mistake can be corrected on the return by striking it out in black pen. Write the new information as close
as possible to the boxes for the label. Tape whiteout can be used to correct errors but do not use liquid
whiteout which causes problems with the Tax Office's scanning equipment.
6.14.3 Paying FBT

The total FBT amount owed for the year ending 31 March 2016 must be paid by 21 May 2016 unless other
arrangements have been made with the Tax Office. Amounts are rounded down to the nearest multiple of
five cents. Any FBT instalment amounts paid by the organisation, as reported on the four activity
statements for the 2016 FBT year, are offset against the total 2016 FBT liability. The Tax Office accepts
payment by way of BPAY®, credit card (charges apply), direct credit, direct debit through either electronic
means, the mail, or in person at an Australia Post outlet. Those experiencing payment difficulties can
telephone the Tax Office on 13 11 42.
Paying FBT instalments in the following year

Businesses have to pay their FBT liability quarterly on their BAS statement in the following year if the tax
liability for the previous FBT year was $3,000 or more.

6.14.4 Fringe Benefits Tax and the BAS
The fringe benefit tax (FBT) instalment section on the Business Activity Statement (BAS) is completed when
the business’ previous year’s FBT liability is $3,000 or more.
Lodgement & payment dates

If the business lodges monthly activity statements but pays FBT quarterly, the FBT instalment section is
only completed after the end of each quarter. If an employer is not required to pay FBT by instalments, the
whole FBT liability is paid when the annual FBT return is lodged by 21 May.
Instalments are payable by 21 July, 21 October, 21 January and 21 April. Quarterly GST payers pay
instalments by 28 July, 28 October, 28 February and 28 April. Entities should take into account that 25% of
the full year liability should be paid by the first quarter due date, 50% by the second quarter due date, 75%
by the third quarter due date and the full 100% by last quarter due date.
Completing the FBT instalment section

The date printed at the top of the FBT instalment section shows the period which is being accounted for on
the BAS. Entities with an FBT liability have the choice of using the ATO instalment amount or varying their
instalment amount.
F1 ATO instalment amount – The amount pre-printed in the FBT instalment section of the BAS is the
business’ FBT instalment amount for this quarter. Instalments are based on the notional tax
amount. Generally the notional tax amount is the same as the business’ previous year’s FBT
liability. If the FBT instalment amount is not being varied, transfer the amount pre-printed at F1
over to 6A on the front of the BAS.
You may apply to vary the notional tax amount in certain circumstances. If a business is able to
vary the notional tax amount, this can be done at item F2 & F3.
F2 Estimated total fringe benefits tax payable – If it is estimated that the total FBT payable for the FBT
year ended 31 March will be different from the previous year’s FBT, the business may pay varied
instalments based on the estimated liability. In estimating the business’ total FBT payable, the
gross-up formula(s) are used.
The business will still be required to pay by quarterly instalments even if the estimated FBT liability
for the year is less than $3,000. No quarterly instalments will be payable if the liability is nil. Note:
If the estimated total FBT payable is less than 85 per cent of the tax ultimately assessed for the
year, and the business has paid instalments on the basis of that estimate, the business may be
liable to pay the General Interest Charge.
If the business wishes to vary the pre-printed FBT instalment shown at F1, the estimated total FBT
payable for the year ended 31 March should by recorded here at F2.
F3 Varied amount for the quarter – The amount of the varied FBT instalment for the quarter, is shown
here at F3. If the varied FBT instalment amount for the quarter is a positive amount, the amount is
written at F3. If the amount is zero or a negative amount, then zero is written at F3.
F4 Reason for fringe benefit tax variation – If the business chooses to vary its FBT instalment amount,
the Tax Office must be informed of why it was varied. This is provided in code form. The codes and
their corresponding reasons are as follows:
Current business structure not continuing 22
Change in fringe benefits for employees 30
Change in employees with fringe benefits 31
Fringe benefits rebate now claimed 32
Choose a code that best describes the business’ reason for varying the FBT instalment amount for
the quarter. Record the corresponding code at F4.

Transferring amounts from the FBT instalment section to the summary section
6A Fringe benefits tax instalment – If the FBT instalment amount pre-printed at F1 is being used,
transfer that amount to item 6A on the front of the BAS. If the FBT instalment amount for the
quarter is being varied, transfer the amount at F3 over to item 6A on the front of the BAS.
6B Credit arising from reduced fringe benefits tax instalments – This field is completed only if the
business has varied its FBT instalment amount for the quarter and as a result it has excess
instalment credits. Any FBT instalment credit is recorded here at 6B.

Fringe Benefits Tax is a subject that can be rather involved (as evident by more than 200 Rulings and
Determinations on the topic), with many variations from case to case. Contact the Tax Office's FBT enquiry
service on 13 28 66 with any specific queries you may have regarding FBT or consult the references below.
TR 97/17 (Income tax and fringe benefits tax entertainment by way of food/drink) ATO legal database
Fringe benefits tax – A guide for employers ATO website
FBT Activity Statement Instructions ATO website
The endorsement process to access charity tax concessions ATO website
Fringe benefits tax – Application for registration ATO website
Fringe benefits tax – What you need to know ATO website
Fringe Benefits Tax for non-profit organisations ATO website
Fringe benefits tax – Tax basics for small business 1908
Fringe benefits tax (FBT) – Annual return 1067
Fringe benefits tax (FBT) a guide to completing your return 2376
Fringe benefits tax (FBT) Notice of non-lodgement ATO website
Fringe benefits tax and Salary Sacrifice Arrangements ATO website
Fringe benefits tax for small business ATO website
Reporting fringe benefits – Fact for Employees ATO website
Tax determination TD 94/16 – What circumstances is a car available for private use ATO legal database
Taxation ruling MT2027 – Fringe benefit tax - Private use of cars - Home to work level ATO legal database
Fringe benefits tax – Exempt motor vehicles ATO legal database

7 WORKERS’ COMPENSATION
The rules and regulations concerning workers’ compensation vary greatly from state to state. Queensland,
New South Wales, Victoria and South Australia have a single authority structure whereas the ACT, Western
Australia, Tasmania and the Northern Territory leave the insurance arrangements to approved insurers or
internal company insurance. Commonly the premiums are payable on gross salaries and wages only. The
WorkCover Authority of New South Wales, while it lays down the rules, it does not handle the actual
insurance. This gives rise to differing interpretations of the rules by the various insurers.
If you pay salary and wages to any person, you must have a Workers’ Compensation insurance policy.
Generally, if you employ contractors, you are required to cover those contractors for workers'
compensation. This is discussed in more detail further on.
7.1 Workcover National Harmonisation Plan

The regulators of the workers’ compensation schemes in Western Australia, the Australian Capital
Territory, New South Wales, Queensland, South Australia, and Victoria have adopted a Harmonisation 10
point plan. This plan represents a commitment to the development of common approaches to
administrating premium, compensation, safety issues and self-insurance arrangements, while ensuring
that the benefits for injured workers are protected.
The states are committed to identifying additional reforms that continue to reduce complexity for
employers and employees.
7.1.1 Workers’ Compensation Guidance Material

One of the key items on the Harmonisation 10 Point Plan is to develop clear, plain English guidance
material that explains and compares workers’ compensation processes and obligations that impact on an
Employer in each state.
Please see the multi-state workers’ compensation guidance material listed below prepared by WorkSafe
Victoria at the www.workcover.vic.gov.au.
Page 282 Section 7 — Workers’ Compensation Taxation Seminar

7.2 Cross Border Arrangements
Employers who have been required to obtain workers’ compensation coverage for an individual worker in
more than one State may no longer need to do so. The new provisions mean that employers should only
need to obtain workers’ compensation insurance in one State or Territory to cover a particular worker. The
State or Territory in which workers’ compensation premiums relating to a particular worker are payable is
referred to as the worker’s ‘State of connection’.
7.2.1 The 'State of Connection'

The State of connection of a worker is determined by a series of ‘tests’. It is important to note that these
tests apply to a particular contract or term of employment for a worker.
A worker’s 'State of Connection' is:

a. The State in which the worker usually works in that employment.
b. If the worker usually works in no particular State, the State in which the worker is usually based for the
purposes of that employment becomes the 'State of Connection'.
c. If the worker is not based in one particular State, the State in which the employer’s principal place of
business in Australia is located will be the worker's 'State of Connection'.
Similarly, the benefits to which an injured worker is entitled are also determined by the ‘State of
connection’.
7.2.2 Supporting documentation

To ensure that a worker’s State of connection can be readily determined, contracts of employment or
other forms of documentation should be clear and specific. Employers should clearly state where, and for
how long, workers will be working in a particular State. Employers should also keep accurate records of
any arrangements to send workers temporarily to other States; these records could include copies of
relevant contracts of employment, letters of offer, occupational licences, site agreements, travel/lodging
records or other documentation that might confirm that the arrangement is temporary.
7.2.3 Temporary work interstate for the same employer

Under the new provisions, a worker can work temporarily for the same employer under the same contract,
outside their ‘State of Connection’ for up to six months without the need to reconsider where the worker
‘usually works’. After six months has elapsed, the employer must review workers compensation insurance
arrangements. At this point in time, the employer and worker may agree that:
 the arrangement remains temporary (the employer should keep copies of documentation supporting
the temporary status of the arrangement); or
 the arrangement is no longer temporary and the worker has a new ‘State of Connection’ (the employer
must take out insurance coverage for that worker in the new ‘State of Connection’).
The worker’s history of employment with other employers and intention to work in a particular State with
other employers are not relevant.
7.2.4 Practical Examples

Most state authorities now produce a guide to Cross Border workers compensation provisions. Access the
relevant Workcover authority's website to peruse the publication. The website addresses can be found on
the final page of this section.
All State guides will be similar because the same provisions apply among all participating States. The
following examples are taken from the Victorian and New South Wales guides to the Cross Border
arrangements.
Taxation Seminar Section 7 — Workers’ Compensation Page 283

Example 1 — Company wins 4 months interstate contract
 A building company operates from a principal place of business in Victoria and has a workers’
compensation insurance policy in Victoria.
 The company wins a four-month contract in NSW.
 The company sends a number of key permanent Victorian based personnel to NSW to oversee work on
the four-month contract.
 The company also recruits additional staff specifically to work in NSW in respect of that contract.
 The company has made no commitment to employ these additional workers once the contact in NSW
is completed.
In this example we must consider each group of workers separately as their contracts of employment are
different. Test A establishes the company’s existing permanent workers are usually based in Victoria and
are only working in NSW for the duration of the NSW contract. Their State of connection continues to be
Victoria and the workers continue to be covered by Victorian workers’ compensation. By applying test A to
the additional staff who has been employed solely to work on the NSW contract, it establishes the workers
usually work in NSW in that employment and, as such, only have a NSW State of connection. This group of
workers is required to have workers’ compensation coverage in NSW and the Victorian based employer
needs to take out a NSW workers’ compensation policy to cover them.
Example 2 — Labour hire worker works temporarily interstate and is paid through a company in another
State
 A worker is registered with the Victorian office of a labour hire agency. The worker has had continuous
employment through the labour hire agency with various employers in Victoria for 2 years.
 The worker is offered a fixed period of employment contract in Western Australia by the South
Australian office of the labour hire agency. The worker is paid wages by the SA office for the period of
the contract.
 The worker intends to return to Victoria at the end of the contract and resume work through the
Victorian office as and when work becomes available.
The worker’s contract of employment may have been arranged through the Victorian office of the labour
hire agency and the South Australian office is paying the worker’s wages. However, under test A Western
Australia is the State where the worker will usually work for the period of the contract of employment with
the South Australian office of the labour hire agency. The South Australian office of the labour hire agency
will need to effect cover in Western Australia for this worker.
Example 3 — Company has offices in several States with individual workers each carrying out work in
several states
 An interstate bus company has a head office in NSW.
 The company has offices and depots in Queensland, NSW and Victoria.
 Drivers spend equal amounts of time driving through the three States but are usually connected to one
of these depots.
 The drivers do not usually work in any one State.
Test A fails to identify a State in which the worker usually works in that employment, the drivers do not
usually work in any one State. By applying test B it can be established what State the worker is usually
based in for the purposes of that employment. In this scenario, the worker is usually based in the depot
from which they operate. For instance, if one driver normally operates from a depot in NSW, their
employer would require a workers’ compensation policy in NSW for that worker.

7.3 Defining Workers, Employees, and Contractors
7.3.1 New South Wales

On 1 September 2015, the regulatory and insurance functions of WorkCover are assumed by three new
discrete organisations: the State Insurance Regulatory Authority (SIRA) for workers compensation
regulation, SafeWork NSW for work health and safety regulation and Insurance and Care NSW (icare) for
workers compensation insurance. The information on the NSW workcover website is still relevant and a
new website will be available in the coming months.
The definition of a ‘worker’ includes any person who carries out work for a ‘person conducting a business
or undertaking' (PCBU). This term 'worker' includes any person who works as an:
 employee
 trainee
 outworker
 apprentice
 contractor or subcontractor
 employees of a contractor or sub-contractor
 employee of a labour hire company assigned to work for a PCBU.
A 'person conducting a business or undertaking' (PCBU) may be an individual person or an organisation
conducting a business or undertaking. A health and safety duty is owed by a PCBU if it:
 arranges, directs or influences work to be done

 contributes something towards the work being done.
This duty also applies to:
 principals, contractors and subcontractors within the supply chain such as in the construction and
transport industries
 franchisors and the franchisees that use the franchisors’ business systems such as fast food outlets.
A volunteer association (such as a community group) that does not employ any person to do work will not
be a 'person conducting a business or undertaking' (PCBU). For example, a sporting club, charity or other
community organisation that relies entirely on volunteers and does not employ anyone is not a PCBU.
Deemed workers
 Workers lent or on hire
 Outworkers
 Other contractors (work exceeding $10 in value, not incidental to a trade or business regularly carried
on by the contractor in own or business name, that is not sublet and who does not employ others)
 Contractors under labour hire services arrangements
 Rural work
 Timber getters
 Salespersons, canvassers, collectors and others paid by commission
 Tributers
 Mine employees/mines rescue personnel
 Jockeys and harness racing drivers
 Drivers of hire-vehicles or hire vessels – contract of bailment
 Caddies and others employed through club
 Shearers’ cooks and others
 Fire fighters in fire districts
 Workers at place of pick-up
 Boxers, wrestlers, referees and entertainers
 Voluntary ambulance workers
 Some ministers of religion (including those covered by policies)
 Participants in training programs if declared in regulations.
Who is not considered a Worker?
 A member of the police service contributing to the superannuation fund under the Policy Regulation
(Superannuation) Act 1906
 A registered participant of a sporting organisation within the meaning of the Sporting Injuries
Insurance Act 1978, while participating in, training for or travelling for that participation.
 A casual employee for one period only of less than five days for work other than the business of the
employer
 A religious officer or from other voluntary association where the duties are outside the officer’s
ordinary hours and that work is for less than $700 per year
 Volunteers and work experience students
Contractor or worker tool

A principal may be liable to pay workers compensation to workers employed by subcontractors in certain
circumstances. To determine whether a person is a worker or contractor for workcover purposes
Workcover has a Worker Status Service phone number, 13 10 50. Further details can be found at:
http://www.workcover.nsw.gov.au/insurance/workers-compensation-insurance-for-your-business/who-
to-insure
Excluded remuneration
Excluded remuneration includes:
 total annual wages of less than $7,500 paid by an employer (i.e. the total sum of wages paid to all
employees) except where a trainee or apprentice is being paid;
 any sum that the employer has been accustomed to pay to the worker to cover any special expenses
incurred by the worker because of the nature of the employment;
 any allowance to reimburse costs arising out of an obligation incurred under a contract;
 any amount expended on behalf of the worker;
 directors’ fees;
 compensation under this Act;
 any payment for long service leave under the Building and Construction Industry Long Service
Payments Act 1986; or any GST component in a payment to a worker.
Contractor or Subcontractor Liability – Subcontractor statement

A principal may be liable to pay workers compensation to workers employed by subcontractors in certain
circumstances. The principal contractor is relieved of that liability if the subcontractor provides a written
statement declaring that the requirements under the relevant Act regarding coverage have been met by
the subcontractor.
The statement is shown opposite. This statement is available by contacting our office on 1800 803 337 or
complete an interactive subcontractor’s statement on-line at:
http://www.workcover.nsw.gov.au/__data/assets/pdf_file/0019/15904/subcontractors_statement_5483.
pdf

Notes about Subcontractor statement
(i) This form is prepared for the purpose of section 175B of the Workers Compensation Act 1987,
Schedule 2 Part 5 Payroll Tax Act 2007 and section 127 of the Industrial Relation Act 1996. If
this form is completed in accordance with these provisions, a principal contractor is relieved of
liability for workers compensation premiums, payroll tax and remuneration payable by the
subcontractor. A principal contractor can be generally defined to include any person who has
entered into a contract for the carrying out of work by another person (or other legal entity
called the subcontractor) and where employees of the subcontractor are engaged in carrying
out the work which is in connection with the principal contractor’s business.
(ii) For the purpose of this Subcontractor’s Statement, a principal contractor is a person (or other
legal entity), who has entered into a contract with another person (or other legal entity)
referred to as the subcontractor, and employees/workers of that subcontractor will perform
the work under contract. The work must be connected to the business undertaking of the
principal contractor.
(iii) Provide the unique contract number, title, or other information that identifies the contract.
(iv) In order to meet the requirements of s127 Industrial Relations Act 1996, a statement in
relation to remuneration must state the period to which the statement relates. For sequential
Statements ensure that the dates provide continuous coverage. Section 127(6) of the
Industrial Relations Act 1996 defines remuneration ‘as remuneration or other amounts
payable to relevant employees by legislation, or under an industrial instrument, in connection
with work done by the employees.’ Section 127(11) of the Industrial Relations Act 1996 states
‘to avoid doubt, this section extends to a principal contractor who is the owner or occupier of a
building for the carrying out of work in connection with the building so long as the building is
owned or occupied by the principal contractor in connection with a business undertaking of
the principal contractor.’
(v) Provide the date of the most recent payment claim.
(vi) For Workers Compensation purposes an exempt employer is an employer who pays less than
$7500 annually, who does not employ an apprentice or trainee and is not a member of a
group.
(vii) In completing the Subcontractor’s Statement, a subcontractor declares that workers
compensation insurance premiums payable up to and including the date(s) on the Statement
have been paid, and all premiums owing during the term of the contract will be paid.
(viii) In completing the Subcontractor’s Statement, a subcontractor declares that all remuneration
payable to relevant employees for work under the contract has been paid.
(ix) In completing the Subcontractor’s Statement, a subcontractor declares that all payroll tax
payable relating to the work undertaken has been paid.
(x) It is important to note that a business could be both a subcontractor and a principal
contractor, if a business ‘in turn’ engages subcontractors to carry out the work. If your
business engages a subcontractor you are to also obtain Subcontractor’s Statements from your
subcontractors.
The principal contractor receiving a Subcontractor’s Statement must keep a copy of the Statement for the
periods stated in the respective legislation. This is currently up to seven years.
Grouping rules in New South Wales

From 1 July 2006 employers who are related entities with combined wages of more than $600,000 will be
grouped for workers' compensation purposes.

7.3.2 Victoria
A person is a Worker who enters into, or works under, a contract of service or apprenticeship, regardless
of whether the contract is expressed or implied, oral or written. A person working as a contractor is
deemed a Worker if all of the following three conditions apply -
• the provision of materials or equipment is not the principal object of the arrangement: (See WorkSafe
Contractor Guidelines – Contracts mainly for equipment or materials); and
• at least 80% of the work is performed by the same individual: under the arrangement, at least 80% of
the contractor’s gross contractual income is, or is to be, a direct result of the services performed by the
same individual; or under the arrangement, at least 80% of the contractor’s total time to complete the
services is, or can be expected to be, taken up by the same individual; and
• at least 80% of the contractor’s overall services income is earned from the hirer: under the
arrangement, the contractor’s gross contractual income that is earned, or is expected to be earned is
at least 80% of the contractor’s overall services income.
Note: Where a contractor operates as a company, the person who performs the work may also be deemed
a Worker. A contractor whose provision of labour is ancillary to the provision of materials and/or
equipment would normally not be a deemed Worker.
Examples of Workers
Full-time, part-time, and casual employees
 An apprentice
 Certain contractors who are deemed as Workers (refer to the Definition of a Worker section, above)
 Any person who is deemed to be a Worker or deemed to be working under a contract of service
 A director who is an employee working for an Employer
 A driver of passenger vehicles who has obtained a vehicle under contract of bailment (for example, a
taxi driver)
 A school student engaged for work experience
 A TAFE student engaged under a specific arrangement
 Certain timber contractors
 Persons attending a pre-arranged ‘place of pick-up’ (for being selected for employment)
 Certain volunteers specified under legislation
 Owner Drivers (sole trader or partnership only owner drivers are considered workers of the hirer)

 Genuine volunteers except those specifically mentioned under legislation
 Workers in their own businesses
 Professional sports people excluding jockeys
Worker and Contractor Assessment Tool

Victoria Worksafe have developed a worker and contractor assessment tool which aims at providing
general information and guidance to users as to how to treat the workers for workers compensation
purposes.
An assessment must not be treated as advice (legal or otherwise). This tool can be located on the
WorkSafe website at http://www.worksafe.vic.gov.au/insurance-and-premiums/contractors-and-
workers/worker-and-contractor-assessment-tool
Excluded Remuneration
Remuneration is exempt if:
 It is paid to an apprentice or trainee
− within the meaning of the Vocational Education and Training Act 1990 (Note: Where the wages of
any trainee is more than $36,070, none of the remuneration will be exempt for workcover
purposes); and
− the person has entered into an authorised training agreement with an employer; and
− the person has not worked for an employer or former employer for the two year period prior to
the commencement of the training agreement or if they have so worked, they must have worked
for an employer or the former employer for:
 no more than 12 months in total; and
 no more than 3 months full-time; and
 if the person has worked under a previous training agreement with an employer or
“former employer” then the gap between the current agreement and the previous
agreement must be less than three months.
 annual wages of less than $7,500 paid by an employer (i.e. the total sum of wages paid to all
employees) who does not hire an apprentice;
 payment by you as host employer to a student of a TAFE provider in an approved TAFE course or a
pupil at school for work experience purposes providing the arrangements are made in writing;
 partners’ drawings (Note: Partners are not covered by the Workplace Injury Insurance scheme);
 payments to Construction Industry Long Service Leave Board and contributions to the Redundancy
Payments Central Fund, as long as they are not taxable under the FBT Act 1986.
7.3.3 Queensland
A worker maybe a full-time, part -time or casual employee, an apprentice, a person who works under a
contract, or at piecework rates, for labour only or substantially for labour only.
Examples of workers
A Worker is a person who is employed under a contract of service, regardless of their tax paying status. In
general this means the person:
 Earns a salary or wages from their Employer
 Has set hours
 Is supervised and can be disciplined or dismissed by their Employer.
The following persons are also eligible for workers’ compensation:

 A person who works under a contract, at piecework rates, for labour only or substantially for labour
only
 A person who is not regularly carrying on a trade or business
 A person who performs work outside their usual trade or business
 A person who has an Australian Tax Office personal services business determination may still be a
‘Worker’ if the person is not regularly carrying on a trade or business, or is working for labour only or
for substantially labour only
 Certain types of volunteers and work experience students may be eligible for workers’ compensation.
 A person who does not have a personal services business determination (PSBD)
 Some sharefarmers
 A sales person paid by commission
 A person engaged by a labour hire agency, group training organisation, or holding company is a worker
of that organisation.

 Someone who performs work under a contract of service with —
(a) A corporation of which the person is a director; or
(b) A trust of which the person is a trustee; or
(c) A partnership of which the person is a member; or
(d) The Commonwealth or a Commonwealth authority
 Professional sportspeople
 Members of the crew of a fishing vessel receiving wholly or mainly a percentage of the gross earnings
or profit
 People who use a motor vehicle for tuition

 A person participating in an approved program or work for unemployment payment under the Social
Security Act 1991.
Using the ATO criteria to ascertain whether a person is a worker or contractor

Queensland Workcover uses ATO tax laws to determine whether a worker is a contractor or employee.
Using the ATO laws, means that certain individuals are not covered for workers compensation. They are
those who:
 supply and operate their own plant, such as earthmoving equipment or trucks as part of their contract.
(e.g. bob cat, back hoe, prime movers, taxi trucks, cement trucks, tow trucks)
 work mainly / substantially for labour only, quote for the job, provide their tools of trade, rectify
defects at their own expense and subcontracts / employs labour
 have a personal services business determination (PSBD) from the ATO.
More information on the ATO employer/contractor decision tool to work out specific contracting
arrangements can be found at paragraph 1.2 of the manual.
The ATO criteria will be used from 1 July 2013 onwards.
7.3.4 South Australia
Who is a Worker
Full time, part time & casual employees, apprentices, trainees, working directors, and certain contractors
deemed workers in prescribed classes of work if relevant conditions exist. The following are prescribed
classes of work:
 Building work;
 Cleaning work;
 Council drivers;
 Taxi drivers;
 Driving or riding for fee or reward a vehicle, other than a commercial motor vehicle;
 Entertainers (certain only), if performing the work personally;
 Outworkers & domestic servants;
 Ministers of religion, except for those classes excluded in regulation 5;
 Boxers / wrestlers, if employed for a fee; and
 Apprentice jockeys authorised under the Racing Act 1976.
Other workers include:

 Someone who works under a contract of service (whether or not as an employee).
 A prescribed class of volunteer; currently the only class of volunteers prescribed are volunteer fire
fighters with the Country Fire Service
 A self-employed Worker to whom WorkCover has extended the protection of the Act to under section
103. It should be noted that such an extension of the Act to self-employed persons has not been made
by WorkCover. Under common law the term contract of service normally represents a work
relationship formed between an employer and employee;
 A person working under a contract of apprenticeship;
 A person working under a contract, arrangement or understanding where they receive remuneration
from their employer for on the job training in a trade or vocation and
 A person working under a contract for service in circumstances prescribed under the Act. These
prescribed circumstances are known as ‘prescribed classes of work’ or ‘prescribed work’. This means
that in certain situations the Act deems people who would otherwise be independent contractors to
be workers.
Who is not considered a worker?

The Act and /or the Regulations exclude wholly or subject to conditions certain groups of workers
including:

 Ministers of the following denomination – :Anglican, Catholic priest or nun, Lutheran pastor, Ordained
minister, deaconess etc of the Uniting Church in an approved placement under the ‘Classification of
Ministers’ of that Church
 An officer of the Salvation Army appointed in SA under the orders and regulations for officers in that
church
 Most Professional sportspersons
 Owner/drivers of commercial motor vehicles (certain only)
 Seafarers covered by Commonwealth legislation
 Fishing crew (if they share in the boat’s gross profits)
7.3.5 Northern Territory

From 1 July 2012, the definition of worker under the Workers Rehabilitation and Compensation Act is a
natural person who, under a contract or agreement of any kind (whether expressed or implied, oral or in
writing or under a law of the Territory or not), performs work or a service of any kind for another person
unless
 the natural person satisfies the results test, or
 a personal services business determination relating to the natural person performing the work or
service is in effect under section 87-60 of the Income Tax Assessment Act 1997 (Cth).
An individual will be regarded as satisfying the results test if they:
 are paid to achieve a specified result; and
 provide their own plant and equipment or tools of trade needed to perform the work; and
 are, or would be, liable for the cost of rectifying any defect in the work performed.
Deemed Workers
 St John Ambulance volunteers;
 people serving on juries;
 jockeys and stable hands; and
 volunteer fire-fighters and emergency services personnel.
Who is not eligible for WorkCover?

 A person who meets the Results Test for the particular work or who supplies a personal services
business determination
 Commonwealth employees (covered under Comcare)
 Any person or class of person excluded by Regulation e.g. share fishermen, direct selling agents, foster
parents, home based day care
 Family members, except where specifically declared to the insurer
 Company Directors, except where specifically declared to the insurer
 Volunteers (other than those prescribed) and most sports persons
7.3.6 Australian Capital Territory

A Worker is an individual who has entered into, or works under, a contract of service with an Employer,
whether the contract is expressed or implied, oral or written. A ‘Contract of Service’ exists where there is
an Employer/Worker relationship. In a contract of service, the Worker is directly engaged by the Employer
in employment. Most employment contracts are made under a ‘Contract of Service’. A ‘Contract for
Service’ circumstance is where an individual performs work for the principal and personally does part or all
of the work. A person who is employed under a ‘Contract for Service’ and works on a regular and
systematic basis can be deemed to be a Worker.
Examples of Workers
Examples defining who is a Worker include casual employees employed through employment agencies
(e.g. a babysitter found through an agent rather than by the parents), regular contractors and casuals (e.g.
regular and systematic gardeners, commission-based sales representatives on a contract, IT consultants,
owner-driver truckies, taxi-drivers and brickies) religious workers and notified family members.
 A public servant
 An employee within the meaning of the Safety, Rehabilitation and Compensation Act 1988 (Cwlth)
 A member of the Employer’s family who lives in the Employer’s home
7.3.7 Tasmania
A worker is a person who has entered into, or works under, a contract of service or training agreement.
The contract with the employer can take many forms and still be binding. It may be express or formal (in
writing) or implied (oral). The definition includes:
 workers who have been loaned or hired by their employer to another employer (In such cases,
responsibility under the Act stays with the original employer);
 volunteer fire-fighters, police, ambulance workers and other prescribed volunteers while they are
engaged in their volunteer duties;
 workers genuinely engaged under contracts of service with sporting bodies - for example, paid
coaches, umpires or referees; and
 any person or class of persons taken to be a worker for the purposes of the Workers Rehabilitation and
Compensation Act 1988.
Excluded workers
 Workers employed on a casual basis for a purpose other than the employer’s trade or business;
 Outworkers – a person to whom articles or materials are given out to be made up, cleaned, washed,
altered, ornamented, finished, repaired or adapted for sale, in premises not under the management or
control of the person giving them out;
 Workers employed as domestic servants with a private family who have not completed 48 hours
employment with the employer;
 Members of crews of fishing boats who are paid wholly or mainly on the basis of a share of profits or
gross earnings of the boat.
Contractors
In Tasmania, for workcover purposes, the two common tests used to help determine the relationship are
‘control’ by a principal (payer) and ‘integration’ into the business. Control is the most used determinant
and requires an examination of who has the right to place controls on another party. It is accepted that
although someone may not control the work of someone else, where they have the right to control the
work, there is a distinct possibility of an employer/employee relationship. The list below depicts some
examples of the matters to be examined when attempting to determine a relationship.
 Control Over Work (giving direction, training, responsibility for losses, specified place to work)
 Control Over Time (start and finish, regularity, breaks, absences, time off, specified days, travelling,
continuation or limitation)
 Rates of Pay (regularity, how calculated, invoicing, how rate struck, who determined by, overtime,
travel, site allowances, sick, annual, long service, public holidays, car use, free transport, bonuses, free
petrol)
 Materials, Plant and Equipment (provided by whom, power, telephone, floor space, shelter)
 Delegation Rights (right to subcontract, enter concurrent contracts, work simultaneously with other
parties)
 Taxation (PAYG, Voluntary Agreement)
 Termination (how, when misdeeds are apparent, refusal to work)
 Insurance (workers’ compensation, personal accident insurance)
 Profit/Loss (ability to make, break even, good/bad management)
 How the Work was Obtained (advertised, recruitment, recommendation)
 Previous Relationships (with payer, with associate, changes that occurred)
The other common test is that of ‘integration’. Where a person who is performing work is part and parcel
of the principal’s business and does not have to make management decisions but instead is coordinated by
the principal, there is a possibility of an employer/employee relationship. Where a person is deemed to be
an accessory to the business, it is less likely that an employer/employee relationship exists and therefore
an exemption for payments made to the relevant party will exist.
7.3.8 Western Australia

The term ‘Worker’ includes a member of the police force, who suffers an injury and dies as a result of that
injury, and any member of the Employer’s family dwelling in his house whose name, employment, and
estimated wages are disclosed, at the time of employment and thereafter from time to time when the
insurance is renewed. The term ‘Worker’ also includes:
 any person to whose service any industrial award or industrial agreement applies; and
 any person engaged by another person to work for the purpose of the other person’s trade or business
under a contract with him for service, the remuneration by whatever means of the person so working
being in substance for his personal manual labour or services, and any reference to a Worker who has
suffered an injury shall, where the Worker is dead, include a reference to his legal personal
representative or to his dependants or other person to whom or for whose benefit compensation is
payable.
Examples of Workers
 A full-time employee
 A part-time employee
 A casual employee
 An apprentice
 A contractor (refer above)
 Any person who is deemed or deemed to be working under a contract of service
 Working directors as declared for the purpose of Workers’ compensation insurance
 Declared clergymen
 Licensed jockeys

 A volunteer who does not receive any payment for the services he/she provides.
 Crew members who are signatories to a share fishing agreement
 Professional sports people
 Unpaid individuals on ‘work experience’
Sub-contractors
A contractor or sub-contractor may be defined as a ‘worker’ if the contractor/sub-contractor is engaged by
another person to do work for the purpose of the other person’s trade or business, and the
contractor/sub-contractor is paid in substance for his/her personal manual labour or services.
Example: A farmer’s normal trade or business is farming. Activities which are part of that business include
seeding, fencing, shearing, and repairing equipment (e.g. fences). A shearing shed worker, who may
sometimes be referred to as a sub-contractor, is paid in substance for his/her work as a wool classer,
shearer or shed-hand.
The sub-contractor may use his/her own hand tools, but this is not significant in determining what he/she
is paid. In each case, if the sub-contractor does not supply materials and does not employ any workers,
he/she may be defined as being paid in substance for his/her personal manual labour or services and be
defined as a ‘worker’.
If the contractor/sub-contractor supplies materials and/or employs workers, then there is doubt whether
he/she would be a ‘worker’ under the legislation, but every case is looked at on its merits. You cannot
contract out of your liability under the legislation by making a worker sign an agreement that says they are
not entitled to claim worker’s compensation. A personal sickness and accident policy cannot be
substituted for a workers’ compensation policy.

7.4 What remuneration is included for Workers' Compensation
purposes?
State or Territory
Description of Payment NSW VIC QLD SA TAS WA NT ACT
Site or Height Allowance Yes Yes Yes Yes Yes Yes Yes Yes
Sick Leave Payments Yes Yes Yes Yes Yes Yes Yes Yes
All Bonuses Yes Yes Yes Yes Yes Yes Yes Yes
Commission Yes Yes Yes Yes Yes Yes Yes Yes
First Aid Allowance Yes Yes Yes Yes Yes Yes Yes Yes
Payment of Travelling Time Yes Yes Yes Yes Yes Yes Yes Yes
Holiday Leave (and Loading) while still employed Yes Yes Yes Yes Yes Yes Yes Yes
Long Service Leave while still employed Yes Yes Yes Yes Yes Yes Yes Yes
Reimbursements No No No No No No No No
Board and Lodging (3) (3) Yes (2)(3) Yes Yes No (8)
Car / Motor Vehicle / Travel (Accom)

(1)(4) (1)(2) (2)(14) (1)(2) (2)(10) Yes Yes (2)
Allowance
Meal Allowance (2)(15) Yes (2) (2) Yes Yes Yes Yes
Living-Away-From-Home Allowance (6) (15) (2) (2) (10) Yes Yes Yes
Tool Allowance (2) Yes (2) Yes No Yes Yes Yes
Clothing Allowance (2) Yes (2) (2) (2)(10) Yes Yes No
Vehicle Expenses (1)(4) (1) (2)(13) (1)(2) No Yes Yes No
Superannuation Contributions Yes Yes Yes Yes (6) (6) (6) (6)
Accrued Holiday Pay / Sick Leave on Termination Yes No No No Yes No Yes Yes
Accrued Long Service Leave on Termination Yes No No No Yes No Yes Yes
Other Lump Sums on Termination (9) No No No No No No (9)
FBT Items (12) (11) (13) (10) (10) (11) (16) (11)
Salary Sacrifice (3) (3) (3) (3) Yes (3) (3) (3)
Payments to Contractors (7) (7) (7) (7) (7) (7) (7) (7)
Workers Compensation Payments No No Yes No No No No No
Paid Parental Leave (Government Scheme) No No No No No No No No
Salary continuance insurance N/D N/D N/D Yes N/D N/D N/D N/D
Workplace Giving (17) (17) (17) (17) (17) (17) (17) (17)
Notes: N/D – Not defined in legislation

1 If the motor vehicle allowance is not calculated on a cents per kilometre basis the whole amount of the
allowance is included as remuneration. Where there is a motor vehicle benefit provided, please refer
to FBT items on the chart. A motor vehicle allowance calculated on a cents per kilometre basis is not
included if the amount paid is less than:
New South Wales – exempt up to 66 cents per kilometre. However, if the employer pays car
allowances or expenses to the worker and the payment is paid under an award at a rate specified by
the award, the payment is not counted as remuneration. Any payment greater than the award rate is
counted as remuneration.
Victoria – exempt up to 66 cents per kilometre
South Australia – exempt up to 66 cents per kilometre
2 Not to be included in the Workers’ Compensation declaration if it is considered to be a reimbursement
for specific expenditure incurred as part of their employment. Otherwise, it should be included.
Australian Capital Territory – Where amount exceeds the ATO car allowance rate then it should be
included.
Tasmania – Car allowance is specifically excluded as remuneration for workers' compensation
purposes, where paid to cover work related costs.
New South Wales – the excess over $257.95 / night is included. The cost of living allowance is fully
included.
Victoria – the excess over $257.95 / night is included. The cost of living allowance is fully included.
South Australia – the excess over $257.95 / night away from home is included. An allowance in the
form of a payment paid to or for the benefit of a worker, including a Living away from home allowance
or Travelling allowance is included as an Accommodation allowance provided:
− it is an allowance and not a direct reimbursement of an expense incurred by the worker;
− it is a payment made by an employer to a worker on the grounds that the circumstance of a
particular employment event (i.e. unable to return home at night) requires the worker to use
accommodation at a place other than their normal place of residence where the employer is
bound by an award, or registered industrial agreement or industrial agreement pursuant to an
award to make the payment to a worker;
− the allowance is to provide money for accommodation expenses and related expenses (e.g. meals/
incidentals).
3 Generally these items are included, however, it is important to refer to FBT Items and Superannuation
Contributions on the chart. Most salary sacrifice arrangements contain one or both of these two
components.
4 If the payment is shown on the workers' payment summary it is included (except where it is a cents per
kilometre car allowance paid within the rate shown at note 1). If the payment is not subject to fringe
benefits tax and not shown on the workers' payment summary it is not included as remuneration for
workers' compensation purposes. If the item is subject to fringe benefits tax, refer to 'FBT Items' on
the table. If the item is in relation to superannuation contributions refer to ‘superannuation
contributions’ on the table.
6 Generally, only salary sacrifice is assessable, not the superannuation guarantee contributions.
Contributions made by an employer to a superannuation scheme above the Compulsory
Superannuation Guarantee Levy will only be assessable when the payments represent a sacrifice of
salary by the worker.
7 Generally, where payees are found to be legitimate contractors there will be an exemption, for
workcover purposes, for amounts paid to the relevant party. Guidelines for what constitutes a
legitimate contractor differs from State to State. Where a particular State is not shown here please
refer to information earlier in this section under 'Who is a worker'.
Queensland – All amounts you pay to a worker who does not have contractor status under the six ATO
criteria, or does not have a Personal Services Business Determination from the ATO must be included,
even if they have an ABN. Where it is able to be established to the satisfaction of WorkCover (for
example the contract/invoice clearly identifies items separately) that there has been payment of
specific non-labour costs, these costs would not be assessable as wages.
Northern Territory – Generally, a contractor is a person who passes the results test, that is; is paid to
achieve a result, supplies plant and equipment and is liable for costs of rectifying defective work.
Western Australia – A contractor or sub-contractor may be defined as a ‘worker’ if they are engaged
to do work by another person for the purpose of the other person’s trade or business, and they are
paid in substance for their personal manual labour or services. Examples of people who work under a
contract for service and are likely to be considered a worker include:
− Contractors or sub-contractors who perform the actual activities of the employer’s trade or
business (e.g. a bricklayer or plasterer contracted by a builder).

− Contractors or sub-contractors who perform activities for the efficient conduct of an employer’s
trade or business (e.g. a fencing contractor contracted by a farmer).
Victoria – The individual is deemed to be a worker and amounts paid to the contractor under the
arrangement is deemed to be rateable remuneration if, for a relevant period under a contractual
arrangement between a contractor and a hirer, if all of the following three conditions apply:
− 1) the provision of materials or equipment is not the principal object of the arrangement; and
− 2) at least 80% of the work is performed by the same individual: and
− 3) at least 80% of the contractor’s overall services income is earned from the hirer.
Where a contractor operates as a company, the person who performs the work may also be deemed a
Worker. A contractor whose provision of labour is ancillary to the provision of materials and/or
equipment would normally not be a deemed Worker.
New South Wales – The remuneration an employer pays to its contractors who are deemed workers
are to be included in the total remuneration the employer declares when calculating the employer's
premium. The payments for materials, tools, equipment, or plant are excluded when calculating the
employer's remuneration and premium. In a labour hire situation the labour hire agency is deemed to
be the employer.
8 Where board and lodgings are subject to FBT or included on the employee’s payment summary, then
the benefit is included as wages. The value to be included is the relevant market value.
9 Included termination payments – accrued sick leave, annual leave, including leave loadings or
bonuses, and long service leave.
Excluded termination payments – payments made in lieu of notice on termination arising from
redundancy, severance, retrenchment or early retirement are not counted as wages. Redundancy,
severance, retrenchment, early retirement benefits or termination payments and payments made in
lieu of notice on termination are not counted as wages. Ex gratia payments to workers on termination
are not counted as wages.
10 Where the item is an FBT item, the taxable value of the FBT item is included, not the grossed-up value.
Exempt benefits under the Fringe Benefits Tax Assessment Act 1986 are not included as remuneration.
11 If the item is an FBT item, the grossed up value is included at the gross up rate of 1.9608.
12 Where the item is an FBT item, the grossed-up value of a FBT item is included.
Charities, Churches and PBI's providing benefits where part or all of the benefit is not subject to FBT
should include only the pre-grossed-up value of the non-taxable portion, and the grossed-up value of
the taxable portion. Rebatable employers should declare the rebatable amount of the worker benefits
at the net value and ‘non-rebatable amount’ at the grossed-up value.
13 Where the item is an FBT item and is part of a salary sacrifice package, the cost of the item including
the FBT is included. In all other cases the taxable value (pre-grossed-up figure) is included.
14 Exempt if provided under an industrial instrument and the employee incurs the expense.
15 A living away from home allowance is a fringe benefit and therefore, the value for WorkSafe Premium
purposes is the value determined in accordance with the FBT Act. If the allowance does not qualify as a
living away from home allowance benefit under the FBT Act, it will be treated in the same manner as
an overnight accommodation allowance.
16 Where the item is an FBT item and is part of a salary sacrifice package, the cost of the item including
the FBT is included.
17 Some employees agree to make regular donations to charitable organisations under a ‘Workplace
Giving’ program. This arrangement is not a salary sacrifice arrangement because the ATO requires that
the normal gross salary must be stated on the employee’s payment summary. Payroll tax is payable on
the normal gross salary.

7.5 Other Issues
7.5.1 Payments to Entities other than individuals

If the payment is made to a partnership, company or trust, then in most cases, the entity is a legitimate
contractor for workers’ compensation purposes and therefore payments to such parties will not be
considered remuneration for Workcover purposes. An exception to this rule exists in Queensland and
Victoria. In Queensland, payments to a partner may fall into the Workcover definition of payments made
under a 'contract of service'. In Victoria, the fact that a contractor uses a company or business name or
ABN does not necessarily exempt them from WorkCover. See preceding notes for more information. In all
states, if the work itself is carried out by an individual, depending on the circumstances, that individual
may be classed as a worker for workers' compensation purposes. See preceding notes for more
information.
7.5.2 Impact of the GST

GST and the Workers' compensation premium – Although GST applies to the premium, it will have no cost
impact for employers who are registered for GST and are therefore able to claim a 100% input tax credit.
GST and Claims – To ensure that employers have no GST liability on any future claims, workers'
compensation insurers will collect each employer's input tax credit entitlement information and Australian
Business Number. The large majority of businesses will have an input tax credit entitlement of 100%.
7.5.3 Accrual of leave entitlements for workers' compensation recipients

The Fair Work Act states that where an employee is absent from work because of personal illness or injury
for which they are receiving workers’ compensation, they will not accrue any annual leave or personal
leave unless stated in relevant State compensation legislation.
State Authority Does Annual/Personal leave accrue whilst Does Long service
an employee is receiving Workcover? leave accrue whilst
on Workcover?
New South Workcover NSW Yes Yes
Wales
Victoria Workcover VIC No Accrues up to 48
weeks
Queensland Workcover QLD Yes Yes
Tasmania Workcover TAS Yes Yes
Australian Workcover ACT Yes Accrues up to 2
Capital Territory weeks
Northern NT Worksafe No Yes
Territory
South Australia Workcover SA Yes Yes
Western Workcover WA No Accrues for the first
Australia 15 working days in
any year

The following is a list of the relevant Government authority to contact in each State or Territory with any
general enquiries on workers’ compensation, together with any relevant publications which can be
obtained from that source.
New South WorkCover NSW Ph: 13 10 50

Wales 92-100 Donnison Street, Gosford Fax: (02) 4325 4145
Locked Bag 2906, Lisarow NSW 2252 Ph: (02) 4321 5000
Wages Definition Manual
http://www.workcover.nsw.gov.au/Pages/default.aspx
Queensland WorkCover Queensland Ph: 1300 362 128
280 Adelaide Street Fax: 1300 651 387
GPO Box 2459, Brisbane 4001
Workers' Definition Manual
http://www.workcoverqld.com.au/
Victoria Worksafe Victoria Ph: (03) 9641 1444
Ground Fl, 222 Exhibition Street 1800136089
GPO Box 4306, Melbourne 3001 Fax: (03) 9641 1222
What To Include In Your Remuneration Ph: 1800 136 089
http://www.worksafe.vic.gov.au/
South Return to Work SA Ph: 13 18 55
Australia 400 King William Street Fax: (08) 8233 2211
GPO Box 2668, Adelaide 5001
Employer Information Booklet
Inclusions and Exclusions
http://www.workcover.com/
Northern NT Worksafe Ph: 1800019115
Territory 1st Fl, Darwin Plaza Building Fax: (08) 8999 5141
41 Smith St, The Mall, Darwin 0800
GPO Box 3200, Darwin 0801
A guide to workers’ compensation – employers and workers
http://www.worksafe.nt.gov.au/home.aspx
Tasmania Worksafe Tasmania Ph: 1300 366 322
30 Gordons Hill Road Fax: (03) 6233 8338
Rosny Park 7018 Ph: (03) 61664600
PO Box 56, Rosny Park 7018
Guideline on the Definition of Wages – Version 4
http://www.workcover.tas.gov.au/
Western WorkCover Western Australia Ph: (08) 9388 5555
Australia 2 Bedbrook Place 1300794744
Shenton Park 6008 Fax: (08) 9388 5550
Workers’ Compensation & Injury Management – A Guide for Employers
http://www.workcover.wa.gov.au/Default.htm
Australian Worksafe ACT Ph: (02) 6207 3000
Capital Level 3, Callam Offices Fax: (02) 6205 0336
Territory
Easty Street, Woden 2608
GPO Box 158, Canberra City 2601
http://www.worksafe.act.gov.au/health_safety

8 PAYROLL TAX
Payroll tax is a tax paid by employers on wages paid or payable to employees. Payments to contractors
may, in some cases, also be regarded as wages for payroll tax purposes. This will be discussed further on in
this section. Previously, payroll tax was a Federal tax but now it comes within the jurisdiction of individual
State and Territory legislatures. A consequence of this is that each State’s and Territory’s legislation and
regulations are not necessarily consistent throughout Australia.
The law in each State broadly provides for payroll tax to be levied on “wages”, in cash or in kind, provided
by employers to their employees. An employer’s liability to this tax will vary between states. The factors
determining this liability depend on:
 the definition of the term “wages” on which the tax is levied;

 the tax exempt wage level threshold;
 any allowable reduction applying to the payroll tax threshold;
 the applicable rate of tax.
Australia wide payroll website

The Commissioners from Revenue Offices in each Australian state and territory have launched a joint
payroll tax website. The website provides users with easy access to harmonised payroll tax documentation,
legislation, state and territory contacts and education opportunities. Access it at:
http://www.payrolltax.gov.au/
8.1 Exemptions and Rebates
8.1.1 General Exemptions for all States

Some items paid to employees could be excluded or exempt from payroll tax depending on the
circumstances and the jurisdiction. Generally these exemptions include wages paid:
 by religious or public benevolent institutions (including Aboriginal Land Councils);
 by public or non-profit hospitals;
 by non-government, non-profit schools or colleges providing education at or below the secondary level
of education;
 by municipal councils (not in Tasmania);
 by charitable organisations;
 to foreign diplomatic/consular representatives;
 to trade commissioner representatives;
 to employees in voluntary work/emergency relief – Wages paid or payable to an employee in respect
of any period when he or she was taking part in bushfire fighting activities as a volunteer. Wages are
exempt if they are paid or payable to an employee in respect of any period when he or she was
engaging in emergency activities. The exemption does not apply to wages paid or payable as recreation
leave, annual leave, long service leave or sick leave.
 for maternity/paternity and adoption leave – Employers providing paid maternity/paternity or
adoption leave will be entitled to an exemption for any wages paid to an employee, up to a maximum
of 14 weeks maternity/paternity leave or adoption leave. The adoption leave exemption is available in
respect of leave provided to both female and male employees. Note: Paternity leave is not exempt in
Victoria, South Australia and Tasmania. Surrogacy leave is also exempt in Queensland.
 for services performed in another country for more than six months (including the first six months)
from payroll tax;
 to employees while on leave to work in the defence forces;
 to employees under the community development employment project scheme;
 To employees by Commonwealth Government Employers.
Page 300 Section 8 — Payroll Tax Taxation Seminar

Note: In many cases, wages paid by a charitable organisation to employees who perform work
predominantly in relation to a commercial venture conducted by the organisation are taxable for payroll
tax purposes, if the total taxable wages exceed the state's payroll tax threshold. This will be assessed when
the application for exemption is made to the Revenue Office in your state.
8.1.2 New South Wales
Selected apprentices and trainees through group training organisations

A payroll tax rebate exists for wages paid to apprentices and trainees who are recognised by the NSW
Department of Education and Communities (NSW DEC) and fall under the definition of an apprentice or
trainee in the Apprenticeship and Traineeship Act 2001.
How to claim - Employers are required to include the wages and salaries paid to apprentices and new
entrant trainees in their payroll tax calculation. The rebate will be claimed through offsetting the rebate
amount against monthly payroll tax payments. This offset facility will be provided through the monthly
calculator on-line service. Alternatively, employers using their own software or a commercial package such
as MYOB to calculate your monthly payment, have the option of either determining their own monthly
offset or claiming it at the end of the financial year.
Note - No rebate is available for a trainee who has been continuously employed for more than 3 months
full-time or 12 months casual/part-time immediately before commencement of their traineeship.
Jobs Action Plan Scheme

The Jobs Action Plan is designed to give businesses an incentive to employ new workers and expand their
enterprises in both metropolitan and regional areas in NSW. Under the plan, eligible businesses that
increase the number of NSW FTE employees, will receive a payroll tax rebate following the employment of
each additional NSW employee in a position that is a new job.
The rebate is available for eligible jobs commencing on or after 1 July 2011 and before 1 July 2019.
Recent changes
New jobs commencing on or after 31 July 2016, will only be eligible for the rebate if the employer’s full-
time equivalent (FTE) employee number, prior to the new job, is at or below 50.
The total rebate amount per new job has increased to $6,000. New jobs commencing on or after
31 July 2016 will receive a rebate of $2,000 payable on the first anniversary and $4,000 on the second
anniversary.
Note: a registration for a new job must be made within 90 days of the job commencement date.
How to claim: To be eligible for the scheme you must be registered as an employer and paying payroll tax
in NSW. The rebate is paid by Electronic Funds Transfer in two parts, on the first and second anniversary of
employment of an additional person in a new job. Online registration is located at:
http://www.osr.nsw.gov.au/info/online/payroll/jap.
An application for rebate may be lodged within 30 days after the first and/or second anniversary date of
employment if the employment is eligible employment.
Taxation Seminar Section 8 — Payroll Tax Page 301

8.1.3 Victoria
Wages paid by the following organisations may be exempt:
 wages paid or payable by School Councils are exempt;

 wages paid by ambulance services, community health centres, denominational hospitals, multi-
purpose services, public health services, public hospitals and the Victorian Institute of Forensic Mental
Health are exempt;
 wages paid by a Division of General Practice is considered a charity for payroll tax purposes;
 wages paid to persons engaged exclusively in religious work of a religious institution;.
 Wages paid by prescribed not-for-profit group training organisations (to apprentices that satisfy
funding requirements as a new entrant) – Wages paid by group training organisations (GTOs) to
apprentices who meet the criteria for funding as a ‘new entrant’ will be exempt from Payroll Tax when
the apprentice is on-hired to a client of the GTO under an employment agency contract arrangement.
This arrangement only applies to non-profit GTOs approved by the Treasurer. See
http://www.sro.vic.gov.au/node/221 for a list of approved non-profit GTO's.
Exemption for wages of displaced apprentices:

From July 1, 2016 wages paid to apprentices who were displaced by their previous employer will be
exempt from payroll tax.
The back to work (btw) scheme

The BTW Scheme provides assistance to the long-term unemployed, unemployed youth (aged between
15-25 years old inclusive) and retrenched workers. The Office of State Revenue are administering the two-
year scheme under the Back to Work Act 2015 in respect of employees employed from 1 April 2015 to
31 March 2017 (inclusive). However, because the employee must have been employed for at least three
months, claims for BTW payments can only be lodged from 1 July 2015. Note - An out-of-trade apprentice
does not have to be employed by you for any specific length of time before you can claim the payment.
The payment amount depends on the employee category as follows:
 $2000 for employing a long-term unemployed person in a full-time job

 $1500 for employing a long-term unemployed person in a part-time job
 $1000 for employing a young unemployed person, retrenched worker or out of trade apprentices
in a full-time job
 $750 for employing young unemployed person, or retrenched worker in a part-time job
How to claim - BTW claims can only be made online at the following link:
http://www.sro.vic.gov.au/back-work/claim-your-back-work-payment
An employer does not need to provide evidence of the actual costs incurred in hiring and training an
eligible employee to receive payment but they will need to be satisfied that the eligibility criteria are met,
and be able to provide documentation to verify a claim if requested. Three key criteria must be satisfied
before an employer is entitled to a BTW payment. For more information access:
http://www.sro.vic.gov.au/backtowork#eligible
8.1.4 Tasmania
Rebate for new employees
The OSR is extending the Payroll Tax rebate to employers for new positions created for the fourth time. To
be eligible for the rebate, the new positions must be created between
30 June 2014 and 30 June 2015 and maintained until at least 30 June 2016. The rebate can be claimed
from 1 July 2014 to 30 June 2016 for wages paid to eligible positions.
How to claim - The employer will need to registered for EISPR4 by completing the EISPR4 registration form
by 21 July 2015. Once registered for EISPR4, employers should complete the EISPR4 claim form for newly
created positions. The claim form can be located here

http://www.sro.tas.gov.au/domino/dtf/SROWebsite.nsf/v-
all/0C8AB51C1BE51B60CA257CEF000BF852/$file/EISPR4%20General%20Claim%20Form.pdf
IMPORTANT: Before completing the Registration or Claim forms you should read the EISPR4 Guideline. This
rebate is also available for new positions created under a Labour Hire Arrangement between the employer
and a Labour Hire company where the Labour Hire company pays Payroll Tax on the employee’s wages.
8.1.5 South Australia
South Australia Small Business Payroll Tax Rebate

A payroll tax rebate payment will be provided to eligible employers with a taxable Australian payroll of less
than or equal to $1.2 million. Once the rebate payments have been made, eligible employers with a
taxable Australian payroll of up to $1 million will have effectively only paid payroll tax at a level equivalent
to 2.45 percentage points lower than the statutory rate of 4.95%. Rebate payments will phase out for
eligible employers with a taxable payroll of between $1 million and $1.2 million.
The small business payroll tax rebate will be available up until 2019/20, saving eligible small businesses up
to $9,800 each year. The rebate effectively halves the payroll tax rate for businesses with a taxable payroll
less than $1m.
How to claim - Employers must have met all their payroll tax obligations and all payments made to be
eligible for the rebate. Employers who are members of a group will not be able to have their rebate
determined until their Designated Group Employer's annual payroll tax reconciliation has been finalised.
The rebate is automatically calculated by Revenue SA and will be paid following finalisation of the
employer's annual reconciliation process
Further information in relation to the administration of the rebate is contained in -

http://www.revenuesa.sa.gov.au/rulings/PTASA002_V2.pdf
Film production exemption

Wages paid or payable to a person who is involved in the production of a feature film may receive an
exemption from payroll tax if the motion picture production company satisfies the Minister that:
 the film will be produced wholly or substantially within the state;

 the production of the film will involve or result in the employment of Australian residents; and
 the production of the film will result in economic benefits to the State of South Australia.
How to claim - Applications must be made in writing to the South Australian Film Corporation. Further
information in relation to the claiming of this exemption is available at:-
http://www.safilm.com.au/library/402PayrollTaxExemptionGuidelinesFINALasat23July2015.pdf
8.1.6 Queensland
Exemption for Apprentices and Trainees

Wages paid to apprentices and trainees may be exempt from payroll tax. To be regarded as an apprentice
or trainee for payroll tax purposes, the employee must sign a training contract with their employer,
approved under the 'Further Education and Training Act 2014 (or, before 30 June 2014, the Vocational
Education, Training and Employment Act 2000). This does not include:
 wages paid to trainees who had been employed by the employer for three months of full-time
employment or 12 months of part-time or casual employment immediately before the traineeship
started;
 wages paid for periods before or after the apprenticeship/traineeship; or
 wages paid for roles or duties other than those specified in the apprentice/trainee contract (where the
apprentice/trainee has multiple roles or duties)
 wages paid under a training contract that has been rejected by the council at any time after it is signed.

How to claim - The exemption is applied at the time of completing the payroll tax return. Apprentices and
Trainee wages that meet the above criteria should not be included in the QLD taxable wages.
Rebate for Apprentice/Trainee wages

As an employer of exempt apprentices and trainees, the employer can also claim a payroll tax rebate that
reduces their periodic liability. This rebate is available from 1 July for the financial years 2015/16, 2016/17
and 2017/18. The rebate can be calculated by multiplying 25% of the total wages paid to apprentices and
trainees by 4.75% (payroll tax rate) for each return period in the applicable financial years.
How to claim - The rebate is automatically calculated by QLD OSR when the payroll tax return is lodged
online.
Film production incentives scheme

Organisations may be able to claim a rebate of company payroll tax in certain conditions under Screen
Queensland's production incentives. Types of production eligible to apply for rebates include feature films,
telemovies and television series (including reality drama and mini-series) that satisfy minimum contract
expenditure and eligibility criteria. Short films, documentaries and television commercials are not eligible.
Minimum Queensland spend requirements must also be met.
How to claim- Applications for this rebate must be made online through Screen Queensland
https://screenqueensland.smartygrants.com.au
Wages paid by the following QLD employers may be exempt in certain circumstances:
 governor of a state
 teacher's training college
 Queensland Government department (excluding commercialised business units)
 Queensland hospital and health service
 local government
 Commonwealth War Graves Commission
 Australian–American Educational Foundation
 a consular or other non-Australian government representative.
8.1.7 Northern Territory
Apprentices and Trainees

The payroll tax exemption for apprentices and trainees was removed from 1 July 2015 and therefore their
wages, superannuation and other benefits must now be declared as taxable wages. This exemption has
been replaced by direct grants to employers, comprising:
 an apprenticeship/traineeship commencement grant of $1,000,
 a completion grant of $2,000,and
 a recommencement grant of $500 paid to an employer who employs an apprentice or trainee at some
other point
How to claim- The Australian Apprenticeship Centre NT will administer the scheme on behalf of the
Department of Business. More information can be found at the following website links:
http://www.dob.nt.gov.au/training/programs-funding/training-future/Pages/default.aspx
http://www.australianapprenticeships.gov.au/publications/summary-australian-government-australian-
apprenticeships-incentives-programme

8.1.8 Western Australia
Exemption for Apprentices and Trainees

Wages paid to apprentices and 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 as defined by Division 1, Part 7 of the Vocational Education and
Training Act 1996. Note. under the provisions there is no mention made of “trainee” or “probationer”.
However, “apprentice” means a person who is named in a training contract as the person who will be
trained under the contract whether the person is termed an apprentice, trainee, cadet, intern or some
other term. (Section 60A, Division 1 of Part 7 Vocational Education and Training Act 1996)
 both the employee and employer must sign a training contract, and
 the contract must be registered with the Department of Training and Workforce Development.
If the arrangement meets all the above criteria, then all wages, including superannuation, allowances and
fringe benefits etc., will be exempt from payroll tax.
How to claim - The exemption is applied at the time of completing the payroll tax return. Apprentices and
Trainee wages that meet the above criteria should not be included in the WA taxable wages.
Exemption for Disability wages

A payroll tax exemption for new employees with a disability. This 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
 the employer is in receipt of a disability wages subsidy or form of Disability Services Commission
support for the applicable employee
 the employee is employed and remunerated in accordance with the minimum standards established
under industrial law
How to claim - To claim the exemption, employers should declare the wages paid to eligible employees in
the ‘Other’ column under ‘Exempt Wages’ on their pay-roll tax return with immediate effect
8.1.9 Australian Capital Territory
Exemption for long term unemployed workers

Wages paid to a person who is long-term unemployed are exempt from payroll tax. Generally, a person is
considered to be long-term unemployed if that person was, immediately prior to commencing
employment:
 unemployed for longer than 12 months; and
 receiving an allowance under the social security act for that unemployment
How to claim- Employers must obtain from prospective employees, and have available for inspection, a
letter or information issued by the Department of Families, Housing, Community Services and Indigenous
Affairs (formerly the Department of Family and Community Services) or its agent (i.e. Centrelink) indicating
the prospective employee satisfies the conditions set out above.
Once a letter has been obtained wages paid to the long term unemployed workers that meet the above
criteria should not be included in the ACT taxable wages in the payroll tax return.
Exemption for Approved Group Training Organisation Apprentices and Trainees

Wages paid to apprentices and trainees are exempt when paid by approved Group Training Organisations
(GTO’s). GTO’s must:
 be not-for-profit;
 provide training to trainees under approved training contracts; and
 make trainees available to work for other people.

How to claim- Entities wishing to utilise the exemption are required to apply to the Commissioner for ACT
Revenue to be recognised as an “approved group training organisation”. Once recognised as an approved
group training organisation the Apprentices and Trainee wages that meet the above criteria should not be
included in the ACT taxable wages in the payroll tax return.
8.1.10 Registration Requirements

Employers and group members must register within seven days after the end of the month in which they
commence to pay wages where the average Australia wide wages exceeds the threshold as follows:
State Employer wages threshold

New South Wales $63,699 per 31 day month
$61,644 per 30 day month
Victoria $47,916 per month
Queensland $21,153 per week
South Australia $50,000 per month
Western Australia $70,833 per month
Northern Territory $125,000 per month
Tasmania $106,164 per 31 day month
Australian Capital Territory $166,667 per month
Important points
 Where an employer employs in more than one state, the Australia wide wages must be taken into
account.
 Where two or more employers have been grouped for payroll tax purposes, each must still register
separately, and lodge returns separately.
 Rebatable wages must be taken into account.
8.1.11 Cancellation of registration

Registration can be cancelled if the employer no longer pays wages above the stipulated level, or no longer
pays wages in the jurisdiction concerned. Application for cancellation should be made to the relevant
Commissioner.

8.2 Where is Payroll Tax Payable
From 1 July 2009 all states and territories have a uniform policy in relation to where payroll tax is payable.
When a worker only carries out work in one state, the payroll tax is payable to the jurisdiction in which
they work. Generally, where a worker carries out work in more than one state or territory, payroll tax is
paid to the jurisdiction where the worker resides.
8.2.1 Where services are performed entirely in one jurisdiction

If services in a month are performed entirely in one jurisdiction, payroll tax is payable in that jurisdiction.
8.2.2 Where services are performed in more than one Australian jurisdiction and/or
partly outside all Australian jurisdictions
If services are performed in a month in more than one Australian jurisdiction or in one or more Australian
jurisdictions and outside all Australian jurisdictions, the nexus provisions provide tests for determining
payroll tax liability. The tests must be applied in sequence.
Test 1—Employee’s principal place of residence

Payroll tax is payable in the Australian jurisdiction in which the employee’s principal place of residence
(PPR) is located in that month. If an employee has more than one PPR in that month the employee’s PPR
on the last day of that particular month is the one taken to be the PPR. In the case of a corporation that is
deemed to be an employee under the Payroll Tax Act (e.g. a corporation that is deemed to be an employee
under the contractor provisions or under the employment agency provisions) the corporation’s PPR is
taken to be in the jurisdiction where its Australian Business Number (ABN) address is located or, if it does
not have an ABN address or has two or more ABN addresses in the jurisdiction, where its principal place of
business (PPB) in Australia is located. If the corporate employee has more than one PPB in a month (e.g.
where the corporate employee changes its PPB address part way through a month) the PPB is the address
on the last day of that month.
Test 2—Employer’s ABN address or PPB

If an employee does not have a PPR in an Australian jurisdiction during that month payroll tax is payable in
the jurisdiction where the employer’s ABN address is located. If the employer does not have an ABN
address nor has two or more ABN addresses in different jurisdictions, payroll tax is payable in the
jurisdiction where the employer’s PPB in Australia is located. If the employer has more than one PPB in a
month (e.g. where an employer changes their PPB address part way through a month) the PPB is the
address on the last day of that month.
8.2.3 Employment in another country
Employees working in another country—assignment for less than six continuous months
Wages paid or payable to an employee performing services entirely in another country (or countries) (that
is, an expatriate employee) for a period of up to six continuous months, are taxable in the state the wages
are paid. If only part of the wages earned by an expatriate employee is paid in an Australian jurisdiction
and the remaining part is paid in another country, the part of the wages paid in the Australian jurisdiction
must be declared for payroll tax in that jurisdiction. If the wages earned by the expatriate employee
working in another country or countries is paid in more than one Australian jurisdiction, payroll tax is
payable on the aggregate of the Australian wages in the jurisdiction where the largest proportion of wages
is paid.
Employees working in another country—assignment more than six months

Wages paid are exempt from payroll tax if the employee has performed services entirely in another
country or countries for a continuous period of more than six months after wages were first paid for the
employee for the services. The exemption includes wages paid for the first six months of service. The six
month period does not have to be within the one financial year but must be a continuous period. Providing

an employee immediately returns to another country to continue the assignment it will not be considered
to be a break in continuity of service if they return to Australia for a holiday or to perform services
exclusively related to the overseas assignment for a period of less than one month. If an employee returns
to Australia in any other circumstances the previous period of continuous service in another country is
ended. A fresh period of continuous service starts again on the date that the employee recommences
performing services in another country.
8.2.4 Services performed offshore

Wages paid for services performed entirely outside any Australian jurisdiction are taxable in the State in
which they are paid, irrespective of the duration of the assignment. This would typically apply to oil rig
workers. If wages are paid in more than one Australian jurisdiction, payroll tax is payable on the aggregate
of the wages in the jurisdiction where the largest proportion of wages is paid.
As the services are not performed in another country the exemption for services provided outside all
Australian jurisdictions for a continuous period of more than six months does not apply.
8.2.5 Wages paid in a foreign currency

When calculating the value of wages paid in a foreign currency the Office of State Revenue will accept an
exchange rate conversion based upon the Reserve Bank of Australia’s daily rate published for the day of
payment or the yearly average rate for the financial year as published by the Australian Taxation Office
(ATO). The previous year’s ATO figure may be applied for the purpose of making monthly returns provided
the current year’s rate is used to make an appropriate adjustment in the Annual Adjustment return.
8.3 Records
Generally the State's legislation's require proper books and accounts to be kept so that the employer can
accurately calculate the tax payable and also those calculations can be checked through audit by the State
authorities. NSW specifically requires the following particulars:
 names and addresses of persons to whom wages are paid or payable;
 amount of wages paid or payable;
 details of travelling and accommodation allowances.
However we strongly recommend that your record and payroll system be capable of extracting all
necessary information that determines your payroll tax liability. All States require the records to be kept
for five years after the completion of contracts to which they relate.
8.4 Payroll Tax & GST

The GST does not apply to payments of Australian taxes, fees and charges. The payroll taxes levied by each
State Government are therefore not subject to GST. Where payroll tax is concerned, there is no
requirement for State revenue bodies to issue tax invoices or include an Australian Business Number on
notices of assessment or fee invoices.
8.4.1 GST component of taxable wages is excluded for payroll tax purposes
Most wage categories that attract payroll tax are not subject to GST. However, there are some categories
that may be subject to GST, e.g. the supply of labour to a financial institution under a labour hire
arrangement, or payments to contractors.
So that an increased level of payroll tax is not payable by employers who make payments to contractors
etc. (i.e. payments subject to GST), the GST component should not be included when calculating the
amount of payroll tax payable.

8.5 Grouping of Employers
The purpose of grouping provisions is to prevent payroll splitting - that is, to stop a payroll being divided
among a lot of supposedly separate employers to get an advantage from the reductions or thresholds that
are allowed from a payroll in calculating the tax. The principle circumstances in which businesses will be
grouped are:
8.5.1 Common employees

 If one or more employees of an employer perform duties for or in connection with one or more
businesses carried on by the employer and one or more other persons, the employer and each of
those other persons constitute a group.
 If one or more employees of an employer are employed solely or mainly to perform duties for or in
connection with one or more businesses carried on by one or more other persons, the employer and
each of those other persons constitute a group.
 If one or more employees of an employer perform duties for or in connection with one or more
businesses carried on by one or more other persons, being duties performed in connection with, or in
fulfillment of the employer’s obligation under, an agreement, arrangement or undertaking for the
provision of services to any one or more of those other persons in connection with that business or
those businesses, the employer and each of those other persons constitute a group.
Agreement means an agreement, arrangement or undertaking, whether formal or informal, whether
expressed or implied, and whether or not the agreement, arrangement or undertaking includes provisions
in respect of the supply of goods or services.
8.5.2 Controlling interest

An entity and a corporation form part of a group if the entity has a controlling interest in the corporation.
An entity has a controlling interest in a corporation if the corporation has share capital and:
 the entity has a direct interest in the corporation and the value of that direct interest exceeds 50%, or
 the entity has an indirect interest in the corporation and the value of that indirect interest exceeds
50%, or
 the entity has an aggregate interest in the corporation and the value of that aggregate interest exceeds
50%.
Tracing provisions of interests in corporations

These provisions will group an entity, being a person or set of associated persons, with a corporation if the
entity has a controlling interest in the corporation. A controlling interest exists if the entity has a direct
interest, an indirect interest, or an aggregate interest in the corporation, and the value of that interest
exceeds 50%.
A direct interest exists if the entity can directly or indirectly exercise the voting power attached to the
voting shares in the corporation.
An indirect interest in a corporation (the ‘indirectly controlled corporation’) exists if the entity is linked to
that corporation by a direct interest in another corporation which has a direct or indirect interest in the
indirectly controlled corporation.
An aggregate interest exists if an entity has a direct and an indirect interest, or two or more indirect
interests. The aggregate interest is the sum of the entity’s direct and indirect interests in the corporation.
A set of associated persons may include direct family members and corporations in which that family has a
majority shareholding. Associated person has the same meaning, for the purposes of this Act, as associated
persons in the Duties Act 1997.

Example – Lima Pty Ltd is the trustee of the Peter discretionary trust. Lima Pty Ltd holds 60% of the units in
the Kilo Unit Trust. As all of the beneficiaries of the Peter discretionary trust have a controlling interest in
the business of their trustee, they also have a controlling interest in the business of the unit trust.
8.5.3 Commonly controlled businesses

If a person, or set of persons, has a controlling interest in each of 2 businesses, the persons who carry on
those businesses constitute a group. A person, or set of persons, has a controlling interest in a business if:
 in the case of 1 person the person is the sole owner (whether or not as trustee) of the business, or
 in the case of a set of persons the persons are together as trustees the sole owners of the business, or
 in the case of a business carried on by a corporation:
− the person, or each of the set of persons, is a director of the corporation and the person, or set of
persons, is entitled to exercise more than 50% of the voting power at meetings of the directors of
the corporation, or
− a director, or set of directors, of the corporation that is entitled to exercise more than 50% of the
voting power at meetings of the corporation is under an obligation, whether formal or informal, to
act in accordance with the direction, instructions or wishes of that person, or set of persons, or
 in the case of a business carried on by a body corporate or unincorporated that person or set of
persons constitute more than 50% of the board of management (by whatever name called) of the body
or control the composition of that board, or
 in the case of a business carried on by a corporation that has a share capital that person or set of
persons can, directly or indirectly, exercise, control the exercise of, or substantially influence the
exercise of, more than 50% of the voting power attached to the voting shares, or any class of voting
shares, issued by the corporation, or
 in the case of a business carried on by a partnership that person or set of persons:
− own (whether beneficially or not) more than 50% of the capital of the partnership, or
− is entitled (whether beneficially or not) to more than 50% of the profits of the partnership, or
 in the case of a business carried on under a trust the person or set of persons (whether or not as a
trustee of, or beneficiary under, another trust) is the beneficiary in respect of more than 50% of the
value of the interests in the first-mentioned trust.
8.5.4 Related under corporations law

Corporations constitute a group if they are related corporations within the meaning of the Corporations
Act 2001. For the purpose of assessing whether corporations are related under that Corporations Act 2001,
they are taken to carry on a business and not to be trustee companies.
Where corporations are related under Section 50 of the Corporations Act 2001 related corporations
constitute a group for the purposes of assessment of payroll tax even though a member of the group may
not be an employer paying wages.
The Corporations Act 2001 defines ‘related corporations’ and includes the following:
 a holding company and its subsidiary
 two or more subsidiaries of a common holding company
 a subsidiary and its subsidiary.
A holding company is a company having one or more subsidiaries. A subsidiary is a company of which
another company:
 controls the composition of its board, or
 is in a position to cast, or control the casting of more than one half of the maximum number of votes
that might be cast at a general meeting of the company, or
 holds more than one half of the issued share capital.

This means that a group not only includes those corporations which are in a direct holding/subsidiary
relationship but also:
 corporations with common holding corporations, or

 corporations with a common ultimate holding corporation.
It is important to note that the physical location of a holding company is irrelevant. This has implications
for members of groups which have holding companies that are registered outside of Australia.
8.6 Thresholds & Rates

Generally, there is an exemption from payroll tax on wages paid up to the following limits:
State Monthly Threshold Yearly Threshold Rate As at 01/07/16

New South Wales (31 day month) $63,699 $750,000 5.45%
(30 day month) $61,644
(28 day month) $57,534
1
Victoria $47,916 $575,000 4.85%
South Australia $50,000 $600,000 4.95%
Queensland $91,666 $1,100,000 4.75%
Tasmania (31 day month) $106,164 $1,250,000 6.10%
(30 day month) $102,740
(28 day month) $95,890
Australian Capital Territory $166,667 $2,000,000 6.85%
Northern Territory $125,000 $1,500,000 5.50%
Western Australia $70,833 $850,000 5.50%
The amounts above refer to total Australian wages, not simply wages paid in each state.
1. The payroll tax threshold will progressively rise by $25,000 a year over the next three financial years.
The tax-free threshold will increase to $600,000 on 1 July 2017, to $625,000 on 1 July 2018 and
$650,000 on 1 July 2019.
8.6.1 Monthly Returns and Annual Adjustments

Each state requires applicable employers to lodge a monthly payroll tax return (including payment) by the
7th day of the following month. The annual adjustment for all States and Territories is due by 21 July.
Note: Any taxable wages for the June period are to be included in the annual return. You do not need to
lodge a separate periodic return that includes the month of June.
Reduced amount of returns required by some small to medium size businesses

 ACT – Employers with an annual payroll tax liability of $6,000 or less are only required to lodge one
annual return.
 QLD – Employers with an annual payroll tax liability of $20,000 or less are only required to lodge two
returns per annum.
Return of fringe benefits tax amounts

As payroll tax is returned monthly, businesses are faced with determining their FBT liability on a monthly
basis. Businesses can elect to use the previous year’s annual fringe benefit tax amount as the basis of the
current liability. The previous year’s annual fringe benefit tax amount is divided by 12 and that one twelfth
value is returned for the months July to May. The June annual reconciliation is used to adjust any
discrepancy between last year’s FBT return and the most recent FBT return.

8.6.2 Reduction of thresholds & Calculation of Payroll Tax Payable
Each state has different thresholds and rates and shading out rates as described earlier. These differ over
time so we recommend that you become familiar with the rates current to the states where you employ
people. If in a month, work is carried out wholly in one state the employer is liable for payroll tax for that
month in the state where the work was done. If work is carried out in two states or more it is the state
where the employee resides.
What is the allowable reduction?

In each state, employers are usually entitled to a “reduction” of taxable wages. This is similar to a tax free
threshold. In some states it is called a “deduction” amount. The usual formula for the calculation of the
actual tax is as follows.
(Actual state wages – allowable reduction) × Payroll tax rate
Where an employer pays wages outside a particular state, then the full reduction amount is not available.
An apportionment must be made, and the proportion of the reduction amount which is available is usually
calculated as:
Full reduction amount (threshold) × Total wages paid in the state
Total wages paid in Australia
In some states, the members of a group may nominate a designated group employer (i.e. one member of
the group) who may claim the group’s entire reduction amount, and all other group members will then be
assessed at the normal marginal rate. In those states where one member of the group is not designated to
take all the reduction amount, that amount is then usually apportioned between group members in the
same proportion as their total wages. This is calculated as:
Reduction amount available × Total wages of this member
Total wages of group
Example
Company XYZ pays a monthly payroll of $138,000 in New South Wales and a monthly payroll of $27,000 in Victoria. We can
calculate the proportion of the reduction amount which is available by using the formula:
Full reduction amount (threshold) × Total wages paid in the state

Total wages paid in Australia
By substituting the amounts for New South Wales, to work out the allowable reduction, the calculation will be as follows:
$63,525 × $138,000
= $53,130
$165,000
To calculate the actual tax payable we will use the formula:
(Actual state wages – allowable reduction) × Payroll tax rate
By substituting the amounts for New South Wales, to work out the actual payroll tax payable, the calculation will be as follows:
($138,000 – $53,130) × 5.45% = $4,625.41
The payroll tax payable in New South Wales by Company XYZ for the month is $4,625.41.
By substituting the amounts for Victoria, the calculation will be as follows:

$47,916 × $27,000
= $7,840
$165,000
followed by:
($27,000 – $7,840) × 4.85% = $929.26
The payroll tax payable in Victoria by Company XYZ for the month is $929.26
Special Note for Queensland, Western Australia and Northern Territory: For every $4.00 in wages that
exceed the threshold the maximum threshold is reduced by $1.00. There is no reduction once certain limits
have been reached. This applies in the Northern Territory and Western Australia up to a total Australian
wages of $7.5 million per annum, and in Queensland up to a total Australian wages of $5.5 million.

8.7 Payments to Contractors – New South Wales, South Australia,
Queensland, Tasmania, Victoria, the Northern Territory and the
Australian Capital Territory
8.7.1 Relevant/Service contracts are taxable

The relevant/service contract provisions are very broad and include all outsourced work. A contract can be
liable whether the contractor is an individual, a company, a trust or a partnership. The provisions seek to
tax payments to contractors working in a manner, or under conditions, similar to employees.
8.7.2 Exclusions/Exemptions
In order to remove contracts with genuine contractors (i.e. those who are in business for themselves and
who supply the services of their business to a number of other businesses) a number of exemptions apply
to the contractor provisions. If any of the exemptions apply, then the contract is not a relevant/service
contract and payments made under that contract are not subject to payroll tax. However, if none of the
exemptions apply, then the payments made under that contract are subject to payroll tax. The exemptions
are:
 Exemption 1 – Contracts under which the supply of labour is ancillary to the supply or use of goods
owned by a contractor, i.e. the supply of goods is more than 50% of the total contract amount.
 Exemption 2 – Contracts for services the business does not ordinarily require and which are provided
by a person who provides such services to the general public.
 Exemption 3 – Contracts for services ordinarily required for less than 180 days in the financial year by
the hiring business.
 Exemption 4 – Contracts under which a person provides services for 90 days or less in total in any one
financial year.
 Exemption 5 – Contracts that do not meet any of the above criteria but the Chief Commissioner is
satisfied are contracts for services that are provided by a person who has a business of providing such
services to the general public within that financial year.
 Employers cannot utilise the Chief Commissioner’s discretion under exemption 5. Each case must be
referred to the Chief Commissioner of State Revenue who will decide whether or not to include the
contract as a relevant contract.
 In making a determination, the Chief Commissioner will review the nature of the contractor’s business
and other matters considered relevant. Evidence of supplying similar services to other business is the
prime requirement. Being available to do so is insufficient in itself.
 Example – A carpenter is engaged by several builders throughout the year, but does 120 days work
with one hiring business. The carpenter provides a copy of invoices from the other business for similar
work and the Chief Commissioner is satisfied that the contract for 120 days is not included as a
relevant contract.
 Exemption 6 – Contracts under which the contractor engages additional labour to fulfill the contract.
This must include at least two natural persons working under the one contract with the contractor
paying for the services of the other workers.
 For this exemption to apply, the person engaged must perform the work that is the object of the
contract. A spouse performing purely clerical work would not satisfy the exemption, as he or she,
would not be engaged in the work to which the contract relates.
 Exemption 7 – A contract for the conveyance of goods in a vehicle provided by the person conveying
them.
 Exemption 8 – A contract for services solely related to procuring persons who want to be insured by
the employer.
 Exemption 9 – A contract for services related to the door to door sale of goods solely for domestic
purposes.
It should be noted that employment agency or labour hire contracts are not relevant contracts, and the
exemptions do not apply to them. A separate section deals with employment agency contracts.
8.7.3 South Australia – Relevant Contracts Decision Tool
The RevenueSA Relevant Contracts Decision Tool is designed to help employers understand whether any
business agreements and any payments made to contracted workers are liable for payroll tax. Any
payments made to persons working under a relevant contract are taxable.
For RevenueSA to exclude the contractors from the Contractor provisions, employers will need to
demonstrate that the contractor has been consistently rendering such services to a significant range of
unrelated clients.
Often an employer will engage an individual to perform the work, but in some cases:
 the payer will enter into an agreement with a company, partnership or trust established by the worker
for them to provide a worker (usually themselves), or
 the payer may obtain workers through an intermediary such as a labour hire firm or employment
agent. If you engage all your contractors through a labour hire firm or an employment agent, the
labour hire firm or the employment agent should be paying the payroll tax.
In all cases, Revenue SA is encouraging employers to use the decision tool. When used, the decision can be
printed and kept for the employer’s records. The tool can be accessed at:
http://www.revenuesa.sa.gov.au/taxes-and-duties/payroll-tax/contractor-decision-tools/contractor-
decision-tool
8.8 Payments to Contractors – Western Australia

There are no relevant/service contract provisions incorporated into the legislation for Western Australia.
Accordingly, payroll tax does not fall on payments made to independent contractors, provided the
intention of the contracts is not for the purpose of reducing or avoiding the liability to payroll tax. Payment
by a principal to a contractor for work performed under a contract for service is not taxable. However, the
liability to tax is determined by the facts. Broadly speaking, the question of whether a payment is taxable
will depend on the circumstances of the engagement, the working arrangements between the principal
and each “contractor” and the essential nature of the payment.
Each case must be considered on its facts using the various tests identified by the Courts as a guide,
including those tests that assess the nature of the relationship; given results; control and direction;
independent business; power to delegate; and integration.
For example, under the control test the following questions are asked:
 Who determines who is to do the work?
 Who determines how the work is to be done?
 Who determines when the work is to be done?
 Who provides the materials necessary for the work?
If the answer to the above questions is 'the business' then the worker is unlikely to be in business for
themselves. They are more likely to be providing labour as a casual employee of the business. The test of
control will vary based upon the industry standards and nature of the work being performed by the
contractor.
It would also be helpful to refer to the 'Who is an Employee (PAYG withholding guide no 2 - How to
determine if workers are employees or independent contractors)' table in Section 1 of this manual to
determine whether the worker is a contractor or employee. For more specific information contact the
relevant Payroll Tax Office.
Payer’s who are unsure whether to include a contractor for payroll tax purposes should access and
complete the WA government’s contractor payments questionnaire at:
http://www.finance.wa.gov.au/cms/uploadedFiles/_State_Revenue/Pay-
roll_Tax/Questionnaire_Contractor_Payments.pdf

8.9 What are Wages
While the term wages or remuneration varies from State to State, it is generally defined to mean any
wages, salary, bonuses, commission, allowances, or fringe benefit (as defined by the Commonwealth
Fringe Benefits Tax Act) paid or payable (whether at piecework rates or otherwise and whether paid or
payable in cash or in kind) to an employee or other person.
In other words it applies to any payments that represent a reward for service to which employees have
enforceable rights - even if those payments are made after employment has terminated. It includes:
 any amount paid or payable under any prescribed classes of contracts to the extent to which that
payment is attributable to labour;
 any amount paid or payable by a company by way of remuneration to a director or member of the
governing body of that company;
 any amount paid or payable by way of commission to an insurance or time payment canvasser or
collector;
 the provision by the employer of meals or sustenance or the use of premises as consideration or part
consideration for the employee’s services;
 the provision of superannuation.
Note also that wages received overseas by foreign expatriates working in Australia are subject to payroll
tax and the local employer is liable to pay this tax. These overseas wages commonly come from the parent
company and may be top-up amounts or performance linked bonuses paid into an account in the
employees' home country. However, the often confidential nature of such arrangements means that the
Australian employer is not always aware that the expatriates are receiving extra payments.
For greater detail of specific items subject to payroll tax see the following table and accompanying notes.

8.9.1 Payments assessable for payroll tax or not
Description NSW VIC QLD SA WA TAS ACT NT
Allowance (1) (1) (1) (1) (1) (1) (1) (1)

Accident pay Yes Yes Yes Yes Yes Yes Yes Yes
Accommodation (1) (1) (1) (1) (1) (1) (1) (1)
Back pay Yes Yes Yes Yes Yes Yes Yes Yes
Bonuses Yes Yes Yes Yes Yes Yes Yes Yes
Car parking fringe benefit (14) (14) (14) (14) (14) (14) (14) (14)
Commissions Yes Yes Yes Yes Yes Yes Yes Yes
Directors allowances:
– working Yes Yes Yes Yes Yes Yes Yes Yes
– non-working (3) (3) (3) (3) (3) Yes (3) (3)
Directors fees Yes Yes Yes Yes Yes Yes Yes Yes
Dividends No No No No No No No No
Expense payment fringe benefit (2) (2) (2) (2) (2) (2) (2) (2)
Free holidays (2) (2) (2) (2) (4) (2) (2) (4)
Fringe Benefits Tax items (2) (2) (2) (2) (2) (2) (2) (2)
Gifts (2) (2) (2) (2) (2) (2) (2) (2)
Holiday pay, leave loading & long Yes Yes Yes Yes Yes Yes Yes Yes
service leave whilst employed
Indirect payments Yes Yes Yes Yes Yes Yes Yes Yes
Loans (2) (2) (2) (2) (2) (2) (2) (2)
Maternity / Adoption Leave No No No No No No No No
(Employer sponsored) up to 14
weeks
Meal money Yes Yes Yes Yes Yes Yes Yes Yes
Meals (2) (2) (2) (2) (2) (2) (2) (2)
Meal entertainment fringe benefit No No No No Yes No Yes No
– tax exempt body
Motor vehicles (1/2) (1/2) (1/2) (1/2) (1/2) (1/2) (1/2) (1/2)
Overtime Yes Yes Yes Yes Yes Yes Yes Yes
Owner Drivers (see 'contractors' No No No See See See See See
previous pages) 8.9 8.9 8.9 8.9 8.9
Paid Parental Leave (Government No No No No No No No No
provided)
Paternity Leave (Employer Yes Yes No Yes No Yes No No
sponsored) up to 14 weeks
Payments by employment agents (6) (6) (7) (7) (7) (7) (7) (7)
Payment by 3rd party to (8) Yes (8) Yes Yes * Yes Yes
employee/4th party
Piece work payments Yes Yes Yes Yes Yes Yes Yes Yes
Portable Long Service Leave No No No * Yes No * *
Prizes (10/2) (10/2) (10/2) (10/2) (9/2) (10/2) (10/2) (9/2)
Reimbursements No No No No No No No No
Relevant contracts Yes Yes Yes Yes * Yes Yes *
Service contracts (11) (11) (11) (11) (11) (11) (11) (11)
Share Scheme Payments (13) (13) (13) (13) (13) (13) (13) (13)
Shift allowances Yes Yes Yes Yes Yes Yes Yes Yes

Description NSW VIC QLD SA WA TAS ACT NT
Sick pay for ongoing employment Yes Yes Yes Yes Yes Yes Yes Yes
Staff discounts (2) (2) (2) (2) No (2) (2) No
Employer Superannuation
contributions (including SG & Yes Yes Yes Yes Yes Yes Yes Yes
Salary Sacrifice)
Employee Superannuation
contributions (taken from net No No No No No No No No
wage/salary)
Salary/Wages Yes Yes Yes Yes Yes Yes Yes Yes
Termination Payments
– Accrued sick, annual &, LSL Yes Yes Yes Yes Yes Yes Yes Yes
Termination Payments
– All others (12) (12) (12) (12) (12) (12) (12) (12)
WorkCover payments – not No No No No No No No No
including makeup payments
Workplace giving (15) (15) (15) (15) (15) (15) (15) (15)
* = Not expressly included in wages definition.
8.9.2 Notes:
(1) Allowances that are cash amounts paid to employees, i.e. dirt money, tool allowances, meal
allowances, currency translation allowances, tax equalisation payments, etc. are taxable for payroll
tax purposes. Genuine reimbursements of work-related expenses are not allowances and not
subject to payroll tax. Car and accommodation allowances are partially exempt in 2016/17 as
follows:
State Travelling (Car) Accommodation
(cents per km) ($ per night)
All states 66 cents 257.95
Note 1: The exempt rate for overnight accommodation can include the entire amount paid under
the ATO's daily travel allowance ruling, not just the accommodation portion.
Note 2: Where living away from home allowance (LAHFA) is an FBT item, please refer to note (2)
for payroll tax liability on LAHFA.
(a) In New South Wales there is an exemption up to this limit for all car allowances (including
lump sum allowances) but only where the kilometres are recorded using the Continuous
recording method or the Averaging method. Where a rate is prescribed in an award the
payroll tax exemption can apply to the whole rate but, once again, only where the
Continuous recording method or the Averaging method is used to calculate the kilometres.
In Victoria car allowances paid as a flat amount can be exempt but only if records are kept
which show that the payment is being made for business use only and the ‘effective’ rate
per kilometre is at or below the prescribed rate shown above. Where it is shown that the
payment is in excess of the prescribed rate, only the excess amount is taxable.
(b) Real estate agents in Victoria, NSW, ACT, NT and Queensland who are paid a motor vehicle
allowance are generally exempt up to a limit of 250 km per week.
(2) Yes, these are taxable for payroll tax purposes. If the item is a fringe benefit, payroll tax is payable
on the grossed-up value of the fringe benefit at the lower rate of 1.9608. In situations where the
FBT Act gives an exemption to a benefit it is accepted that the benefit is exempt from payroll tax.
There may be an exemption for car parking fringe benefits and/or tax exempt body meal
entertainment fringe benefits in some states. Please see specific categories in table.
(3) To qualify for exemption from payroll tax, these allowances must be bona fide allowances paid to
non-working directors for expenses incurred in carrying out the duties of their office.

(4) WA – counted as wages in kind or bonus.
NT – generally counted as wages in kind.
(5) Car parking is not included for payroll tax unless part of a salary sacrifice arrangement.
(6) Employment agencies are liable for payroll tax for their on-hired workers. An exemption from
payroll tax will apply to wages paid in respect of workers on-hired to a client who is exempt. An
employment agent can exclude those wages that are exempt only where the employment agent
has obtained a relevant declaration from its client. The declaration must state that the client is
exempt (e.g. charitable bodies, public benevolent institutions and public hospitals), and the
services provided by the on-hired worker for the client of the employment agent are services that
are also exempt. Employment agents must ensure that declarations are renewed with their clients
prior to the commencement of each calendar year. Not-for-profit group training companies, which
on-hire apprentices and trainees to host clients, will also be exempt from payroll tax in respect of
those employees.
(7) Payments to a contract worker engaged to perform services under an employment agency
contract, for which the agency receives payment, are liable to payroll tax. The employment agent
is deemed to be the employer, not the client. Taxable wages do not include the employment
agent’s fee or the GST component. Also see additional information below.
ACT, WA & NT – All amounts that the employment agent subsequently pays to the worker are
liable to payroll tax, where the agent's wage threshold is exceeded.
SA – Taxable wages do not include any amount that would have been exempt from payroll tax, if
the worker had been paid by the client as an exempt organisation.
TAS – Taxable wages will not include amounts that would have been exempt from payroll tax, if
they had been paid by the client as an exempt organisation. This does not apply if the client of the
employment agent is not registered or required to be registered as an employer.
QLD – All payments that exceed the agent's wage threshold are subject to payroll tax. This is the
case whether the payments are made to an individual, partnership, company or trust.
(8) QLD – where the transaction is undertaken as part of an avoidance scheme, the Commissioner may
deem the transaction to be wages.
NSW – money or other valuable consideration paid or given (or to be paid or given) to a third party
by a fourth party for an employee’s services will be treated as wages.
(9) WA and NT – included when for incentive purposes, e.g. best sales figures – exempt if incidental,
e.g. lucky door prize at annual dance. The value is the same as the FBT value grossed-up at the
lower rate of 1.9608.
(10)Prizes which have a functional utility in the form of valuable and useful goods such as cars, TVs,
stereos and holidays, provided to a person in his/her capacity as an employee are counted. Prizes
and awards such as medals, plaques and cups which in essence recognise achievements are not
counted. If the item is an FBT item, the value is the same as the FBT value grossed-up at the lower
rate of 1.9608.
(11)NT – service contracts are not expressly provided for in the legislation. The liability to payroll tax
generally depends on the existence of an employer/employee relationship. The tax does not fall on
payments to independent contractors provided the contract is not made to reduce or avoid the
liability to payroll tax.
NSW, QLD, VIC and TAS – payments under service contracts which qualify as “relevant contracts”
are deemed to be wages.
ACT and SA – payments made pursuant to service contracts will be deemed to be wages.
WA - Yes, if an employer-employee relationship exists.

(12)QLD, ACT, SA, WA & TAS – All ETPs including pay in lieu of notice, severance pay, golden
handshakes and the taxable portion of a redundancy are taxable. This includes rolled over
amounts. The tax-free portion of a redundancy (Lump sum D) is not taxable for payroll tax
purposes. Tax free death benefit ETPs are not taxable.
NT – All ETPs including pay in lieu of notice, severance pay, golden handshakes, death benefits,
post-June 1994 invalidity components and the taxable portion of a redundancy are taxable. This
includes rolled over amounts. The tax-free portion of a redundancy (Lump sum D) is not taxable for
payroll tax purposes.
NSW – All ETPs including, pay in lieu of notice, severance pay, golden handshakes and the taxable
portion of a redundancy are taxable. This includes rolled over amounts. The tax-free portion of a
redundancy (Lump sum D) is not taxable for payroll tax purposes. Death benefit ETPs are not
taxable. Compensation for loss of job or wrongful dismissal due to personal injury e.g. damage to
reputation are not taxable.
VIC – The only termination payments not subject to payroll tax are as follows:
- superannuation payments made from an eligible superannuation fund;
- tax free portion of redundancy payments; and
- the post-June 1994 invalidity component of an ETP.
A death benefit ETPs is taxable to the extent that it would have constituted assessable income had
it been paid directly to the employee. All accrued annual leave and long service leave paid on the
death of an employee is taxable for payroll tax purposes.
(13)The value of an employer’s contribution to any grant of a share or option to an employee, a
director, former director, member of the governing body of the company or a former member of
the governing body or deemed employee is liable to pay-roll tax. A share or option will become
liable on the relevant day, which is the date on which that share or option is granted to the
employee or the date it vests to them. The value of the share or option will be the market rate on
the relevant day, as determined in accordance with the Commonwealth income tax provisions. The
granting of a share or option, which is classified as a fringe benefit under the Fringe Benefits Act
1986 will not be seen as a fringe benefit, but rather as wages for pay-roll tax.
(14)
State Treatment of car parking for payroll tax purposes
QLD Not taxable unless part of a salary sacrifice arrangement
NSW Payroll tax is payable on the grossed-up value of the fringe benefit at the lower rate of 1.9608.
VIC Taxability is in accordance with the Fringe Benefits Tax Assessment Act 1986 (Cth) generally
this would be at the grossed-up value at the higher rate of 2.1463 as the benefit includes GST.
WA Payroll tax is payable on the grossed-up value of the fringe benefit at the lower rate of 1.9608.
NT Payroll tax is payable on the taxable value of the benefit i.e. the pre grossed-up value.
TAS Payroll tax is payable on the grossed-up value of the fringe benefit at the lower rate of 1.9608.
SA Payroll tax is payable on the grossed-up value of the fringe benefit at the lower rate of 1.9608.
ACT Payroll tax is payable on the grossed-up value of the fringe benefit at the lower rate of 1.9608.
(15)Some employees agree to make regular donations to charitable organisations under a ‘Workplace
Giving’ program. This arrangement is not a salary sacrifice arrangement because the ATO requires
that the normal gross salary must be stated on the employee’s payment summary. Payroll tax is
payable on the normal gross salary.

8.10 Further Information
If you require specific information, the payroll tax office in the appropriate State will usually be quite
helpful. Most state offices produce a publication titled "What is remuneration?" for payroll tax purposes.
NEW SOUTH WALES SOUTH AUSTRALIA
Office of State Revenue Revenue SA
Mail payments to: Taxpayer Services
GPO Box 4042, State Administration Centre
Sydney NSW 2001 200 Victoria Square
Phone: 1300 139815 Fax: (02) 9689 8200 Adelaide SA 5000
Other Mail: (GPO Box 2418, Adelaide 5001)
Lang Centre Hunter Street Parramatta Phone: (08) 8204 9880 Fax: (08) 8226 3805
(Postal Bag 5920, Parramatta 2124) http://www.revenuesa.sa.gov.au/taxes-and-
http://www.osr.nsw.gov.au/taxes/payroll duties/payroll-tax
Newcastle Office: WESTERN AUSTRALIA

Lvl 2, 97 Scott Street, Office of State Revenue
Newcastle 2300 Plaza Level, Mt. Newman House
Phone: (02) 4925 5333 Fax: (02) 4925 5300 200 St. Georges Terrace, Perth
Perth WA 6000
Wollongong Office:
(GPO Box T1600, Perth WA 6001)
Level 6, 90 Crown Street,
Phone: (08) 9262 1400 Fax: (08) 9226 0842
Wollongong NSW 2500
http://www.finance.wa.gov.au/cms/content.aspx?id=
Phone: (02) 4253 1000 Fax: (02) 4253 1066
177
VICTORIA
TASMANIA
State Revenue Office
State Revenue Office
Lvl 2, 121 Exhibition Street
Lvl 3, 80 Elizabeth Street
Melbourne VIC 3000
Hobart TAS 7000
(GPO Box 1641, Melbourne VIC 3001)
(GPO Box 1374, Hobart 7001)
Phone: (03) 9628 0000 Fax: (03) 9628 6700
Phone: (03) 6166 4400 Fax: (03) 6234 3357
Phone: 132 161
http://www.sro.tas.gov.au/payrolltax
http://www.sro.vic.gov.au/payroll-tax
QUEENSLAND NORTHERN TERRITORY

Payroll Tax Section Revenue Office
Office of State Revenue Lvl 4 Cavenagh House
Upper Plaza, 33 Charlotte Street, 38 Cavenagh St
Brisbane 4000 Darwin NT 0800
(GPO Box 2248, Brisbane QLD 4001) (GPO Box 154, Darwin 0801)
Freecall 1300 300 734 Fax: (07) 3227 6822 Phone: 1300 305 353 Fax: (08) 8999 6395
https://www.osr.qld.gov.au/payroll-tax/ http://www.treasury.nt.gov.au/TaxesRoyaltiesAndGra
nts/PayrollTax/Pages/default.aspx
Rockhampton Office:
Ground Floor, State Government Building, AUSTRALIAN CAPITAL TERRITORY
209 Bolsover Street, Revenue Office - Taxation Services Section
Rockhampton, QLD 4700 London Circuit, Canberra Nara Centre
Cnr London Circuit & Constitution Avenue
Townsville Office: Canberra City ACT 2600
Level 1, State Government Building, (PO Box 293, Civic Square, ACT 2608)
187-209 Stanley Street, Phone: (02) 6207 0028 Fax: (02) 6207 0090
Townsville, QLD 4810 http://www.revenue.act.gov.au/duties-and-
taxes/payroll-tax
Cairns:
Level 9, Cairns Corporate Tower,
15 Lake Street,
Cairns QLD 4870.

9 GOODS & SERVICES TAX (GST)
9.1.1 Activities excluded from the GST base
Whilst the GST will apply to a very broad base, a number of activities fall outside this base and therefore
will not incur a GST. Those activities include:
 the payment of employee wages;
 private recreational pursuits and hobbies; and
 most fees and taxes levied by all levels of Government.
9.1.2 Inclusions in the GST base

Supplies (sales) included in the GST base fall into one of three categories.
 Fully Taxable Supplies – Supplies made under this category include GST in the sale price and input tax
credits can be claimed on the inputs required to produce the goods or services.
 GST-free Supplies – Supplies made under this category do not include GST in the sale price, but entities
that make these supplies will still be entitled to an input tax credit for the GST paid on the inputs
required to produce the goods or services.
 Input Taxed Supplies – Supplies made under this category do not include GST in the sale price,
however, there is no entitlement to input tax credits for the GST paid on the inputs required to
produce the goods or services.
9.2 Registration
The following entities, including individuals, body corporates, companies, businesses, trusts,
superannuation funds, partnerships, and any unincorporated association or body of persons can register
for GST purposes.
9.2.1 Who is required to register?

If you carry on an enterprise, you must register for GST if your GST turnover is $75,000 or more ($150,000
or more for non-profit organisations). Businesses must also register for GST if they provide taxi travel,
regardless of the GST turnover.
If you carry on an enterprise but have a GST turnover of less than $75,000 (or $150,000 for non-profit
organisations), you can choose to register for GST. Generally, if a business chooses to register, it must then
stay registered for at least 12 months. You register only once for GST, even if you operate more than one
business. For example, the company ABC Pty Ltd operates two businesses, ABC Building and Hardware
Supplies, and ABC Plumbers. ABC Pty Ltd registers once for GST. This registration covers the company’s
two businesses.
9.2.2 What is Annual Turnover (for GST purposes)?

When determining whether or not annual turnover meets the registration turnover threshold, an entity
must calculate their current annual turnover and projected annual turnover. Current annual turnover is the
value of all supplies (sales) made during the last 12 months. Projected annual turnover is the projected
estimated value of all supplies made 12 months into the future. Turnover resulting from the supplies not
connected with Australia and turnover resulting from supplies that are input taxed should be excluded
from the total turnover amount for GST purposes. GST turnover is the entity’s gross business income (not
just profit), excluding any:
 GST included in sales
 sales not connected with the enterprise
 input taxed sales made, and
 sales not connected with Australia.
Taxation Seminar Section 9 — Goods and Services tax (GST) Page 321
Entity’s not registered for GST, need to look at their GST turnover each month to make sure it’s not
$75,000 or more ($150,000 or more for non-profit organisations). The GST turnover is $75,000/$150,000
or more if:
 the turnover for the current month and the previous 11 months is $75,000/$150,000 or more (current
GST turnover), or
 the turnover for the current month and the next 11 months is likely to be $75,000/$150,000 or more
(projected GST turnover).
Example: Cheryl, an early retiree receives $80,000 per annum in rent from several residential premises she
holds as investments. The supply of rent from residential premises is input taxed. Cheryl is not required to
pay any GST and she cannot claim a credit for the GST she pays on the inputs required to rent those
properties. Turnover resulting from the supply of input taxed activities (e.g. the renting of residential
premises) is specifically excluded from turnover for GST purposes. For this reason Cheryl is not required to
register for the GST even though her rental activities turnover more than $75,000 per annum.
Example: Include the value of all supplies made by the entity: Peter, a sole proprietor, owns a small
printing business which has a turnover of approximately $45,000. Peter is also the sole owner of three
commercial properties which are unrelated to his printing business. Peter receives annual rent totalling
$41,000 for the three commercial properties. Peter will be required to register for GST purposes. As an
entity his total turnover is above the $75,000 threshold. Rent received from commercial property is
taxable for GST purposes and therefore must be included in annual turnover.
Example: There is no requirement to combine the turnover of two separate entities: Sally, a sole
proprietor, owns a shoe shop which has a turnover of approximately $45,000. In addition to this, Sally and
her husband own three commercial properties for which they receive annual rent totalling $34,000.Sally
will not be required to register for GST purposes as the commercial properties are owned by a separate
entity, that being Sally and her husband, not Sally the sole proprietor.
Example :PAYG salary/wages not included in turnover: Susan is the director of company ABC Pty. Ltd. The
company is registered for GST and Susan draws an annual salary for her services. Susan also receives
$35,000 in rental income from commercial property. Susan is not required to register for GST as the rent
received from commercial property as an individual is below the $75,000. Her activities as a company
director and those as an individual are not combined when assessing her requirement to register for GST.
9.2.3 When to Register

When an entity becomes aware that its annual turnover exceeds the threshold, the entity must apply for
registration within 21 days of becoming required to do so. For individuals and partnerships to register,
there must be a reasonable expectation of profit or gain.
9.2.4 How to register for GST

To register for GST an entity is required to complete an application, which is available from the Tax Office.
The same application is used to register for an Australian Business Number (ABN), which is needed by all
businesses. Completed paper applications are returned to the Tax Office. Electronic registration is also
available through the business entry point at www.business.gov.au. Entities, when registering, need to
specify the date from when it wishes to be registered. Businesses that currently hold an ABN would only
have to register for GST.
After an entity is registered, notification in writing of registration details, including the date of effect of the
entity’s registration and Australian Business Number will be sent by the Tax Office.
 Note: These registration rules do not apply to Government organisations. Government organisations
should contact the Tax Office on 1300 130 902 in relation to registration inquiries.
Page 322 Section 9 — Goods & Services Tax (GST) Taxation Seminar
9.2.5 Consequences for entities who fail to register when required
Entities who do not register when required may still have to pay GST on the supplies it has made since the
date it was required to become registered – even if the entity does not factor a GST component into the
sale price of its goods and services. Penalties and interest may also be charged.
9.2.6 Should entities with a low turnover choose to register?

In this situation, the entity needs to weigh up the advantages or disadvantages of being registered. It
should take into consideration whether or not its clients are registered entities, increases in the price of its
products if registered, the inability to claim input tax credits if not registered, and any other factors.
9.2.7 Taxi drivers must register regardless of turnover

Taxi operators are required to be registered, regardless of turnover. Without the requirement for all taxi
drivers to register, uniformity in taxi fares across the industry would not be achieved.
9.2.8 Special rule for Charities/Non-Profit Organisations

Certain non-profit entities are able to separately identify units of their organisations as though they are
separate entities for GST purposes, although they do not meet the definitions specified under the GST
legislation. Specific entities that are registered for GST may choose to apply the rules. These entities may
fall into one or both of the following categories:
 charitable institutions, trustees of charitable funds or gift-deductible entities; or
 non-profit bodies that are income tax exempt.
An eligible entity will be able to apply the rule in respect of any branch of the entity (which could include a
committee, chapter, section etc.) The branch in these cases will be called a non-profit sub-entity. For a
branch to be considered a non-profit sub-entity it must:
 maintain an independent system of accounting which allows all of its transactions to be clearly
identified;
 be separately identifiable, either because the activities carried on by the branch differ from other
activities carried on by the entity, or because the branch is in a different location from other parts of
the entity (being located on separate floors of the same building does not in itself constitute a
different location); and
 be referred to in the entity’s records as a separate entity for the purposes of the GST law.
As a result of being treated as an entity, a non-profit sub-entity can register for GST purposes. The Tax
Office must allow a non-profit sub-entity to register for GST, even if it does not carry on an enterprise or
intend to carry on an enterprise. A unit cannot be a non-profit sub-entity if its activities are related to the
main purpose of the organisation. For example, an organisation cannot treat its membership activities as
the activities of a non-profit sub-entity.
Non-profit sub-entities with an annual turnover of less than $150,000 are not required to register for GST.
If a non-profit sub-entity with an annual turnover below the turnover threshold decides not to register, it
will not be liable for GST and cannot claim input tax credits. Equally, the core entity will not be liable for
GST and will not be entitled to claim input tax credits in respect of the unregistered non-profit sub-entity.
9.2.9 Registration for overseas businesses

Overseas businesses supplying Australian businesses do not need to register for GST if they:
 only make GST-free supplies through an enterprise carried on outside Australia

 have a business presence in Australia of less than 184 days in a 12 month period
 have a GST turnover below the GST registration threshold of A$75,000 (because certain supplies will
no longer be included in the GST turnover).
9.2.10 Cancelling GST registration
GST registration can be cancelled if your business has:
 closed down
 been sold, or
 changed structure, for example, a change from a partnership to a company.
GST registration must be cancelled within 21 days, if any of the above situations occur. Penalties may apply
if registration is not cancelled.
Businesses can also request that their registration be cancelled if the GST turnover falls below the GST
turnover threshold for compulsory registration. This threshold is $75,000 for normal entities and $150,000
for non-profit bodies. Entities below the threshold will not be able to cancel their GST registration if they:
 are a taxi driver
 represent an individual who is bankrupt that is registered
 or are required to be registered for GST
 are a business that is in liquidation that is registered or required to be registered for GST, or
 are a resident who acts as an agent for a non-resident that is registered or required to be registered for
GST.
How to cancel registration

You can cancel your GST registration, ABN or any other roles or registrations by:
 phoning 13 28 66, (have your last Business activity statement or notice of assessment available to help
satisfy the proof of identify requirements)
 phoning 13 28 66 to ask that an Application to cancel registration form (NAT 2955) be mailed to you
and then completing and returning it to the address below
 visiting www.ato.gov.au and ordering a copy of the Application to cancel registration form (NAT 2955),
completing it and then returning it to the address below,
 posting a written application to Australian Taxation Office, Registrations
PO Box 3373 ALBURY NSW 2640
 If registered for online lodgment, cancel online by accessing:
https://abr.gov.au/For-Business,-Super-funds---Charities/Updating-or-cancelling-your-ABN/Cancel-
your-ABN/
9.3 How does the GST work?

Generally, registered businesses include GST in the price of sales to their customers and claim credits for
the GST included in the price of their business purchases. While GST is paid at each step in the supply
chain, businesses don’t actually bear the economic cost of the tax. This is because they include GST in the
price of the goods and services they sell and can claim credits for most GST included in the price of goods
and services they buy. The cost of GST is borne by the final consumer, who can’t claim GST credits.
9.3.1 When can you claim GST credits?

Businesses are entitled to claim GST credits for the GST included in a purchases made if the business is
registered for GST and:
 the purchase is used solely or partly in carrying on the business;
 the price includes GST;
 payment is provided for the item purchased, and there is a tax invoice from the supplier.
Businesses are not entitled to claim a GST credit for a portion of a purchase intended for use:
 in making input taxed sales, or
 for private purposes, (unless there has been an annual private apportionment election made). For
example: A business buys a computer for $3,300 (including $300 GST). The intended use of the
computer is 60% for business and 40% for private purposes. The entity can only claim a GST credit for
the portion of your purchase that relates to the intended business use i.e. $180 (60% of $300).
For information about annual private apportionment refer to the Tax Office publication GST and annual
private apportionment (NAT 12877).
9.3.2 When can’t businesses claim GST credits?

There are some purchases an entity can’t claim a GST credit for, even though GST is included in the price.
These include:
 purchases of land under the margin scheme;
 penalties payable under any Australian law or the law of a foreign country (if subject to GST);
 certain purchases you can’t claim as an income tax deduction, for example entertainment expenses
− Client entertainment - Generally entertainment expenses in relation to clients are not be subject
to FBT as clients are not considered as employees. However, as client entertainment is not an
‘allowable deduction’ for tax purposes, generally you will be unable to claim any input tax credits
for the GST paid in respect of this expense.
− Staff Entertainment - GST cannot be claimed where entertainment expenses are not deductible
for tax purposes. A tax deduction will be allowed where FBT is paid on the entertainment expense.
Therefore if the social staff event is subject to FBT then generally you will be entitled to claim a
GST credit. Where the social staff event is not subject to FBT then you will not be entitled to claim
a GST credit.
 motor vehicles used for your business where the price exceeds the car limit of $57,466 in 2013/14,
generally the maximum amount of GST credit you can claim is one-eleventh of that limit.
9.3.3 GST credits and income tax deductions

Where you can claim an income tax deduction for a business purchase, you claim the amount of the
purchase less any GST credit you are entitled to claim. If you are not entitled to claim a GST credit for the
purchase, you can claim the full cost of the purchase, including GST, as a deduction. For capital items, such
as some machinery, there may be an entitled to an income tax deduction for the depreciation of the item.
When calculating the depreciation cost of the item, the cost less any GST credits claimed must be used.
For example: Alice, a GST-registered computer repairer, buys some stationery for her business. She pays
$22 (including $2 GST). Alice is entitled to claim a GST credit of $2 on her activity statement, and $20 as an
income tax deduction on her income tax return. If Alice was not registered or required to be registered for
GST, she would not be entitled to claim a credit for the $2 GST, but she could claim the full $22 as an
income tax deduction on her income tax return.
For example: John is registered for GST and buys a new photocopier for his business. The seller is
registered for GST, and charges John $1,155 (including $105 GST). If John has a tax invoice for the
purchase, he can claim a GST credit of $105 on his activity statement. John works out the decline in value
using a cost of $1,050 (that is, $1,155 – $105 GST).
9.3.4 Special rules for claiming GST Credits

Pre-establishment costs – A special GST rule allows a company to claim GST credits for the GST included in
the price of certain purchases made before the company comes into existence. It covers costs such as set-
up fees, business registration and trading stock, and other things such as business premises.
For this rule to apply:

 the purchase must be for the purpose of bringing the company into existence or for the purpose of a
company carrying on a business after it comes into existence
 the purchase must not be used to make input taxed sales or for private purposes
 the purchase can be used only for the company that is not yet in existence
 the company must come into existence and be registered within six months after the purchase
 the purchaser must become a member, officer or employee of the company
 the company must have fully reimbursed the purchaser for the cost of the purchase
 the company must not be entitled to a GST credit for the purchase, if it subsequently acquires the
thing from the purchaser, and
 the purchaser must not be able to claim a GST credit for the purchase.
Second-hand goods – Under a special GST rule, you can generally claim a GST credit for any second-hand
goods you buy from an unregistered entity for the purposes of sale or exchange (even though GST is not
included in the price of the goods).
Other special rules for claiming GST credits

There are other special rules about claiming GST credits relating to:
 periodic or progressive supplies, such as lease payments or service contracts
 purchases made with corporate credit cards
 purchases of land under standard land contracts
 supplies of gas and electricity by public utility providers, and
 lay-by purchases.
These items are covered later in his section.
9.3.5 Acquisitions through agents for non-residents

If a non-resident makes an acquisition through an agent who is resident in Australia, the agent is entitled
to an input tax credit on the acquisition. The non-resident is not entitled to the credit. For example, if a
non-resident instructs its agent in Australia to buy taxable goods, the agent will pay a price that includes
GST. The agent can claim this GST as an input tax credit.
9.3.6 GST refunds as a result of capital items purchased

If the credits are more than the GST collected, a refund can be claimed. This may occur in the situation
where a business buys a major item of capital equipment. The tax collected in the given period will be less
than the GST paid on the capital item and other inputs. The Tax Office is required to refund any amounts of
input tax credits owing to an entity within 14 days of an entity lodging its return. All refunds will be sent
electronically to the relevant bank and account number nominated by the entity entitled to the refund.
Receiving refunds in paper form (e.g. cheques) will not be an option.
9.3.7 GST refunds as a result of an error on previous BAS

In certain circumstances, entities may be entitled to claim an outstanding GST refund in relation to an
activity statement that they have previously lodged. Some examples where entities could have an
entitlement to an outstanding GST refund include:
 making a mistake such as a clerical or accounting error in an earlier activity statement; or
 incorrectly treating a supply as taxable when it should have been GST-free.
Generally, a GST refund claim should be made or the Tax Office notified of the entitlement within four
years of the end of the tax period to which the entitlement relates. A refund entitlement may in certain
circumstances be claimed on the next activity statement. Generally, this may be done if the refund for a
tax period or periods is within certain correction limits (see section 10).
9.3.8 Entitlement to a refund

Entities that are uncertain of their legal entitlement to a refund or credit, can either complete and return a
Notification of entitlement to GST refund form to the Tax Office either by fax to 1300 139 031 or mail to
PO Box 3524, Albury, NSW, 2640. The form can be accessed at:
https://www.ato.gov.au/Forms/Notification-of-entitlement-to-indirect-tax-refunds-or-credits/
All notifications of entitlement must be sent to the Tax Office before the fourth anniversary of the end of
the tax period to which the entitlement relates. Entities that are unsure of their entitlement may also
include a request for a private ruling on the issue or issues relating to the refund entitlement.
9.4 Attribution Rules
9.4.1 Accounting for GST on a cash basis

Sales – If you account for GST on a cash basis, you account for the GST payable on the sales you make in
the same reporting period you receive payment for them. If you receive only part payment for a sale in a
reporting period, you only account for the GST that relates to that part of the sale in the reporting period.
Example – Joe’s Books is a GST registered book wholesale outlet. Joe’s Books sells books to Bill’s Bookshop
and issues a tax invoice on 17 December 2014. Bill’s Bookshop pays the invoice on 14 January 2015. If Joe’s
Books reports GST monthly, it would account for the GST in the month the GST is collected, that is, on its
January activity statement (due 21 February 2015). If Joe’s Books reports GST quarterly, it would account
for the GST in the quarter the GST is collected, that is, on its March quarter activity statement (due 28 April
2015).
Purchases – You claim GST credits for your business purchases in the reporting period you pay for them,
provided you have a tax invoice. If you pay only part of the cost of a business purchase in a reporting
period and have a tax invoice, you claim only the GST credit for that part of the cost in the reporting
period.
Example – If Bill’s Bookshop reports GST monthly, it would claim the GST paid as a GST credit for the
month it paid for the books, that is, on its January activity statement (due 21 February 2015). If Bill’s
Bookshop reports GST quarterly, it would claim the GST paid as a GST credit for the quarter it paid for the
books, that is, on its March quarter activity statement (due 28 April 2015).
You can account on a cash basis if:
 you are a small business with an annual turnover (including the turnover of your related entities) of
less than $2 million
 you are not operating a business, but are carrying on an enterprise with a GST turnover of $2 million or
less
 you account for income tax on a cash basis
 you carry on a kind of enterprise the Tax office has determined is able to account for GST on a cash
basis regardless of your GST turnover, or
 you are an endorsed charitable institution, trustee of an endorsed charitable fund, gift-deductible
entity or government school, regardless of your GST turnover.
9.4.2 Accounting for GST on a non-cash basis

Sales – If you account for GST on a non-cash basis, you account for the full amount of GST payable on a
sale you make in the reporting period you issue an invoice or the reporting period you receive any part of
the payment, whichever occurs first.
Example – Mr A Frame, a GST registered builder, builds some shelves for Ms B Newsworthy, a newsagent,
and issues a tax invoice for the work on 15 January 2015. The newsagent pays the invoice on 14 February
2015. If Mr Frame reports GST monthly, he would account for the GST in the month he either issued the
invoice or received the payment, whichever occurs first. In this example, this would be on his January 2015
activity statement (due 21 February 2015). If Mr Frame reports GST quarterly, he would account for the
GST in the quarter he either issued the invoice or received the payment, whichever occurs first. In this
example, this would be on his March 2015 quarter activity statement (due 28 April 2015).
Purchases – You claim a GST credit for a business purchase in the reporting period your supplier issues an
invoice or you make any part of the payment for the purchases, whichever occurs first. However, you must
hold a tax invoice for a purchase in order to claim a GST credit for the purchase.
Example – If Ms Newsworthy reports GST monthly, she would claim a GST credit for the month she either
received the invoice or paid for the shelves, whichever occurred first. In this example, this would be on her
January 2015 activity statement (due 21 February 2015). If Ms Newsworthy reports GST quarterly, she
would claim a GST credit for the quarter she either received the invoice or paid for the shelves, whichever
occurs first. In this example, this would be on her March quarter activity statement (due 28 April 2015).
9.4.3 Attribution rule for lay-by sales

Where an entity accounts on a cash basis, normal attribution rules apply. However, different attribution
rules apply to lay-by sales for entities accounting on an accruals basis. They are as follows.
 Where a taxable supply is made under a lay-by sale, the GST payable is attributable to the tax period in
which the final instalment of the consideration is received.
 Where a creditable acquisition is made by way of a lay-by sale, the input tax credit to which the
purchaser is entitled, is attributable to the tax period in which the final instalment of the consideration
is provided.
If a lay-by sale is cancelled, GST applies to any amount retained or recovered by the supplier.
9.4.4 Attribution rule for security deposits

GST does apply to the taking of a deposit as security for the performance of an obligation. This includes
any deposit that is subject to being forfeited should the recipient not perform his/her obligation.
9.4.5 Attribution rule for sale of land under a standard land contract
Goods and Services Tax Ruling GSTR 2000/28 and the addendum to this ruling GSTR 2000/28A explains
when to account for GST or an input tax credit on the sale of land under a standard land contract. It also
briefly examines the GST consequences of a deposit that is forfeited under a standard land contract.
For the purposes of the ruling, a standard land contract is a written contract for the sale of land that
provides for:
 the payment of a deposit that is applied as consideration on settlement or forfeited should the
purchaser default; and
 the payment of the balance of the purchase price upon settlement.
When an entity makes a taxable supply of land under a completed standard land contract, the entity
attributes the GST payable to the tax period in which settlement occurs. GST is not attributed to the time
that the deposit is paid. This is the case regardless of whether the entity accounts on a cash or accruals
basis.
If the entity holds a tax invoice, it attributes an input tax credit for a creditable acquisition of land under a
completed standard land contract to the tax period in which settlement occurs. The input tax credit
claimable is not attributed to the time that the deposit is paid by the purchaser.
Where an entity makes a taxable supply upon a deposit being forfeited to it as a vendor under a standard
land contract, the entity attributes the GST payable to the tax period during which the deposit is forfeited.
This also applies to the attribution of input tax credits in the case of a deposit being forfeited.
9.4.6 Attribution rule for gift vouchers

A voucher includes a voucher, token, stamp, coupon or similar article which when redeemed entitles the
holder to receive supplies. A gift voucher once purchased creates a right to acquire something when the
voucher is presented. Vouchers do not include such things as bus tickets, movie tickets or airline tickets.
These types of supplies entitle the holder to a specified service such as a set number of trips on a bus or
travel on a particular date or over a particular period (e.g. a monthly bus pass). These types of supplies are
subject to the normal rules and subject to GST at the time of the supply of the ticket.
Vouchers with a monetary value equal to the amount paid – GST will be payable at the time the voucher
is redeemed for goods or services. Example: At Christmas, Mary buys a gift voucher for her sister. The
voucher is valued at $100 and Mary pays $100 for the voucher. No GST is payable when the voucher is
purchased, however GST will be payable by the supplier when the voucher is redeemed by Mary’s sister.
Vouchers where the monetary value is less than the amount paid – Where payment for the voucher
exceeds its stated monetary value, the consideration in excess of the monetary value is the consideration
for a taxable supply at the time the voucher is purchased. Example: Owen pays $61 for a limited edition
Olympic Moments phone card with a face value of $50. The additional consideration for that phone card
will be $11, and GST of $1 is payable at the time of purchase. On redemption of the voucher the
consideration is the face value of $50. On redemption the normal rules will apply and the consideration for
the supply will be the value stated on the voucher. If a voucher is redeemed for goods or services of a
lesser value and cash is refunded, the consideration for the supply will be the value stated on the voucher
less the amount refunded.
Vouchers with no monetary value – Some vouchers do not state a monetary value but instead entitle the
holder to a specific good or service rather than an entitlement to supplies up to a stated value. Example:
Andre buys a gift voucher for his wife from Lovely Skin. He pays $110 for a super deluxe one hour pamper
pack. There is no monetary amount shown on the voucher but $110 is the standard price for that
treatment at the salon. In this case GST is payable by Lovely Skin in the tax period in which Andre buys the
voucher. The amount payable is 1/11 of the price Andre pays for the voucher. On redemption of the
voucher no GST is payable.
Vouchers purchased and not redeemed – If a voucher is supplied for consideration but not redeemed, the
retailer will need to make an increasing adjustment. No such adjustment is needed for vouchers that have
been donated or given away for no consideration.
9.4.7 Other special attribution rules

Ruling GSTR 2000/29 examines special attribution rules which apply to:
 supplies and acquisitions subject to a statutory cooling off period, where consideration is received or
provided, or an invoice is issued, in a tax period that ends before the cooling off period expires;
 supplies made through bank note-operated, coin-operated machines and similar devices where
removal of the notes and coins from the machine or similar device is the only way that the supplier has
of knowing when consideration is received;
 supplies and acquisitions made through agents who provide the information required by suppliers and
recipients for attribution purposes;
 supplies and acquisitions for which consideration is received or provided before the total consideration
is known; and
 supplies and acquisitions made under contracts that provide for the retention of consideration.
9.5 Tax Invoices
To claim a GST credit for purchases that cost more than $82.50 (including GST), you must be registered for
GST and have a valid tax invoice or recipient created tax invoice (RCTI). A tax invoice may be issued in
paper form or electronic form as long as the tax invoice requirements listed below are met. Tax invoices
kept electronically will also need to meet retrieval requirements as per other tax records kept
electronically.
Ruling GSTR 2013/1 – Tax invoices contains further information about the issuing of tax invoices.
9.5.1 What is a valid tax invoice?

A valid tax invoice is a document that meets all of the following requirements:
 it is issued by the supplier, unless it is an RCTI (in which case it is issued by the recipient)
 it contains enough information to enable the following to be clearly identified
− the supplier's identity and ABN

− a brief description of what is sold, including the quantity (if applicable) and the price of what is sold
− the extent to which each sale is a taxable sale - this can be shown separately or, if the GST to be
paid is exactly one-eleventh of the total price, as a statement such as 'total price includes GST'
− the date the document is issued
− the amount of GST (if any) payable for each sale
− if the document was issued by the recipient and GST is payable for any sale - that the GST is
payable by the supplier
− that the document was intended to be a tax invoice or an RCTI if it was issued by the recipient.
In addition, if the total price of the sale is at least $1,000 or if the document was issued by the recipient,
the recipient's identity or ABN must be able to be clearly identified.
Recipient-created tax invoices

In most cases, tax invoices are issued by the supplier. However, in special cases, you, as the purchaser or
recipient of the goods or services, may issue a tax invoice for your purchases. This is known as a recipient-
created tax invoice (RCTI).
You can issue an RCTI if:
 you and the supplier are both registered for GST
 you and the supplier agree in writing that you may issue an RCTI and they will not issue a tax invoice
 the agreement is current and effective when you issue the RCTI
 the goods or services being sold under the agreement are of the type that we have determined can be
invoiced using an RCTI. More information about who can issue RCTIs is available in ruling
GSTR 2000/10
The ATO have developed the Recipient created tax invoices form to assist GST-registered businesses with
Recipient created tax invoice (RCTI) agreements. You can use this form as a template for creating RCTIs, or
as a reference for information you need to create your own RCTI. Access the template at:
https://www.ato.gov.au/Business/GST/In-detail/Managing-GST-in-your-business/Tax-invoices/Recipient-
created-tax-invoices/
9.5.2 What if a document does not contain all of the required information?
Where a document issued by a supplier does not contain all of the required information, a business may
treat that document as a valid tax invoice if the missing information can be clearly identified from other
documents provided by the supplier. This means that minor errors should no longer result in documents
not being treated as tax invoices.
9.5.3 What if you claimed a GST credit without having a valid tax invoice?
Where GST has been claimed without having a valid tax invoices, a request can be made to the Tax Office
to ask that the tax invoice be treated as valid. Where the Tax Office discovers a claim on this nature, for
example during an audit, they will usually treat the tax invoices as valid and allow the claim where:
 There is a entitled to the GST credit
 There has been a genuine attempt made to comply with the requirement to hold a tax invoice.
9.5.4 How does the Tax Office deal with missing or invalid tax invoices?
Where a GST credit has been claimed without a tax invoice or with an invalid tax invoice, the ATO may
either:
 treat the tax invoice as being valid
 treat some other document as a valid tax invoice.
The decision to allow the claim will depend on the details provided. The information the ATO require is:
 whether a GST credit has been claimed on the supply
 a description of the goods or services acquired
 the cost and the amount of GST included in the price
 the name, address and ABNs of each party to the transaction
 for an adjustment note - the events that led to the adjustment and the amount of the adjustment -
that is, the change to GST as a result of the adjustment event
 a copy of documents provided by the supplier (including alternatives or replacements)
 steps undertaken to obtain a valid tax invoice from the supplier.
9.5.5 Situations where a tax invoice may not be required

Type of transaction Situation where requirement to hold a tax invoice will be waivered
Reverse charges on The Commissioner has determined that if your entitlement to an input tax credit relates to
offshore intangible a taxable supply for which you are liable to pay GST under Division 84, you do not have
supplies to hold a tax invoice.
GE Fleet customer In certain circumstances a GE Fleet customer is not required to hold a tax invoice for an
acquisition in order for an input tax credit to be attributable to a tax period.
Flag Choice Hotels In certain circumstances a customer of Flag Choice Hotels Limited (Flag Choice) is not
customer required to hold a tax invoice for a creditable acquisition purchased with a Flag Choice
Inn Club card in order for an input tax credit to be attributable to a tax period.
Member of Mastercard In certain circumstances a member of Mastercard International and/or VISA International
International and/or VISA being the recipient of a supply of credit and debit card services from other financial
International institutions, and known as 'bank interchange services', is not required to hold a tax invoice
for an acquisition in order for an input tax credit to be attributable to a tax period.
Corporate account holder In certain circumstances a corporate account holder of Cabcharge Australia Limited is not
of Cabcharge Australia required to hold a tax invoice for a creditable acquisition purchased with the corporate
Limited card in order for an input tax credit to be attributable to a tax period.
Member of Officeworks In certain circumstances a member of Officeworks corporate card is not required to hold a
corporate card tax invoice for an acquisition in order for an input tax credit to be attributable to a tax
period.
Direct Entry Services In certain circumstances an entity is not required to hold a tax invoice for a creditable
acquisition of Direct Entry Services in order for an input tax credit to be attributable to a
tax period.
Court or tribunal decisions In certain circumstances if a Court or Tribunal has found that you have made a creditable
acquisition and are entitled to an input tax credit you would not be required to hold a tax
invoice for the input tax credit to be attributable to a tax period.
Undercover agents of a In certain circumstances an entity is not required to hold a tax invoice for a creditable
government law acquisition for which the reimbursement of an expense is treated as consideration for the
enforcement agency acquisition from the undercover agent in order for the input tax credit on the acquisition to
be attributable to a tax period.
Corporate card holder of In certain circumstances a corporate card holder of a listed corporate card provider that
listed corporate card has a corporate card statement is not required to hold a tax invoice in order for an input
providers tax credit to be attributable to a tax period.
Type of transaction Situation where requirement to hold a tax invoice will be waivered
Registered entity that In certain circumstances a cardholder is not required to hold a tax invoice for a creditable
holds a Visa Purchasing acquisition for an input tax credit to be attributable to a tax period.
Card
Acquisitions Under an In certain circumstances, you are not required to hold a tax invoice for an input tax credit
Agency Relationship to be attributed to a tax period if you hold a document that contains an agent's identity
and/or ABN and satisfies the other requirements in the legislative instrument.
Acquisitions from or In certain circumstances, you are not required to hold a tax invoice for an input tax credit
Acquisitions by a to be attributed to a tax period if you hold a document that contains a bare trustee's
Beneficiary of a Bare Trust identity and/or ABN and satisfies the other requirements in the legislative instrument.
Acquisitions by Recipients In certain circumstances a recipient using an electronic purchasing system is not required
Using Electronic to hold a tax invoice for an acquisition in order to attribute an input tax credit to a tax
Purchasing Systems period.
Acquisitions Where Total In certain circumstances you are not required to hold a tax invoice for a creditable
Consideration Not Known acquisition in order to attribute an input tax credit where the total price of the acquisition
cannot be ascertained at the time an invoice is issued or a payment is made.
Offer Documents and In certain circumstances, you are not required to hold a tax invoice for an input tax credit
Renewal Notices to be attributed to a tax period if you hold an offer document or a renewal notice that
satisfies the requirements in the legislative instrument.
Acquisitions from or In certain circumstances, you are not required to hold a tax invoice for an input tax credit
Acquisitions by a to be attributed to a tax period if you hold a document that contains a partner's identity
Partnership and/or ABN and satisfies the other requirements in the legislative instrument.
Acquisitions from Property In certain circumstances, you are not required to hold a tax invoice for an input tax credit
Managers to be attributed to a tax period if you hold a document that contains a property manager's
identity and ABN and satisfies the other requirements in the legislative instrument.
Sale of a Reversion in In certain circumstances, a lessee or sub-lessee of commercial premises is not required
Commercial Premises to hold a tax invoice for a creditable acquisition of the real property in order to attribute an
input tax credit when they hold documents that satisfy the requirements in the legislative
instrument. This legislative instrument applies where there has been a sale of commercial
premises subject to a continuing lease to a third party.
Taxi Travel In certain circumstances, you are not required to hold a tax invoice for an input tax credit
to be attributed to a tax period if you hold a document that contains a taxi driver's licence
or accreditation number and ABN and satisfies the other requirements in the legislative
instrument.
Acquisition of a Motor In certain circumstances, an employer is not required to hold a tax invoice for a creditable
Vehicle Under a Novated acquisition of a vehicle under a novation arrangement in order to attribute an input tax
Lease credit to a tax period if the employer holds documents that satisfy the requirements in the
legislative instrument
9.6 Making Adjustments
9.6.1 What are adjustments?

There may be instances where changes need to be made that will increase or decrease the net GST liability
for the reporting period. These changes are known as adjustments. There are two types of adjustments:
 increasing adjustments, which increase the net GST liability, and
 decreasing adjustments, which decrease the net GST liability.
9.6.2 When do you make an adjustment?

Adjustments may need to be made if:
 An event occurs which has the effect of changing the price of a sale or purchase (for example you
provide a rebate to a customer)
 A taxable sale made or a purpose for which there is an entitlement to a GST credit is cancelled.
 A bad debt is written off or recovered, or
 The actual use of the purchase differs from your original intended use (this only applies if the GST
exclusive value of the purchase is more than $1,000).
There are other circumstances in which you may need to make an adjustment.
9.6.3 Information requirements on adjustment notes
A new determination that applies in relation to net amounts for tax periods starting on or after 1 July 2010
has replaced the A New Tax System (Goods and Services Tax) Adjustment Note Information Requirements
Determination (No. 1) 2000.
Adjustment notes (and recipient created adjustment notes) which satisfied the previous determination will
continue to satisfy the new determination. The information requirements in this determination are more
flexible than those previously specified and align with the more flexible requirements for tax invoices
following legislative change.
Standard adjustment note

An adjustment note must contain the following information, or enough information in the adjustment note
to enable the following to be clearly ascertained:
 that the document is intended as an adjustment note and the effect of the adjustment;
 the identity of the supplier or the supplier's agent;
 the identity or ABN of the recipient, the recipient's agent, or another member of the recipient's GST
group, if the adjustment note:
− (i) relates to a tax invoice showing the total price for the supply or supplies is at least $1,000 (or
such higher amount as the regulations specify); or
− (ii) arises out of an adjustment event where a supply that was not taxable becomes taxable and the
price of the supply is at least $1,000;
 the issue date of the adjustment note;
 a brief explanation of the reason for the adjustment;
 the amount of the adjustment to the GST payable;
 the difference between the price of the supply before the adjustment event and the price of the supply
after the adjustment event. If the supply is not a wholly taxable supply, the price of the supply is
referable to that part of the supply that is affected by the adjustment event and that is, or becomes,
taxable.
9.6.4 Adjustments can be reconciled on the BAS in one of two ways

When a change happens or when a change is found out, an adjustment is made on the BAS for the current
period. This adjustment is made by either:
 netting the amounts off at item G1 (for supply side adjustments) and at G10 or G11 (for acquisition
side adjustments), i.e. the amount of acquisitions or supplies for the current period is increased or
reduced by the amount of that change.
 (if using the Calculation sheet method for reporting GST) calculating the difference between the total
amount of increasing adjustments and the total amount of decreasing adjustments and showing that
amount at item G7 or item G18.
9.6.5 Making Adjustments for Financial Supplies

If an adjustment occurs because there is a change in the extent to which an input is used in making
financial supplies, the change in use is ignored, unless the turnover of financial supplies that the entity
makes is less than either $50,000 or 10% of annual turnover (including input taxed supplies).
9.6.6 Return for a Repair is not an Adjustment Event

A return for repair or maintenance is not considered to be an adjustment event. This action is specifically
excluded as an adjustment event under the GST legislation. A new supply takes place where payment is
made for a repair.
9.7 Supplies which are GST-free
You don’t include GST in the price of things you sell that are GST-free, but you can still claim credits for the
GST included in the price of your taxable purchases relating to these GST-free sales.
Things that are GST-free include:

 most basic food
 certain education courses, course materials and related excursions or field trips
 certain medical, health and care services
 some medical aids and appliances
 certain medicines
 certain exports
 supplies made under National Disability Insurance Scheme Supports (NDIS) up until 30 June 2017.
 services provided by travel agents in arranging overseas travel and overseas supplies such as
accommodation and sight-seeing tours
 some childcare
 some religious services and charitable activities
 the supply of accommodation and meals of residents of retirement villages by certain operators
 cars for use by disabled people, provided certain requirements are met
 water, sewerage and drainage
 supplies of going concern
the sale of a business as a going concern is GST-free if:
− everything for the continued operation of the business is supplied to the buyer
− the seller carries on the business until the day it is sold
− the buyer is registered or required to be registered for GST
− the sale is for consideration, and
− before the sale, the buyer and seller agree in writing that the sale is of a going concern.
 international transport and related matters
 precious metals
 supplies through inward duty free shops
 grant of land by government
 farmland, and
 international mail.
Example: GST-free sales – A farmer grows potatoes and sells them at the produce markets. The potatoes
are GST-free as basic food and the farmer doesn’t include GST in their price. The farmer can claim GST
credits for the GST included in the price of purchases relating to potato growing, for example, fertiliser,
fuel and freight. Where the supply of goods and services are GST-free, a registered entity will not charge
GST on the sale of those goods and services and will be able to claim back the tax paid on inputs. The
following supply of goods & services are GST-free.
9.7.1 More information
Food
 An itemised list of major foods and beverages can be searched quickly to find out the GST status of
particular food items. This is located on the ATO website at
https://www.ato.gov.au/Business/GST/In-detail/Your-industry/Food/Detailed-food-list/
 Goods and Services Tax Determination – GSTD 2002/2: what supplies of fruit and vegetable juices are
GST-free
Health
 GST and medical services (NAT 4649)
 GST and other health services (NAT 4650)
 GST and medical aids and appliances (NAT 4651)
 Are acupuncture, naturopathy and herbal medicine services GST-free? (NAT 8090)
 Application for medical assessment to obtain a car or car parts GST-free (NAT 3417)
Education
 GST for pre-schools (NAT 12579)
 Goods and Services Tax Ruling GSTR 2000/27 – Goods and services tax: adult and community
education courses; meaning of ‘likely to add to employment related skills’
 Goods and Services Tax Ruling GSTR 2000/30 – Goods and services tax: supplies that are GST-free for
pre-school, primary and secondary education courses
 Goods and Services Tax Ruling GSTR 2001/1 – Goods and services tax: supplies that are GST-free for
tertiary education courses
 Goods and Services Tax Ruling GSTR 2002/1 – Goods and services tax: supplies that are GST-free as
special education courses
 Goods and Services Tax Ruling GSTR 2003/1 – Goods and services tax: supplies that are GST-free as
professional or trade courses
 Goods and Services Tax Determination GSTD 2000/11 – Goods and services tax: is the supply of
commercial pilot training GST-free as an education course under section 38–85 of the A New Tax
System (Goods and Services Tax) Act 1999 (the GST Act)?
 Goods and Services Tax Determination GSTD 2000/7 – Goods and services tax: is the supply of the
services of apprentices or trainees by a Group Training Company to host employers under a Group
Training Scheme a taxable supply in terms of section 9–5 of the A New Tax System (Goods and Services
Tax) Act 1999 (the GST Act)?
Non-commercial activities of charities

 GST and fundraising dinners or similar functions (NAT 7327)
 The endorsement process to access charity tax concessions (NAT 3192)
 Non-profit organisations and fundraising (NAT 13095)
 Is your organisation non-profit? Tax basics for non-profit organisations (NAT 7966)
 Volunteers and tax (NAT 4612)
9.8 Supplies which are input taxed

You don’t include GST in the price of input taxed sales you make and you can’t claim GST credits for
purchases that you use to make input taxed sales. The two most common input taxed sales for small
businesses are:
 financial supplies;
 certain supplies of residential premises by way of rent or sale.
9.8.1 Financial supplies

You will generally be making a financial supply when you:
 lend or borrow money

 grant credit to a customer
 buy or sell shares or other securities
 create, transfer, assign or receive an interest in, or a right under, a superannuation fund, or
 provide or receive credit under a hire purchase agreement if the credit is provided for a separate
charge that is disclosed to the purchaser.
Exclusions from the definition of Financial Services are:
 advisory services (even if of a financial or investment nature);
 payment facilities for transaction cards;
 general insurance (i.e. insurance other than life or health insurance);
 legal services;
 accounting services;
 payroll services;
 tax agent services;
 goods supplied in accordance with agreements under which the goods are leased, and;
a) the lessors dispose of their rights in the goods to the lessees; or
b) the lessees have no obligation or option of acquiring the rights of the lessors in the goods; and
 safe custody services for cash, documents and other goods.
In special cases, you may be entitled to claim a GST credit for a purchase that you use to make a financial
supply. You may be entitled to claim a GST credit for a purchase that relates to making a financial supply if:
 you do not exceed the financial acquisition threshold
 your purchase relates to a borrowing (and the borrowing, in turn, relates to making sales that are not
input taxed), or
 your purchase qualifies as a reduced credit acquisition.
More Information about Financial Supplies

 Financial services – questions and answers
 Goods and Services Tax Ruling GSTR 2006/3 – Determining the extent of creditable purpose for
providers of financial supplies
 Goods and Services Tax Ruling GSTR 2002/2 – GST treatment of goods, services and other products
supplied or acquired by financial supply providers (an addendum exists for this ruling)
 Goods and Services Tax Ruling Goods GSTR 2003/9 – Financial acquisition threshold
 Goods and Services Tax Ruling GSTR 2004/1 – Reduced credit acquisitions
9.8.2 Residential Premises

If you rent out a residential property, other than commercial residential property, for use as residential
accommodation, you don’t include GST in the price of the rent. You also can’t claim credits for the GST
included in any costs relating to the rental, such as agent commission or repairs and maintenance on the
property. In contrast, the supply of commercial property is taxable. If you are registered or required to be
registered for GST and rent out a factory or shop, you must include GST in the rent you charge. If you carry
on your business from rented commercial premises, GST will be included in the rent you pay and you can
generally claim a credit for the GST included in that rent as it is a business expense.
The Sale and Leasing of Residential Premises

The supply of residential premises will be input taxed where rent is received. This is also the case where
the premises are sold. A residential premise means land or a building occupied or intended to be occupied
as a residence.
Example: Mike has an investment property which he rents out for $240 per week. Being an input taxed
activity, GST is not factored into the rent he receives. A real estate agent organises the letting of the
property on Mike’s behalf and charges him 7% commission (i.e. $16.80 per week) plus a 10% GST, a total of
$18.48 per week. Mike also pays a GST registered builder to carry out repairs on the property which total
$440 (inclusive of GST). He is unable to claim an input tax credit for the $40 GST component of the repairs.
Similarly, he is unable to claim an input tax credit for the $1.68 GST component of the commission paid to
the real estate agent.
Exclusions from the definition of the sale and leasing of residential premises include:
 new residential premises sold by a registered entity (e.g. developer), as well the sale of land made by a
registered entity;
 generally, the leasing and sale of commercial residential premises (e.g. boarding house, motel); and
 the supply of other commercial property.
Sales by a developer
An entity which constructs rental premises after 2 December 1998 which it subsequently rents out for a
number of years will be denied input tax credits for the construction costs of the premises. This is because
the acquisitions relate to an input taxed supply of a lease of residential premises. These types of premises
which have been used solely for the purpose of rental accommodation for a period of at least 5 years are
not included in the definition of new residential premises. The effect of this is that any subsequent sale of
the premises which have been used solely as residential premises for at least 5 years will be input taxed.
The sale will not be subject to GST.
Example: ABC Builders construct a residential premise for the purposes of providing rental accommodation
and therefore is not entitled to claim input tax credits for the acquisitions in relation to the construction
costs. ABC Builders supplies short-term leases for residential accommodation in the premises to various
tenants for a period of 7 years. The premises are then sold by ABC Builders. This amendment will allow the
sale by ABC Builders of the residential premises to be input taxed rather than subject to GST.
More information about Residential Property

 Changes to the margin scheme (NAT 14722)
 Goods and Services Tax Ruling GSTR 2000/20 – Commercial residential premises
 Goods and Services Tax Ruling GSTR 2003/3 – When is a sale of real property a sale of new residential
premises
 Goods and Services Tax Ruling GSTR 2000/21 – The margin scheme for supplies of real property held
prior to 1 July 2000
 Goods and Services Tax Ruling GSTR 2006/7 – How the margin scheme applies to a supply of real
property made on or after 1 December 2005 that was acquired or held before 1 July 2000
 Goods and Services Tax Ruling GSTR 2006/8 – The margin scheme for supplies of real property
acquired on or after 1 July 2000
 Margin scheme determination MSV 2000/1
9.8.3 Other Input Taxed Activities

Precious Metals (excluding the first supply) – The supply of precious metals is input taxed (excluding
where it is a first supply which is GST-free). Precious metals refer to sales of precious metals ‘in an
investment form’. Investment form means precious metal sold in a wafer bar or other tradeable form
which has an internationally accepted hallmark. In the case of gold, this means a hallmark that has been
approved by the London Bullion Market and means that the gold can be traded on the international bullion
market.
School Tuckshops and Canteens – School tuckshops and canteens run by non-profit bodies such as a
Parents & Citizens association at a primary or secondary school can choose to have their supplies input
taxed. The provisions will not apply to the supply of food to boarders at a boarding school.
9.9 Simplified Accounting
9.9.1 Simplified accounting methods for food retailers

Some small food retailers, such as bakeries, milk bars and convenience stores, make both GST-free and
taxable sales. If these businesses don’t have adequate point of sale equipment, they may find it difficult to
separately account for different types of sales.
More information about simplified accounting methods

 Simplified GST accounting methods for food retailers (NAT 3185)
 Simplified GST accounting for the food and grocery industry (NAT 7162)
 Business norms percentages No 1 – hot bread shops (NAT 3186)
 Business norms percentages No 2 – convenience stores that convert food (NAT 3187)
 Business norms percentages No 3 – convenience stores that do not convert food (NAT 3188)
 Business norms percentages No 4 – fresh fish retailers (NAT 3267)
 Business norms percentages No 5 – rural convenience stores (NAT 3268)
 Business norms percentages No 6 – pharmacies (NAT 3269)
 Business norms percentages No 7 – cake shops (NAT 3270)
 Business norms percentages No 8 – health food shops (NAT 3271)
 Business norms percentages No 9 – continental delicatessens (NAT 3272)
9.10 Treatment of Imports

Imports which incur a GST are referred to as taxable importations. GST is payable on imports, regardless of
whether or not the person or entity is registered. However, input tax credits are only available to
registered parties. There are some important changes in assessing the value of imported products under a
GST.
9.10.1 Calculating Taxable Value under a GST

The Australian Customs and Border Protection Service (ACBPS) collect GST on taxable importations. The
GST payable is 10% of the value of the taxable importation. The value of taxable importation is the sum of
the customs value of the goods, any customs duty payable, total amount paid or payable to transport the
goods, insurance cost for that transport and any wine tax payable.
Example - Calculating tax liability on imports under a GST
John Jones Discounts imports a shipment of refrigerators for resale. The cost of the shipment is $27,000
(the FOB value). Transporting the goods to Australia cost $6,500 and the insurance premium totalled
$2,200. Customs duty on the FOB value amounted to $1,350 i.e. 5% of $27,000. For GST purposes the
taxable value of an imported product is referred to as the CIF value (customs duty, insurance, freight).
Taxable value of the shipment is $27,000 (cost)

$1,350 (customs duty)
$2,200 (insurance)
$6,500 (freight)
$37,050 (Taxable Value or CIF Value)
The GST payable is $ 3,705 i.e. 10% of $37,050.

Importers do not need to identify the exact amount paid for international transport, insurance and other
costs to calculate the value of the taxable importation for GST purposes.
9.10.2 Handling & Delivery Costs of Imported Goods
All the costs of transporting the imported goods to their final ‘port of destination’ in Australia will be
included where the transport is provided by the same supplier. However, any local handling charges are
not included (they will be the subject of a separate supply). The final port of destination will be the port or
airport that is indicated on the ‘transportation document’ (e.g. bill of lading). For goods posted to
Australia, the final destination will be the place in Australia to which the goods are addressed.
9.10.3 Paying GST on Imports

GST is payable on the majority of imports. The importer will be required to pay the GST when customs duty
falls due i.e. prior to taking delivery of the imported products. The importer will then, where applicable,
claim an input tax credit in the tax period in which the GST liability arose.
Example - Paying GST and claiming an input tax credit on imports
John Jones Discounts takes delivery of a shipment of refrigerators and pays GST amounting to $3,705 prior
to the shipment being released from customs. John Jones Discounts completes their returns on a quarterly
basis, thus the tax period is 3 months. The shipment of refrigerators is received 10 weeks prior to the end
of the tax period. An input tax credit for the out laid GST ($3,705) will be included in the return lodged at
the end of the period.
Taking these factors into consideration, it is important that importers factor in the costs of making GST
payments up-front. It may be beneficial to align the delivery of shipments with the end of the tax period to
ensure that the period between the outlay of GST payments and the claiming of input tax credits is
lessened.
Please note: Under the GST legislation, customs officers have the right to refuse delivery of goods where
GST has not been paid.
9.10.4 Imports which are not taxable for GST purposes

Some goods imported into Australia will not be subject to GST. These are:
 goods that would have been GST-free or input taxed if supplied within Australia - such as basic food,
certain medical aids and appliances, cars for use by certain people with disabilities, and precious
metals; or
 goods that qualify for certain customs duty concessions.
Goods that qualify for certain customs duty concessions that are also non-taxable for the GST include:
 goods imported by overseas travelers (any goods imported by travelers that are in excess of the duty
free allowance will be subject to Customs duty and GST);
 goods returned to Australia in an unaltered condition (conditions apply), or goods returned after repair
or replacement under warranty, or global product safety recall goods;
 goods imported for repair, alteration or industrial processing, then exported;
 bequeathed goods;
 trophies, medals, etc.; and
 low-value goods’ on which customs duty or taxes come to $50 or less and which have a customs value
of less than $1000 (for goods imported by post), or less than $300 (for other goods).
Proposed - Applying GST to low value goods imported by consumers

It is proposed that the GST will be extended to low value goods imported by consumers from 1 July 2017.
The intent of this measure is that low value goods imported by consumers will face the same tax regime as
goods that are sourced domestically. Overseas suppliers that have an Australian turnover of $75,000 or
more will be required to register for, collect and remit GST for low value goods supplied to consumers in
Australia, using a vendor registration model. These arrangements will be reviewed after two years to
ensure they are operating as intended and take account of any international developments.
Application of GST to digital products and services imported by consumers – Now law
The application of the GST will be extended to cross border supplies of digital products and services
imported by consumers from 1 July 2017. The requires offshore operators of “electronic distribution
platforms”, whose annual revenue exceeds AUD $75,000 to register for GST and to collect GST on services
and intangible supplies sold to “Australia consumers”. The operator of the electronic distribution platform
may be a separate organisation from the actual supplier, for example Amazon, iTunes who make sales on
behalf of other parties.
As a result of this, the ATO has released guidelines on the new test for carrying on an enterprise in
Australia. The Law Companion Guideline LCG 2016/1 discusses changes to the test for when an enterprise
is carried on in the indirect tax zone (Australia) for GST purposes. Specifically, the LCG describes how the
ATO will apply the new GST measures when they come into effect. The changes in the Act are divided into
two parts — business-to-consumer supplies in Sch 1 and business-to-business supplies in Sch 2. LCG
2016/1 can be accessed at:
https://www.ato.gov.au/law/view/document?DocID=COG/LCG20161/NAT/ATO/00001
9.10.5 Importations of intellectual property and the like – reverse charge rule
One of the requirements for a supply to be a taxable supply, and hence subject to GST, is that the supply is
connected with Australia. Supplies of things such as intellectual property are connected with Australia if
the thing is done in Australia, or the supplier makes the supply through an enterprise the supplier carries
on in Australia.
For GST purposes an importation of intellectual property, and the like, is taxable. Often the supplier may
not be in the Australian GST system so the GST is payable by the recipient of the supply rather than the
supplier. For this reason this process is referred to as the reverse charge rule. Under the reverse charge
rule, the GST payable by the recipient of the supply is calculated as 1/10 of the purchase price, not 1/11.
The reason for this is that the GST has not yet been added to the purchase price. No tax invoice required
to claim input tax credit if an entity is entitled to an input tax credit that relates to a taxable supply for
which you are liable to pay GST under the reverse charge rule. The entity does not have to hold a tax
invoice.
9.10.6 Deferring GST payments on imported goods

Approved entities are able to defer payment of GST on imported goods. This allows GST to be deferred
until the first Business Activity Statement is submitted after the goods are entered for home consumption.
Importers will be eligible to defer GST if they:
 have an Australian Business Number (ABN) and are registered for GST; and
 lodge their Business Activity Statement monthly, via the internet-based e-commerce system operated
by the Tax Office; and
 pay their Business Activity Statement liabilities electronically; and
 deal with Customs electronically; and
 generally, have no debt or returns outstanding with the Tax Office; and
 have approval in writing from the Tax Office to defer payment of GST on imported goods.
Under the scheme, importers will quote their ABN to Customs when they enter goods for home
consumption. If the importer has been given approval to defer GST, Customs will release the goods after
payment of any customs duty or other charges. Importers can apply to participate in the Deferred GST
Scheme by electronically completing and submitting an on-line form. It is available on the ATO website
located at www.ato.gov.au.
9.11 Other Issues
9.11.1 Treatment of Goods on Consignment

Goods sold ‘on consignment’ refer to an arrangement where a business agrees to sell goods without first
buying those goods from the owner. Typically, the agreement will specify that the business sells the goods
on behalf of the owner as an agent, or that the business will agree to purchase the goods for an agreed
price when it finds a buyer.
Goods for which consignment sales regularly take place include motor vehicles, boats, wedding and formal
dresses, cameras, farm machinery and artworks. Consignment sales often involve second hand goods
owned by people who are not registered for GST.
The GST treatment of goods sold on consignment depends on the nature of the consignment arrangement
and whether or not the owner of the goods is registered for GST.
Sales as agent – In this case there is only one sale, i.e. to the customer by the consignor, via the consignee
(as the agent). The outlet assigned to sell the goods (the consignee) will pay GST on the commission
received while the actual owner of the goods (the consignor) will pay GST on the sale of the goods if they
are registered.
Example: Sally sold a sculpture through an art gallery for $4,400 on consignment. The gallery was paid a
commission of 10% (i.e. $440) out of which it must pay $40 GST to the Tax Office (i.e. 1/11 × $440). Sally
can claim an input tax credit for the $40. GST of $400 (1/11 × $4,400) is payable by Sally. She can offset the
$400 GST payable on the painting against the $40 input tax credit for the commission. If this is her only
transaction for the period, on her next BAS she will pay the difference of $360 to the Tax Office.
Sales on a ‘sale or return’ basis – where the transaction involves the consignor selling the goods to the
consignee at the same time as the goods being sold to a customer, the GST liability lies with the consignee.
Certain factors ascertain whether the consignment is being made on a sale or return basis, they include:
 The amount being paid to the consignor by the consignee is pre-agreed and set by the consignee;
 The consignee can keep the amount paid in excess of the pre-agreed price and is entitled not to
disclose the amount to the consignor;
 The consignee provides a warranty on the goods;
 State laws prevent the consignee from acting as an agent;
 The consignee is not obligated to purchase the goods if they are not sold.
In most cases, consignment sales are in a ‘sale or return’ basis.
9.11.2 Pricing Requirements

When prices are displayed they should include GST, except in a few specific circumstances. The GST
component in the selling price should not be added after the sale, for example, at the cash register. The
Government and trade practices legislation intend that the total price to be paid is clear to the purchaser.
Businesses are not prevented from separately indicating the GST component, but they must make sure
that such price display is not misleading or deceptive or likely to be misleading or deceptive.
Price display Acceptable? Comment

$110 YES – so long as this is the In the absence of any advice to the contrary,
total price to be paid. customers may assume that all prices after 1 July
2000 include GST.
$100 + NO These do not show the full price to be paid by the
$100 + GST NO customer.
$100 + 10% GST NO
$100 + GST = $110 YES These all show the full price to be paid and also
$100 + $10 GST = $110 YES make it clear that the price includes GST.
$110 (including 10% GST) YES
Price lists, which will be used by the general public, should include GST. Sometimes suppliers may wish to
provide GST-free price lists for business to business transactions. Such price lists, are unlikely to be
regarded as misleading or deceptive, if it is an established practice of the business to provide tax-free price
lists and it is clearly stated that the prices do not include GST.
9.11.3 Lease Arrangements

Liability for GST under a lease agreement will arise continuously throughout the period of the agreement.
Section 10 contains information about where lease payments are shown on the BAS.
Leases are not input taxed as they are not regarded as financial supplies. The GST regulations specifically
state that there is no financial supply in the case where goods are supplied in accordance with agreements
under which the goods are leased, and; (a) the lessors dispose of their rights in the goods to the lessees; or
(b) the lessees have no obligation or option of acquiring the rights of the lessors in the goods.
Leasing Motor Vehicles

A lessee can claim an input tax credit for GST charged by a lessor on lease payments, subject to the vehicle
being used for a creditable purpose.
9.11.4 Hire Purchase
If you account for GST on a non-cash (accruals) basis

Where an entity acquires an asset under a hire-purchase agreement, the entity can claim the full GST
credit on the hire purchase agreement in the tax periods when either:
 The first payment is made; or
 if before making the first payment, an invoice is issued to the entity.
If you account for GST on a cash basis

For hire purchase agreements entered into before 1 July 2012 an entity may claim one-eleventh of the
principal component of each instalment in the period it is paid.
For hire purchase agreements entered into on or after 1 July 2012, an entity may claim input tax credits
upfront instead of waiting until each instalment is paid, in the same way as an entity would if they are
accounting for GST on a non cash basis. All components of the supply made under a hire purchase
agreement entered into on or after 1 July 2012 will be subject to GST. One-eleventh of all components can
be claimed, including the credit component and any associated fees and charges which have been subject
to GST under the agreement.
Change from 1 July 2012

From 1 July 2012, a full GST credit can be claimed up front in respect of Hire Purchase transactions despite
whether the entity is registered, for accounting purposes, under cash basis or non cash basis.
9.11.5 Motor Vehicles
New Motor Vehicles

Full input tax credits are allowable for new motor vehicles.
Second-hand Vehicles
An immediate input tax credit will be allowable for purchases of second-hand motor vehicles by registered
entities that hold a tax invoice. An input tax credit can only be claimed where GST is included in the price
(i.e. if the vehicle was purchased from a registered entity). If the vehicle was purchased from a private
seller, no GST would have been included in the price and therefore no input tax credit can be claimed. A
second-hand vehicle includes one that is not new or has been previously used. It does not have to be
previously owned. Where a dealer has genuinely used a vehicle as a demonstrator or fleet vehicle, the
purchaser of such a vehicle acquires a second-hand vehicle.
Trade-ins
If the entity trading in the vehicle is a registered entity, the supply will be a taxable supply by the person
trading in the vehicle. The input tax credit for the dealer is the GST paid to the person trading in the
vehicle.
Treatment of Luxury Cars

Luxury car tax is payable on that portion of the GST-exclusive sale price in excess of the luxury car tax limit.
The luxury car tax limit for 2016/17 financial year is $64,132 ($75,526 for a fuel efficient luxury car). The
tax is payable when the vehicle is sold at the retail level. This limit does not apply to the private sale of
motor vehicles by unregistered persons. Entities affected by the luxury car tax should refer to the Tax
Office fact sheet – Luxury Car Tax (NAT 2963).
The luxury car tax limit should not be confused with the “car limit” for depreciation claims and GST credits
which remains $57,581 in 2016/17.
Disposal of a motor vehicle by a charity

Where a charitable institution, a trustee of a charitable fund, a gift-deductible entity or a government
school and dispose of a motor vehicle, the disposal will be GST-free if the payment received is:
 less than 50% of the GST-inclusive market value of the motor vehicle, or
 less than 75% of the amount paid to purchase the vehicle being sold (this is generally the original cost
of the vehicle).
9.11.6 Status of Government Fees

There is a general principle which applies to Government fees, taxes and charges. Generally, taxes are not
taxable for GST purposes, including income tax, fringe benefits tax and most other taxes levied by Local,
State and Commonwealth Governments. Regulatory charges levied by all levels of government are also, in
the most part, not liable for GST. On the other hand, a fee levied for a particular service will usually be
taxable for GST purposes. To demonstrate this, the following chart lists and compares the status of various
fees and charges.
Taxable for GST Purposes Not Taxable for GST Purposes

Caravan park fees paid by caravan owners & users Caravan park licences paid by caravan park proprietor
Refuse tip charges paid by person disposing of rubbish Charges for domestic waste removal paid by rate payer
at tip as part of local rates
Camping ground fees paid by campers Camping ground licences paid by camping ground
proprietor
Land title search fees Building application fees
Vehicle Insurance Vehicle Registration
Fees associated with a marriage licence Marriage certificate extract fees
Vehicle testing fees Issue of taxi licences
Government Agencies must self-assess whether their charges are exempt

Government agencies must self-assess whether a government charge is exempt from goods and services
tax (GST) or not under the amended Division 81.
Government charges are subject to GST if they both:

 do not fall within the exemptions provided under the amended Division 81 and
 satisfy the requirements of a taxable supply.
The following payments are generally exempt from GST under the new Division 81:
 payment of an Australian tax
 payment of government charges for the provision, retention or amendment, under an Australian law,
of a permission, exemption, authority or licence
 payment of a government charge for recording, copying, modifying, receiving, processing, searching
for or allowing access to information
 payment of an Australian fee or charge listed in a regulation that prescribes the payment as not being
consideration.
9.11.7 How to determine whether the sale or purchase of a product or service is

connected with Australia
One of the necessary elements of a taxable supply is that the supply is connected with Australia. A
business makes supplies connected with Australia if it does any of the following:
 supply goods wholly within Australia - for example, the sale of goods to a customer where those goods
are delivered, or made available, in Australia
 from Australia - for example, a sale that involves goods being exported from Australia
 to Australia - for example, a sale of goods that involves the goods being brought to Australia and you
import the goods into Australia or install or assemble the goods in Australia
 supply real property situated in Australia - for example, a lease of business premises.
 supply something other than goods or real property
 the thing is done in Australia - for example, consultancy services that are carried out in Australia or
sport or entertainment events that are performed in Australia, or
 the thing is done through an enterprise or a permanent establishment that you carry on in Australia, or
 all of the following apply
a) the thing is neither done in Australia nor done through an enterprise or a permanent
establishment that you carried on in Australia
b) the thing is a right or option to acquire another thing
c) the supply of the other thing would be connected with Australia.
A supply that is not connected with Australia is outside the scope of GST in Australia unless a special
provision applies to bring that supply within the GST system. Businesses that do not make any supplies
that are connected with Australia are not required to register for GST in Australia.
For more information on supplies connected with Australia, refer to Goods and Services Tax Ruling
GSTR 2000/31 Goods and services tax: supplies connected with Australia
9.11.8 Gambling
Gambling is dealt with under the GST by using a global accounting system that provides for an alternative
way of working out your net amounts by incorporating your net profits from taxable supplies involving
gambling.
A gambling supply is a taxable supply involving the supply of a ticket in a lottery, raffle or the acceptance of
a bet relating to the outcome of a gambling event.
A gambling event is the conducting of a lottery, raffle, race, game, sporting event, or any other event, for
which there is an outcome. If you are liable for the GST on a gambling supply, your GST liability for the tax
period will be:
Global GST amount + Other GST — Input tax credits
Global GST amount is the total amount wagered, minus total monetary prizes, multiplied by 1/11.
Input tax credits is the sum of all of the input tax credits to which you are entitled on the creditable
acquisitions and creditable importations that are attributable to the tax period. Note: Any supplies under
the global accounting system will not have attracted input tax credits.Other GST is the sum of all of the GST
for which you are liable on taxable supplies not including gambling supplies.
9.11.9 Second-hand Goods

Second hand goods sold by a private individual to a dealer, trader or another private individual do not
incur a GST. However, second-hand goods sold by a registered entity have a GST liability similar to that of
new goods.
Under a special GST rule, you can generally claim a GST credit for any second-hand goods you buy from an
unregistered entity for the purposes of sale or exchange (even though GST is not included in the price of
the goods). Input tax credits for acquisitions of second-hand goods from unregistered suppliers can be
claimed where those goods are acquired as trading stock (excluding materials used in manufacture). In
these circumstances, the latest registered seller can claim an input tax credit which is the smaller of:
 1/11 of the payment for the purchase; or
 the GST payable on the sale of the second-hand goods.
Example: Prior to an overseas holiday, Donna sold her car to the local car yard for $2,530. After detailing
the car, the dealer sold it for the GST inclusive price of $3,300. In his next return, the dealer is required to
remit $300 in GST to the Tax Office in relation to the sale. However, being the latest registered seller, the
dealer is able to claim an input tax credit. To calculate his input tax credit the dealer must claim the lesser
of 1/11 of the purchase price ($230) or the amount of GST payable on the sale of the good ($300). The
input tax credit claimed in this case is 1/11 of the purchase price as this is the lesser amount.
Example: Sharon, a registered dealer, sells a collectable piece of pottery to Patrick, another registered
dealer, for $7,700 including GST. Sharon pays $700 of the total price to the Tax Office for GST. Patrick sells
the piece to a private individual for $13,200 inclusive of GST. Patrick is required to remit $1,200 GST to the
Tax Office. Patrick claims an input tax credit of $700 (1/11 of the price paid). For acquisitions of $300 or
less, a credit for 1/11 of the payment can be claimed immediately. The amount of the input tax credit is
not linked to the future sale of the good.
Example: Geraldine, a registered dealer purchases a chest of drawers of an individual for $220. She
immediately claims an input tax credit of 1/11 of the price paid, in this case $20.
9.11.10 GST Groups

Companies, trusts or partnerships with common ownership or membership often operate as a group. They
often supply things to, or acquire things from, other members of the group.
If both group members are owned by the same entity, such transactions could be regarded as internal.
Forming a GST group means that GST will not be paid and input tax credits will not be claimed, on these
transactions.
Companies can form a GST group if each company:
 is a member of the same (at least 90 per cent owned) group as all other members of the GST group or
proposed GST group
 is registered for GST
 has the same tax periods as all the other members
 accounts for GST on the same basis (that is, cash or non-cash) as all the other members
 does not belong to any other GST group, and
 has not branched for GST purposes.
The 90 per cent ownership requirement does not apply to non-profit bodies. However, non-profit bodies
may only form a group where:
 all members of the GST group or proposed GST group are non-profit bodies, and
 all members are members of the same non-profit association.
Otherwise, requirements for non-profit bodies are the same as those listed here for companies.
Partnerships, trusts & companies with common ownership (90% or more) may be able to form a GST group
with Tax Office approval. The entity must be registered for GST purposes, reside in Australia, have the
same tax periods and account on the same basis. An entity cannot be a member of more than one GST
group.
One member must be nominated to handle all matters pertaining to the GST, for the group. The
nominated member is then liable for the GST payable and entitled to the input tax credits claimed. An
exception may arise with transactions involving imports. In this case the GST on the import/s is payable by
the company, trust or partnership that made the import/s. A taxable supply made by one member of the
group to another member does not incur a GST. Similarly, the member who acquired the good is unable to
claim an input tax credit. A GST group cannot be formed if the nominated company, trust or partnership is
a non-profit body, the other members are non-profit bodies or all the company, trust or partnership are
members of the same non-profit organisation.
9.11.11 Prizes
The Tax Office issued a ruling GSTR 2002/3 which explains the GST treatment of prizes awarded for
competitions. One of the general principles of the ruling is that GST does not apply to low value medals,
ribbons and trophies awarded as a symbol or recognition of achievement. The only circumstances where
people pay GST on winnings are where the winner is registered for GST and they participate in the event as
part of their business.
Professionals
Where participants of sporting events are registered for GST and they participate as part of their business,
they will be required to pay GST on their winnings. For example, this applies in the case of the grand final
winning NRL Club, and a professional golfer who wins the Australian Open.
Amateurs
School children are not subject to GST on prizes for any school competitions. Contestants in TV game
shows are not generally registered for GST and therefore will not be subject to GST on prizes. Amateur
sports people who are not registered for GST will not have to pay GST on their prizes. However, even if
registered for other purposes and the sporting event is not part of their business, then GST does not apply
to the prize.
9.11.12 Wine
A wine equalisation tax has been introduced to ensure that wine prices do not drop dramatically with the
introduction of the 10% GST. The wine equalisation tax is levied at a rate of 29%, and applies to other
products, such as non-grape wines, cider, sherry, mead and sake.
9.11.13 Mutual Bodies

Membership fees paid by members of a body in return for supplies are taxable where the body is
registered or required to be registered. Thus, the body is considered to be carrying on an enterprise even
where it only provides supplies to its members.
Example: The owners of residential units form a body corporate to manage the affairs of the complex.
Each owner contributes $1,100 per year to the body corporate. The body corporate engages third parties
to provide services (e.g. lawn mowing, repairs, insurance etc.). The body corporate registers for GST
purposes and is entitled to claim input tax credits for the GST included in the price of the services. It is
required to pay GST on the supply of services to the members for whom it receives the consideration of
$1,100 per member. The $1,100 contributed by each of the members is regarded as consideration. The
body corporate is carrying on an enterprise even though it only makes supplies to its members.
Effectively, the owners are paying $1,000 in levies and $100 GST.
9.11.14 Accounting for GST for Income Tax Purposes

The net GST liability of an entity is not subject to income tax. Similarly, entities will not obtain an additional
income tax benefit for input tax credits.
The exclusion of amounts relating to GST and input tax credits will apply to amounts of income and
deductions, including elements in calculating these amounts, such as the cost base and reduced cost base
for calculating capital gains and losses.
9.11.15 Australian Business Number
The Australian Business Number (ABN) is a single identifying number entities use when dealing with the
Tax Office and other government agencies. A business quotes its ABN each time it remits GST and other
amounts to the Tax Office.
Having an ABN is not compulsory

It is not compulsory to obtain an ABN. However, if an entity is required to register for GST, it must also
apply for an ABN. Entities who are not required to register for GST should still acquire an ABN. Many
aspects of the new PAYG system require entities to record their ABN’s on invoices. A failure to do so will
result in tax being withheld from the payment at a rate of 49%.
Those carrying out an enterprise can apply

Applicants for an ABN need to be sure that their activity can be classed as an ‘enterprise’. In general,
entities are not entitled to an ABN where they are not carrying on an enterprise. All companies registered
under Corporations Law are entitled to an ABN. Carrying on an enterprise includes activities where you are
engaged in a business or trade with an expectation of profit. Charitable and religious organisations,
government bodies and trusts may also be considered to be carrying on an enterprise. The following are
not carrying an enterprise, they include those:
 working as an employee
 working under a labour hire arrangement
 earning payment as a company director
 being paid as an office holder, or
 involved in a private recreational pursuit or a hobby
9.11.16 Treatment of Property
GST property tool

Individuals wanting to understand the GST impact on property-related transactions can access the ATO’s
internet-based GST property tool. This tool can be used in unison with the ATO property webpage. The GST
property tool works by using a series of interactive questions and answers about buying, selling,
transferring, leasing, or developing property. It takes approximately five minutes to complete and provides
the user with a summary of their situation and how GST applies to their property transaction. Topics
include residential premises, commercial premises and vacant land. The tool also carries information on
claiming GST credits, margin scheme eligibility, and GST-free supplies of real property. Access at
https://www.ato.gov.au/Calculators-and-tools/GST-property/
Selling Commercial Property

GST applies to the sale of all commercial property by a registered business. For GST purposes, the date of
the new ownership is usually the date of settlement. The seller must pay GST on the full amount of the sale
value of the property unless the seller is eligible for and chooses to use the margin scheme. If the buyer is
registered for GST the buyer may be able to obtain an input tax credit for the GST included in the sale price
of the property. If the buyer is not registered or will use the property to make input taxed supplies, the
buyer may prefer that the seller calculate GST using the margin scheme. However, there are restrictions in
the circumstances in which the margin scheme can be used.
Renting out/Leasing out Commercial Property

GST applies to leases of commercial property. A special rule in relation to outgoings payable by the tenant,
has implications where the supply made to the landlord is not subject to GST or is a GST-free supply. For
example, payment by the landlord of local council rates, land tax or water charges. Under normal rules the
supply of these services are GST free. However, if the tenant is required under the terms of the lease to
reimburse the landlord for one of these charges, GST will be payable on the supply, regardless of whether
the supply was originally GST free. This is also the case regardless of whether the tenant makes a payment
directly to the entity levying the tax, fee or charge, or reimburses the landlord for the charge. This rule
applies to all supplies, including water and sewerage services.
Example: Sam leases a commercial property to Lucy on 18 August 2015. Lucy is required to pay Sam $500
per week plus pay all outgoings, including water rates and council rates which total $890.00 per annum.
Sam must supply Lucy with a tax invoice which consists of the base rent, the water rates and the council
rates. GST is charged on all components of the lease payment regardless of whether or not the supply is
GST free to the landlord.
Selling Existing Residential Property

GST does not apply to the sale of existing residential properties that are not new. This is because the
proceeds received from the supply (i.e. sale) of existing residential premises are input taxed. In these
cases, owners are not required to pay GST on the supply and they are unable to claim input tax credits for
the GST portion of inputs purchased to facilitate the sale of the property. These inputs may include fees
charged by solicitors, surveyors, pest and building inspectors, accountants and financial advisers.
Selling New Residential Property

GST applies to the sale by developers/builders of all newly constructed residential property whether sold
to an owner occupier or an investor. The liability for paying GST under such a contract generally arises
when settlement takes place. If a contract is not a standard contract the vendor needs to examine the
terms of the contract to determine when the liability arises.
Although the developer/builder pays the GST to the Tax Office, in most cases the 10% GST would be
factored into the purchase price. Consequently, the GST is indirectly paid by the purchaser of the new
residential property when they make the payment to the developer/builder.
Renting out/Leasing out Residential Property

The rental of residential property is an input taxed supply. This means that GST is not added to residential
rents. Any GST included in the price of goods and services used in connection with supplying the rental
property to the tenant (such as plumbing services) cannot be claimed as input tax credits by the landlord.
For rental properties these inputs include repairs and maintenance (such as painting, electrical and
plumbing work), the replacement of appliances (such as dishwashers and clothes dryers), and
management, advertising, legal and accountancy services. Landlords will also not be entitled to input tax
credits for GST included in the price of newly constructed property acquired for residential rental.
Where an entity lets out residential premises for residential accommodation, the rent is not included in the
entity’s turnover for GST registration threshold purposes. Accordingly, if the entity does not make other
supplies that are taxable or GST-free, it does not have to register for GST.
Additionally, if an entity lets out rental premises used predominantly for private or domestic purposes, the
entity will not need an ABN for PAYG withholding purposes. See taxation ruling MT 2000/2 for more
information.
Long Term Commercial Residential Accommodation

Commercial residential premises include hotels, motels, inns, hostels, caravan parks, camping grounds and
similar premises. Commercial accommodation usually requires that the proprietor provides and pays for
cleaning and maintenance; electricity, gas, air-conditioning or heating; or telephone, television, radio or
similar.
Commercial residential premises are predominantly for long-term accommodation if at least 70% of the
occupants are in long term accommodation. Long term stays (more than 27 days) in commercial residential
premises are given a lower value than would otherwise apply, reducing the amount of GST payable.
Essentially, businesses that provide predominantly long-term accommodation can choose to pay GST on
50% of the price for the guest’s entire long term stay, or they can treat the supply as being input taxed. An
entity must treat all its supplies of long-term accommodation in the same way, that is either concessionally
or input taxed, and the choice of treatment cannot be changed for 12 months.
Those who choose to calculate the long term accommodation on a concessional basis pay GST on 50% of
the guests stay and can still claim input tax credits for all the inputs required to provide the
accommodation. If the proprietor chooses the input taxed option, no GST is paid in relation to the long
term accommodation and no input taxed credits can be claimed.
To calculate the number of days in the period for which an occupant is provided with commercial
accommodation, count the day on which he or she is first provided with the commercial accommodation
and disregard the day on which he or she ceases to be provided with commercial accommodation.
Short Term Commercial Residential Accommodation

GST will apply to the supply of short-term accommodation (periods of less than 28 days) in commercial
residential premises. Businesses not providing predominantly long-term accommodation (see explanation
above) will pay GST on the full value for the first 27 days of continuous accommodation by long-term
customers. They then either input tax or pay GST on 50 per cent of the accommodation charge from the
28th day for the remainder of the stay.
Simplified Calculations for Caravan Park Operators –The ATO has developed simplified rules for
apportioning input tax credits for caravan park operators who provide both short term and long term
accommodation and choose to input tax supplies of their long-term accommodation. A park operator who
has chosen to input tax their long-term accommodation can work out GST input tax credits on expenses
they would otherwise have to apportion. The calculation would be as follows:
 Identify the GST paid on operational (non-capital) expenses which would normally have to be
apportioned (A);
 Identify the total income from long-term accommodation and multiply it by 1.75% (B);
 (A) minus (B) equals the amount of input tax credits that can be claimed.
9.11.17 Insurance
Insurance companies must be informed of an entity’s input tax credit entitlement. For registered entities,
in most cases, this entitlement will be 100%. The percentage will vary for entities that make input taxed
supplies. For unregistered entities the percentage will always be 0%. Similarly, the process of paying
insurance claims varies depending upon whether the entity is entitled to an input tax credit or not.
Information for Businesses about Settlement Payments

Generally, there is no GST liability for the insured party relating to the payment of settlements where a
claim has been made. However, the insurer will need to know the extent of input tax credit entitlement on
the premium for each entity who takes out an insurance policy. Insurers need this information to
determine the premium to charge for the policy. The reason for this is that the insurer’s GST liability
depends on the input tax credit entitlement of the insured.
If the insurer is not correctly informed by the insured, of the extent of their input tax credit entitlement,
the insured will have a GST liability on a settlement. That insured entity will have a GST liability because it
did not inform the insurer of its credit entitlement.
Insurance and Court Settlements

In some circumstances when there is a court ordered settlement there will be a different treatment, for
GST purposes, than if the settlement had been reached without the intervention of the court. If there is a
judgment or order of the court in relation to an insurance claim, the outcome for GST purposes must be
the same as if the settlement had been made without the intervention of the court.
Court orders and out of court settlements

Compensation or damages resulting from a court order or out of court settlement are specifically included
in the definition of consideration, for example, where a payment of money and a right to use a certain logo
is awarded; both the payment of money and right to use of the logo will be consideration. The GST liability
in relation to the consideration depends on the underlying supply to which the court order or out of court
settlement relates. Where the subject of the claim for damages or compensation was a GST-free or input
taxed supply, the consideration will not be subject to GST. Where the subject of the claim for damages or
compensation was a taxable supply, the consideration will be subject to GST. If the claim relates to an
enterprise carried on by a registered entity, the entity will be entitled to an input tax credit for the GST
included in the consideration received.
9.11.18 Reimbursements & Disbursements
Agents and Disbursements

Agents may incur expenses in relation to a client, both as an agent of the client and as a principal. For
example, even though agreements between solicitors and clients may not use the term agent or agency, it
is clear that the clients have authorised the solicitors to act on their behalf in the particular matter.
Therefore when the supplier (in this case the solicitor) acts as an agent for the client, the general law of
agency applies. The solicitor is ‘standing in the shoes’ of the client. This type of relationship occurs in
several industries and across many professions such as architecture, engineering and the like. The general
rule is that if a disbursement is made by a supplier and incurred in the supplier’s capacity as a paying agent
for a particular client, then no GST is payable by the supplier on the subsequent reimbursement by the
client. However, if goods or services are supplied to the supplier to enable the supplier to perform services
for the client, GST is payable by the supplier on any reimbursement by the client of expenses incurred on
those goods or services, whether the reimbursement is separately itemised or included as part of the
supplier’s overall fee.
Example: A law firm acting for a client charges the client costs incurred in providing a legal service and
receives a fee for its professional services. The firm acts as a paying agent for the client with respect to the
outgoings which the client is legally obligated to pay (such as payment of land taxes and court costs). For
these costs, no GST will be charged on disbursement/reimbursement. However, an agency relationship
generally does not apply to those circumstances where the law firm provides a legal service for the client,
pays for taxable supplies on its own behalf and then charges the client for those expenses (such as
photocopying and telephone calls).
More information is available by referring to ruling GSTR 2000/37 – Goods and services tax: agency
relationships and the application of the GST law. This ruling also has an Addendum GSTR 2000/37A and an
Erratum GSTR 2000/37ER.
Is the Can the contractor acting How is the expense Example of Invoice where …
contractor… on behalf of client claim treated in the invoice to Contractor has taxable supplies of
GST credit for the client? $1,100 (GST incl)
expense?
Disbursements/reimbursements of
$550 (GST incl)
Acting as an No Will need to include the Invoice
agent (It is not really the GST inclusive amount of Contractor Services $1,000
contractor’s expense as the the expense in the invoice,
however, as it is not + GST on services $100
clients would have had to
pay this expense regardless regarded as consideration + Reimbursement $550
of whether the agent for the supply provided by Total = 1650
incurred this expense on the contractor no further
Net income of GST for the Agent =
their behalf). GST is added
1,000 + 550 = $1,550
Acting as a Yes The GST exclusive value Invoice

principal of the expense is to be Contractor Services $1,000
included in the invoice
however the expense is Reimbursement $500
effectively part of the Total 1500
consideration of taxable Plus GST 150
supply by contractor
TOTAL = 1650
therefore GST added in the
invoice. Net income of GST for the Principal =
1,000 + 500 = $1,500
Keep in mind that while the above totals for the tax invoices are the same for both the agent and the
principal situation it is important to note that the GST treatment is different. In the case of the agent, the
agent will not be able to claim a GST credit in relation to the expense. The client of the agent will however
be able to claim that GST where they have a valid tax invoice on file. In the case of the principal, they will
be entitled to the GST credit in relation to the expense. Note –there is no legislation that exists that deals
with reimbursements. Essentially reimbursement arrangements are commercial arrangements between a
principal and an agent.
Employers and Reimbursements

Employers are considered to make a genuine reimbursement when they compensate an employee an
exact amount for a specific purchase. If the employee is reimbursed for a proportion of a purchase it may
also be considered a reimbursement. Employers, however, cannot claim an input tax credit where they pay
the employee an allowance as they will not hold the Tax Invoice for the expense incurred. Similarly, no
input tax credit is allowable for reimbursement of an employee’s car expenses on a cents per kilometre
basis. Employers who are registered for GST can claim an input tax credit for reimbursed employee
expenses if all of the following requirements are met:
 their employee incurred the expense in activities directly related to their employment;
 GST was payable when the employee incurred the expense;
 the employee is not entitled to an input tax credit for the expense for which they are being
reimbursed; and
 the expense is not listed as a non-deductible expense.
The input tax credit can be claimed in the next BAS lodged after the employee provides a tax invoice for
the reimbursed expense.
9.11.19 Issues for Charitable and Non-profit Organisations
Organisations are charitable if they are conducted on a not-for-profit basis and are established to benefit
the community, or some section of it, through:
 the relief of poverty or sickness;
 the needs of the young or the aged;
 the advancement of education;
 the advancement of religion; or
 other purposes beneficial to the community.
If you are unsure whether your organisation is a charity contact the Business Infoline on 13 28 66.
Charities must obtain an ABN to be endorsed - If a charity is not endorsed it will lose any current gift
deductibility and income tax exempt status. Charities and other non-profit organisations need to obtain an
Australian Business Number before they can apply for endorsement as a deductible recipient and/or an
income tax exempt charity.
Supplies of Goods & Services - While most supplies of goods and services by businesses are subject to GST,
some supplies made by charitable institutions, trustees of charitable funds and gift-deductible entities will
be GST-free. Non-commercial activities of charities will be GST-free if the consideration is less than 50 per
cent of the GST-inclusive market value or less than 75 per cent of the cost of supply. Example: A charity
sells donated craft goods (baby booties) for $2. The GST-inclusive market value of the booties is $6 if sold
by a business. As the booties are sold for less than 50 per cent of the market value, that is, less than $3, the
sale will be GST-free. Example: A charity sells a newsletter for $1.50. The cost of producing the newsletter
is $3. As the newsletter is sold for less than 75 per cent of the cost of the supply the sale will be GST-free.
Disposal of a motor vehicle - Where a charitable institution, a trustee of a charitable fund, a gift-
deductible entity or a government school and dispose of a motor vehicle, the disposal will be GST-free if
the payment received is:
 less than 50% of the GST-inclusive market value of the motor vehicle, or
 less than 75% of the amount paid to purchase the vehicle being sold (this is generally the original cost
of the vehicle).
Accommodation - Charities and religious or non-profit organisations may provide different types of
accommodation such as:
 shelters provided without charge;
 short term emergency accommodation;
 residential care accommodation; and
 long-term residential accommodation.
Accommodation supplies may be taxable, GST-free or input taxed. Accommodation provided by charities
charged at less than 75 per cent of the market value or the cost of supply will be GST-free. Example: A GST-
registered charity supplies community housing for $120 a night. The market value of this supply is $200 a
night. Since the supply of accommodation is made by the charity for less than 75 per cent of its market
value, it will be GST-free. The supply is GST-free, therefore the charity will not include GST in the price
charged for the accommodation. The charity will be entitled to an input tax credit for the GST paid on its
inputs. Example: To supply this housing, the charity purchases a computer and other supplies (including
office rental, telephone and power costs) totalling $11,000, including $1,000 GST. The charity can claim
input tax credits for the $1,000 GST included in the price of its purchases related to the supply.
Donations - A donation in the form of a payment, in cash or in kind, that is made unconditionally, is not
subject to GST because no benefits or rights flow as a result of the payment and the recipient does not
have to use the donation for a particular purpose. Unconditional grants and unconditional sponsorships
are also not subject to GST for similar reasons. Example: A religious institution collects $150 through the
collection plate. The collection of $150 is a donation and is not subject to GST. Example: Susan is a florist.
She donates to a charity the flowers she was unable to sell at the end of the day’s trading. As this is a
donation it is not subject to GST. Susan is entitled to an input tax credit for GST included in the price paid
to the grower, even though some of the flowers were donated.
Gifts - A gift made to a non-profit organisation is not consideration for a sale and is not subject to GST. The
value of a gift is also excluded when calculating the organisation’s turnover. For a payment to be
considered a gift it must be made voluntarily and the payer cannot receive a material benefit in return. A
payment is not voluntary when there is an obligation to make the payment or the non-profit organisation
is contractually obliged to use the payment in a specific way. A benefit is not a material benefit if it is an
item of insubstantial value that cannot be put to a use or is not marketable, such as a pin or a ribbon. An
item of greater value, such as a ticket to a dinner, or an item that has a use or function, such as a pen or a
book, is a material benefit.
Sponsorship - Under a sponsorship arrangement, when an organisation undertakes a fundraising activity it
often receives support in the form of money. In return, it may provide such things as advertising, signage
or naming rights or some other type of benefit of value. This means that the sponsor receives something of
value in return for the sponsorship, so the sponsorship payment is not a gift. If the organisation is
registered for GST, it has to pay GST on the sponsorship it receives. A contra sponsorship arrangement
occurs when goods or services (not money) are provided in return for other goods or services. If both
parties are registered for GST they will be making taxable sales to one another. Each will have a GST
liability for the sale they have made, and an entitlement to a GST credit for their respective purchases.
Each party must report amounts for both the sale and the purchase on their respective activity statements.
Grants - When a grant is paid to your organisation for a specific purpose or with any conditions, GST is
payable on the grant if you are registered for GST. If there is no obligation tied to the grant and no other
supply to be provided by your organisation, GST will not be payable. Where GST is payable, the amount
payable is 1/11th of the grant. The entity making the grant (the grantor) is entitled to an input tax credit
equal to 1/11th of the grant amount. You will need to give them a tax invoice. Example: A local GST
registered charity receives a grant of $4,400 from the local council to provide a counselling service for
youth. As the charity is registered for GST and the grant is for a specific purpose, it must pay 1/11th of the
grant, that is $400 to the Tax Office, and the local council can claim $400 as an input tax credit. Where your
organisation is not registered for GST, no GST is payable and the grantor is not entitled to an input tax
credit. The Government has decided that where Commonwealth Government Departments provide grants
to GST registered charities, the grant will be grossed up by 10 per cent.
Fundraising - GST will generally be payable on fundraising activities by registered entities including
charities. Each fundraising activity needs to be assessed individually. Activities such as fetes, lamington or
pie drives, cake stalls, and fundraising dinners conducted by a GST registered charity can use the flexible
registration arrangements so that GST is not applied to sales at these events. In addition, most charitable
organisations with income tax exemption will also be able to arrange such activities so that no GST will be
charged on sales. Raffles and Bingo conducted by charities are GST-free.
Reimbursing volunteers - When a volunteer incurs expenses while carrying out the organisation’s
activities, and is reimbursed by the organisation, the organisation can only claim an input tax credit for the
reimbursement if it is a charitable institution, a trustee of a charitable fund, a gift-deductible entity or a
government school. To enable the organisation to claim the input tax credit, the volunteer will need to
provide the organisation with the tax invoice for the acquisition they have made. Other types of
organisations will have no entitlement to claim the input tax credits when reimbursing volunteers for
expenses they incur in carrying out their activities as volunteers.
Claiming GST credits on volunteer reimbursements - When a not-for-profit organisation provides
entertainment to its volunteers, it generally cannot claim a GST credit in relation to the GST included in the
cost of the entertainment. For more information on what GST credits can be claimed on reimbursements
to volunteers, access the link below:
https://www.ato.gov.au/Non-profit/Your-workers/Volunteers/Volunteers-and-GST/Claiming-GST-credits-
on-purchases-for-volunteers/
10 REPORTING GST ON THE BUSINESS ACTIVITY STATEMENT
(BAS)
Businesses make their payments and report their tax obligations on a single compliance statement. They
will either complete a Business Activity Statement (BAS) or an Instalment Activity Statement (IAS).
10.1 Instalment Activity Statement (IAS)

An IAS is forwarded to individuals and other entities that are not registered for GST. Although these
entities do not have GST obligations they may still be required to remit amounts to the Tax Office for PAYG
Withholding, PAYG Instalments, or FBT Instalment obligations.
10.2 Business Activity Statement (BAS)

The BAS is a means of reporting the following obligations, including:
 Goods and Services Tax (GST);
 Pay As You Go (PAYG) withholding;
 Pay As You Go (PAYG) instalments;
 Fringe Benefits Tax (FBT) instalments;
 Luxury Car Tax; and
 Wine Equalisation Tax.
The BAS is personalised in parts, with each activity statement containing a unique document identification
number. The Tax Office pre-print information on the BAS which informs businesses of when the BAS must
be lodged and the period covered for each obligation. After completing the BAS, a business will have
supplied the Tax Office with all relative information regarding the above taxes. On completion, a single
payment will be made or a refund will be received for the period to which the BAS relates.
10.3 Due Dates

Payment and lodgement of the BAS is 21 days following the end of the reporting period for monthly payers
(turnover $20 million or more) and 28 days following the end of the reporting period for quarterly payers
(turnover less than $20 million). The dates are pre-printed in the top right hand corner of the BAS. The due
dates are as follows:
Monthly BAS / IAS Quarterly BAS / IAS

Reporting Period Due date for lodgement & Reporting Period Due date for lodgement &
payment payment
1-31 July 21 August 1 January - 31 March 28 April
1-31 August 21 September 1 April - 30 June 28 July
1-30 September 21 October 1 July - 30 September 28 October
1-31 October 21 November 1 October - 31 December 28 February
1-30 November 21 December
1-31 December 21 January
1-31 January 21 February
1-28 February 21 March
1-31 March 21 April
1-30 April 21 May
1-31 May 21 June
1-30 June 21 July
Page 354 Section 10 — Reporting GST on the Business Activity Statement (BAS) Taxation Seminar
10.3.1 Extensions for Lodging Quarterly BAS
Where certain conditions are met, businesses can receive an extension of time to lodge their quarterly BAS
(except in the December quarter). The extensions are as follows:
 Lodgment via the tax portal by a tax agent or BAS agent – 4 week extension
 Lodgment via ECI by a tax agent or BAS agent – 4 week extension
 Lodgment via business portal for businesses – 2 week extension
Proposed - reduced BAS lodgements for small and medium business

The Government has announced that from 1 July 2014 businesses with an annual GST turnover under
$20m will be allowed to lodge their Business Activity Statements (BAS) once a year instead of quarterly.
They will pay quarterly instalments of estimated GST (or twice a year for primary producers), with an
annual reconciliation at year end. This change will reduce the burden of reporting GST on small and
medium businesses by reducing the number of times they will have to lodge GST returns in a year.
10.3.2 Methods of lodging
Paper lodgement
The BAS, in paper form, must be completed using a black pen. Alternatively, a typewriter or printer can be
used. If a mistake is made whilst completing the form, the use of white-out is acceptable, tape white-out is
preferred to the type applied with a brush.
Electronic lodgement
Businesses can lodge and revise most types of activity statements through the Business Portal and receive
instant confirmation by receipt that the activity statement has been lodged. They can also view, print and
list previously lodged statements.
For electronic lodgement businesses need:

 an Australian business number (ABN)
 an Auskey
Once activity statements are lodged online, the Tax Office will no longer post activity statements. All future
activity statements can be accessed via the Business Portal. Businesses receive notification by email of
when activity statements are available to access and complete online
If a business opts for electronic lodgement of their BAS, they will receive the relevant information about
electronic lodgement procedures from the Tax Office. Businesses requiring assistance should contact the
Tax Office on 1300 139 373 or refer to the back of this section about obtaining an Auskey.
BAS electronic lodging and payment from 1 Sept 2014

From 1 September 2014, businesses with a GST turnover of $20 million or more are required to lodge their
BAS electronically and pay their tax debts electronically. Where businesses do not lodge or pay
electronically, they can be subject to a penalty, which is currently $850 per event.
10.3.3 Annual Reporting

An entity is eligible to report GST annually if:
 it is projected annual turnover for GST is less than the registration turnover threshold, i.e. $75,000 for
businesses, or $150,000 for non-profit bodies;
 it is not required to register for GST (or it has voluntarily registered for GST); and
 it has not elected to pay GST by instalments advised by the Tax Office.
If the entity is required to register for GST, it cannot report GST annually; even if its annual turnover is less
than the registration turnover threshold.
Taxation Seminar Section 10 — Reporting GST on the Business Activity Statement (BAS) Page 355
10.3.4 Lodgement and Payment
If the due date for lodgement and/or payment of the BAS falls on a weekend or public holiday, the BAS
payment can be received by close of business on the next working day.
10.3.5 Penalties for late lodgement of Business Activity Statements (BAS’s)

Any document that is not lodged on time may have a penalty notice issued automatically. This failure to
lodge on time (FTL) penalty will be calculated as follows:
 small entities are liable to a penalty of $170 for every 28 days, or part thereof, that lodgment is
overdue;
 medium entities are liable to a penalty of $340 for every 28 days, or part thereof, that lodgment is
overdue; and
 large entities are liable to a penalty of $850 for every 28 days, or part thereof, that lodgment is
overdue.
The maximum penalty that can be imposed is for five periods.
10.3.6 End of Tax Period May Vary

An entity may change the day on which its tax period ends if this is consistent with its commercial
accounting periods. For GST purposes, the end of the tax period is the last day of the month. This may not
be the case for some businesses. For this reason, the day on which a particular entity’s tax period ends can
be altered to occur up to 7 days earlier or 7 days later than the official day.
If an entity adopts a different day, the due date for submitting a GST return will not be deferred by a
month. For example, if the new end date for the tax period is during the first 7 days of a month, the due
date for the return for a large payer will still be the 21st day of that month, and not the month following.
Concluding Tax Periods

If the entity ceases to carry on an enterprise, then the entity’s concluding tax period finishes at the end of
the day on the day the entity ceases that enterprise. An entity also has a concluding tax period in the
event of death, bankruptcy, liquidation or receivership. The concluding tax period ceases on the day
ending the day of the death, bankruptcy, liquidation or receivership.
10.3.7 Simpler BAS for small businesses

The ATO will be testing a simpler BAS for small businesses from 1 July 2016 with a view to making it
available for all small businesses from 1 July 2017.
Under the simpler BAS, small businesses with a turnover of less than $10m will only be required to report
GST on sales, GST on purchases and total sales. Information will no longer be required on labels (G2)
export sales, (G3) GST-free sales, (G10) capital purchases and (G11) non-capital purchases.
10.4 Individuals must be registered to provide BAS Services
The following table includes a non-exhaustive list of the types of services which, if provided for a fee or
reward, may or may not constitute a BAS service.
Service BAS service Not a tax agent service

or BAS service
Installing computer accounting software without X
determining default GST and other codes tailored to
the client
Installing computer accounting software and X
determining default GST and other codes tailored to
the client
Reconciling BAS provision data entry to ascertain X
the figures to be included on a client’s activity
statement
Filling in activity statements on behalf of an entity or X
instructing the entity which figures to include
Coding transactions, particularly in circumstances X
where it requires the interpretation or application of
a BAS provision
Coding tax invoices and transferring data onto a X
computer program for clients under the instruction
and supervision of a registered BAS agent
General training in relation to the use of X
computerised accounting software, not related to
particular fact situations
Preparing bank reconciliations X
Entering data X
Ascertaining the withholding obligations for X
employees’ of your clients, including the preparation
of payment summaries.
Superannuation guarantee payroll services for X
contractors and determining and reporting the super
guarantee shortfall amount and any associated
administrative fees
Dealing with super payments made through a X
clearing house
Completing and lodging the Taxable payments X
annual report to the ATO on behalf of a client and
sending a tax file number declaration to the
Commissioner on behalf of a client
Applying to the Registrar for an Australian Business X
Number (ABN) on behalf of a client
Individuals must be a registered tax agent or BAS agent to be able to provide business activity statement
(BAS) services for a fee or other reward. Information about the requirements, including how to register as
a BAS agent, can be found at the following link on the Tax Practitioners Board’s website –
http://www.tpb.gov.au/TPB/Registering/About_registration/TPB/Register/0318_About_registration.aspx
Other services that could reasonably be provided by BAS agents that do not fall within the definition of
BAS provision include (but not limited to)
 superannuation guarantee and superannuation guarantee charge services
 superannuation contribution payment and reporting services
 taxable payments reporting.
The TPB has now commenced the process of preparing a legislative instrument to have these services
declared as BAS services.
10.4.1 Who needs to register as a BAS agent?
IMPORTANT: Only those entities providing BAS services for a fee need to register. This means that people
providing BAS services for their employer (and are paid a wage for their services) do not need to register.
Both tax and BAS agents will be governed by a legislated code of professional conduct with wider and
more flexible sanctions for breaching the code.
10.4.2 BAS and Tax Agents need to complete Annual Declaration with the Tax
Practitioners Board (TPB)
From 2016, if you are a registered Tax or BAS agent you need to complete an Annual Declaration with the
Tax Practitioners Board (TPB). The declaration will show you are meeting your registration requirements.
These include:
 maintaining professional indemnity insurance
 continuing professional education
 meeting personal tax obligations
 satisfying fit and proper requirements
 advising of any changes in registration details or circumstances.
You must complete your annual declaration with the TPB each year, other than in the year you need to
renew your registration. The TPB will send you a reminder email 45 days before your declaration is due.
The declaration is a simple form that replaces the professional indemnity insurance notification form. For
more information, refer to the Annual declaration page on the TPB website at:
http://www.tpb.gov.au/TPB/Obligations/Annual_declaration/TPB/Obligations/0680_Annual_declaration.a
spx
Continuing professional education

A key part of the Code of Professional Conduct (Code) is for tax and BAS agents to maintain their
knowledge and skills relevant to the tax agent and BAS services they provide. Completing continuing
professional education (CPE) in accordance with our CPE policy is one of the factors which will
demonstrate compliance with this obligation under the Code.
On 30 June 2013, CPE became a requirement for renewal of your registration. This means that when
renewing registration, registered agents must demonstrate that they have completed CPE that meets our
requirements. Registered agents should maintain a record of the CPE activities.
Your training counts toward your CPE hours

Australia Wide Taxation and Payroll Training courses qualify toward your CPE hours. The CPE requirements
for BAS agents are 45 hours over a 3 year period. Find out more at
http://www.tpb.gov.au/TPB/Qualifications_and_experience/0286_CPE_activities.aspx
10.5 Accounting for GST

Businesses using option 1 (calculating and reporting GST quarterly, or monthly for large payers) can use
either their own account information (Accounts Method) or the pre-printed Tax Office ‘calculation sheet’
(Calculation Sheet Method) as a way of determining their GST liability. Option 2 and 3 users may also use
either of these methods to assist in completing their annual report.
10.5.1 Accounts method

Businesses can use this method if they separately record the GST component of their sales and purchases.
Generally, businesses using the accounts method, take information to complete GST on sales (box 1A on
the BAS) and GST on purchases (box 1B on the BAS) straight from their accounts.
Who can use the Accounts Method
A business may choose to use this option for reporting GST if it has sufficient record keeping and
accounting systems. For smaller businesses this could be achieved by having a GST column in a cash book
or on a spreadsheet. A business’ accounting system should meet the following requirements:
 or each transaction involving a taxable sale - the amount of GST payable must be recorded
 For each transaction involving a creditable purchase or creditable importation - the amount of input
tax credit to which the business is entitled must be recorded.
10.5.2 Interactive GST Calculation Sheet (to be completed online)

A business may use the Tax Office’s interactive GST calculation sheet online to complete all the relevant
GST items on the BAS. The business completes the calculation boxes from G1 to G9 to work out its GST
payable and completes the boxes from G10 to G20 to work out its total input tax credits. The calculation
sheet can be accessed online at
https://www.ato.gov.au/Calculators-and-tools/GST-for-BAS/
10.6 BAS Reporting Options for GST (Not including Annual Reporting)
There are three options for reporting GST on the Business Activity Statement (BAS). All options are equally
acceptable to the Tax Office. However, the option used will depend on the business’s turnover. The table
below illustrates which option can be used. Large payers (turnover $20 million or more) must use option 1.
Which option?
OPTION 1 OPTION 2 OPTION 3
Pay GST & report quarterly Pay GST quarterly & Pay ATO’s GST instalment
(monthly for large payers) report annually quarterly & report annually
Turnover
• less than $2 million   
• between $2m & $20m   x
• $20 million or more  x x
Annual Return/Report x  
Calculates own GST   x
Fields to be completed on each 5 fields 1 field None – stated only on
BAS annual report
Regardless of which option

is chosen, businesses must
keep the tax invoices (or
other documents for low-
value items) to support
their claims.
10.6.1 Option 1 —
Pay GST
Quarterly &
Report
Quarterly
(monthly for
large payers)
Large payers (i.e. turnover
of $20 million or more)
must use this option.
Detailed information
regarding which amounts
should and should not be
included at the labels on
the BAS will be covered
shortly.
Completing the GST Section

on the front of the BAS
Entities who choose this
option are required to
complete up to 5 boxes
(where applicable) in the
GST section on the front of
the BAS. They are:
G1 Total sales – This is where all the payments the business received during the relevant tax period
are recorded. This will include all the payments received for supplies that have been made in the
course of conducting the business. This means that amounts received from your business activities,
such as amounts received for sales, fees and charges for services, commissions, fares, royalties and
so on are included. Directly under G1, entities are asked to indicate whether the amount stated is
inclusive of GST or exclusive of GST.
G2 Export sales – This field should only be completed if the business has made export sales. The total
value of all export sales is recorded here.
G3 Other GST free sales – This field should only be completed if the business has made GST free
supplies, other than export sales. The total value of all GST free supplies is recorded here.
G10 Capital purchases – This field is completed if the business has purchased inputs that are capital in
nature, for use in the business. This includes capital importations. Include amounts for acquisitions
and importations that are recorded as capital in the accounts.
G11 Non-capital purchases – Acquisitions made for business use, other than capital items, are recorded
here. For most businesses, the majority of their business expenses will be shown at G11. The
amounts included may be payments for goods, services or anything else for use in the business.
Completing the summary section on the back of the BAS

For GST purposes, the summary section on the back of the BAS must be completed. The two labels relating
to GST are:
1A Goods and Services Tax Payable – This is the business’ total GST liability. The figure recorded at 1A
is equal to: Total sales (G1) minus Export sales (G2), Other GST-free sales (G3) and Input taxed
sales; the total amount remaining is divided by 11.
1B Credit for goods and services tax paid – This is the business’ total entitlement to input tax credits.
The figure recorded at 1B is equal to:
Capital purchases (G10) plus Non-capital purchases (G11) minus Purchases for making input tax
sales, GST-free purchases and Private use purchases;
The total amount remaining is divided by 11.
Determining amount owed or refundable

8A By adding the amounts shown at 1A, 1C, 1E, 4, 5A, 6A and 7 the total of tax liability of the business
is determined.
8B By adding the amounts at 1B, 1D, 1F, 5B & 6B, the total of the business’ tax credit entitlement is
determined.
9 By deducting the amount at 8B from the amount at 8A the total payable to the Tax Office or
refundable from the Tax Office is determined.
10.6.2 Option 2 — Pay GST Quarterly & Report Annually
This option can be used by any entity with a turnover of less than $20 million. Entities using this option are
required to complete an annual report for GST.
Completing the GST Section on the front of the BAS

For GST purposes, entities that choose option 2 are required to complete only 1 box on the front of the
BAS each quarter. That is:
G1 Total sales – This
is where all the payments
the business received
during the relevant tax
period are recorded. This
will include all the
payments received for
supplies that have been
made in the course of
conducting the business.
This means that amounts
received from your
business activities, such
as amounts received for
sales, fees and charges
for services, commissions,
fares, royalties and so on
are included. Directly
under G1, entities are
asked to indicate whether
the amount stated is
inclusive of GST or
exclusive of GST.
Completing the summary

section on the back of the
BAS
For option 2, the
summary section on the
back of the BAS is
completed as per option
1.
Annual Reporting
Requirement
Entities that choose option 2 are required to complete an annual report which contains 4 boxes. GST
information from the previous financial year will be recorded on the annual report. The information
required relates to:
nature, for use in the business. This includes capital importations. Include amounts for acquisitions
and importations that are recorded as capital in the accounts.
Reports will need to be lodged by 28 February. For example, the 2016/17 report will have to be lodged by
28 February 2018. Information regarding which amounts should and should not be included at the labels
on the annual report, can be found on further on
10.6.3 Option 3 Pay Tax Office GST instalment Quarterly & Report Annually
Businesses with a turnover of less than $2 million have the option of paying quarterly GST instalments
adjusted by a GDP factor. Entities using this option are required to complete an annual return for GST. An
instalment amount is pre-printed on the quarterly BAS. Businesses are not obliged to use the pre-printed
instalment amount;
instead they can use
option 1 or option 2.
New businesses are
required to report
using option 1 for at
least two full quarters
to become eligible to
choose option 3.
Note: Businesses using

option 3 will only be
able to get a refund of
any overpayments
following the
lodgement of their
annual report.
Completing the GST

Section on the front of
the BAS
Entities that choose
option 3 are only
required to transfer
the pre-printed
instalment amount
shown at G21 on to
label 1A on the back of
the BAS.
Varying the pre-printed

ATO Instalment
Amount
Entities whose
circumstances have
changed may wish to
vary the pre-printed
amount shown at label G21. In this case, boxes G22, G23 and G24 will also need to be completed.
G22 Estimated net GST for the year – This field should only be completed if the business is varying the
pre-printed ATO Instalment Amount. The amount recorded here will be the estimated net GST for
the current financial year.
G23 Varied amount for the quarter – The new instalment amount is shown here. Note: If the varied
instalment amount results in the entity paying less than 85% of their actual GST liability for the
financial year, a penalty will apply. Entities who pay the GST instalment amount advised by the Tax
Office will incur no penalty or interest charge under any circumstances.
G24 Reason code for variation – Entities who vary their instalment amount will need to record a
variation code. These are available from the Tax Office.
Completing the summary section on the back of the BAS
Entities using option 3 are only required to transfer their pre-printed ATO instalment amount (G21) or their
varied instalment amount (G23) to 1A (GST Instalment). Option 3 users are not required to complete label
1B (GST on purchases).
Determining amount owed or refundable

8A By adding the amounts
shown at 1A, 4, 5A, 6A
and 7 the total of tax
liability of the business
is determined.
8B By adding the amounts
at 5B & 6B, the total of
the business’ tax credit
entitlement is
determined.
9 By deducting the
amount at 8B from the
amount at 8A the total
payable to the Tax
Office, or refundable
from the Tax Office, is
determined.
Annual Reporting Requirement

In addition to the quarterly BAS,
there is an annual information
report comprising of 5 boxes.
They are:
G1 Total sales – This is

where all the payments
the business received
during the relevant tax
period are recorded.
This will include all the
payments received for
supplies that have been
made in the course of
conducting the
business. This means that amounts received from your business activities, such as amounts
received for sales, fees and charges for services, commissions, fares, royalties and so on are
included. Directly under G1, entities are asked to indicate whether the amount stated is inclusive
of GST or exclusive of GST.
nature, for use in the business. This includes capital importations. Include here amounts for
acquisitions and importations that are recorded as capital in the accounts.
Completing the summary section on the back of the Annual Report
Detailed information, regarding which amounts should and should not be included at the labels stated on
the annual return, can be found further on.
10.7 Specific Issues
10.7.1 Nothing to Report or not Trading

If you do not have any obligations or entitlements to report on an activity statement for a particular
reporting period, leave all items blank. However, if an instalment rate is pre-printed at G21 (ATO
Instalment amount), than 1A (GST on sales) must be completed. If there is no instalment amount for the
period, write 0 at label 1A. The activity statement must still be signed and dated and returned to the Tax
Office. This applies to any pre-printed amount including those shown under PAYG instalments and fringe
benefits tax.
10.7.2 Correcting GST Errors

Where a GST error has been made on an earlier activity statement, this can be corrected on a later activity
statement.
There are two types of GST errors - a credit error (where a business has reported or paid too much GST) or
debit error (where a business has reported or paid too little GST).
Examples of credits errors are:

 reporting a GST sale twice
 overstating the GST on sales (for example, reporting the GST on sales as $10,800 rather than the
correct amount of $10,000)
 under-claiming a GST credit for purchases
 omitting or understating a decreasing GST adjustment or overstating an increasing GST adjustment.
Examples of debit errors are:

 failing to include GST on a taxable sale
 understating the GST on sales (for example, reporting the GST on sales as $1,000 rather than the
correct amount of $10,000)
 overstating GST credits (for example, claiming GST credits for a purchase twice)
 omitting or understating an increasing GST adjustment or overstating a decreasing GST adjustment.
Correcting an error on a later activity statement

For an error to be corrected on a later Activity statement, certain conditions must be met. These
conditions are outlined below:
 The business is not subject to a compliance activity (i.e. ATO is currently examining the businesses GST
affairs)
 The GST error has not been corrected in another reporting period
 The error was not as a result of recklessness or intentional disregard of a GST law
In addition to the above, the follow must also be met for each type of error
 For credit error

− The error is within the credit error time limit (4 years from the date the activity statement was
assessed).
 For a debit error
− the debit error is within the debit error time limit (see below)
− the debit error or net sum of the debit errors is within the debit error value limit (see below).
GST turnover Debit error value limit Debit Error Time Limit
Less than $20 million Less than $10,000 Corrected within 18 months of the due date of the activity
statement in which the error was made.
$20m to less than $100m Less than $20,000 Corrected within 12 months of the due date of the activity
$100m to less than $500m Less than $40,000 Corrected within 12 months of the due date of the activity
$500m to less than $1b Less than $80,000 Corrected within 12 months of the due date of the activity
$1b and over Less than $450,000 Corrected within 12 months of the due date of the activity
How to make corrections on a later activity statement

If using the accounts method, add or subtract the correction amount (the total overstated/understated
GST amount, GST credit or GST adjustment) at boxes 1A or 1B. The corrections will need to be reflected in
boxes G1, G2, G3, G10 or G11 as appropriate.
If using the calculation sheet method, add or subtract the GST inclusive amount of the correction at the
appropriate box on the calculation worksheet. If the correction relates to a GST adjustment, multiply the
adjustment by 11 and include the amount in G7 if it is an increasing GST adjustment or G18 if it is a
decreasing GST adjustment.
Revising the original activity statement

Where the mistake does not meet the above conditions then the Activity Statement that the error was
originally included in will need to be revised. You can find out how to revise an original Activity Statement
online at
https://www.ato.gov.au/General/Correct-a-mistake-or-amend-a-return/Correct-an-instalment-or-
business-activity-statement/Revising-an-earlier-activity-statement/#OnlineRevision
or by contacting the ATO on 13 28 66.
10.7.3 Zero amounts can be reported via telephone

Entities with a zero amount to report on their BAS/IAS can lodge activity statements via an automated
phone service. This will usually apply to businesses that are generally seasonal, intermittent or have had no
staff or turnover activity in the period.
Those wishing to use the service should call 13 72 26 and have their BAS/IAS on hand and be ready to
quote their Australian Business Number (ABN) or Tax File Number (TFN), and the document identification
number from their BAS/IAS.
Reducing net value to the limit

A business only needs to revise sufficient original activity statements to bring the net value of their
remaining mistakes below the limit. At that point, if the mistakes are within the time limit, the business
can make the remaining corrections on their current activity statement.
10.7.4 Electronic lodgement and payment requirement for businesses with $20 million
or more GST turnover
Businesses with a GST turnover that meets or exceeds the electronic lodgement turnover threshold of
$20 million are legislatively required to:
 lodge their business activity statements electronically and
 pay their tax debts electronically.
The ATO have been contacting businesses (and their tax practitioners) to notify them of their obligations
and support their move to electronic lodgement and payment. Where electronic lodgement and/or
payment does not occur businesses can be subject to a penalty. These penalties are currently 5 penalty
units each, equivalent to $850 per event.
10.7.5 Claiming GST credits for hire purchases on the BAS
If you account for GST on a non-cash (accruals) basis

Where an entity acquires an asset under a hire-purchase agreement, the entity can claim the full GST
credit on the hire purchase agreement in the tax periods when either:
 The first payment is made; or
 if before making the first payment, an invoice is issued to the entity.
If you account for GST on a cash basis

For hire purchase agreements, an entity may claim input tax credits upfront instead of waiting until each
instalment is paid, in the same way as an entity would if they are accounting for GST on a non cash basis.
All components of the supply made under a hire purchase agreement are subject to GST. One-eleventh of
all components can be claimed, including the credit component and any associated fees and charges which
have been subject to GST under the agreement.
10.7.6 The BAS & lease agreements
Entities operating on a cash basis – When an entity accounting on a cash basis leases an asset under a
lease agreement, each lease repayment should be accounted for at G11 in the period in which the
payment is made.
Entities operating on an accruals basis – When an entity accounting on an accruals basis leases an asset
under a lease agreement, each lease repayment should be accounted for at G11 in the period in which the
payment is due.
Special note about motor vehicle – Where a lease agreement involves a motor vehicle, repayments made
by the lessee under a lease agreement can be recorded on the BAS regardless of when the vehicle was
purchased.
10.7.7 BAS payment cards for taxi drivers

New business activity statement (BAS) payment cards are now sent to accredited taxi; hire car and
limousine drivers to allow drivers to make advance BAS payments. Advance payments can be made by
Billpay at the Post Office or by BPAY over the phone or internet. However, BASs will still have to be lodged.
10.7.8 BAS information for GST groups

Entities that are the representative member of a GST group, include on the BAS only amounts relating to
transactions made to (or from outside) the GST group. Do not include transactions between members of
the GST group. However, transactions between group members are included if:
 the member is a participant in a GST joint venture and acquired the thing supplied from the joint
venture operator, or
 the transaction is a taxable supply because it is a supply of other than goods or real property made
from offshore.
A member of a GST group that is not the representative member for the GST group does not include any
amounts on the BAS.
10.7.9 BAS information for GST Branches

Entities that are the parent entity of a registered GST branch do not include amounts on the BAS that
relate to transactions of the GST branches (except where it is a party to the transaction). It is the parent
entity’s responsibility to ensure that an activity statement is lodged for each of its GST branches. A parent
entity must still lodge an activity statement on its own behalf unless all of its enterprises are carried on
through the GST branches. GST branches include only amounts relating to their own transactions on the
BAS. Include amounts relating to transactions with the parent entity and with other GST branches of the
parent entity.
10.7.10 The Fuel Tax Credit Scheme

Fuel tax credits provide businesses with a credit for the fuel tax (excise or customs duty) included in the
price of fuel used for business activities in:
 machinery
 plant
 equipment
 heavy vehicles.
There may also be an entitlement to a fuel tax credit for non-transport gaseous fuels that have been
subject to the carbon pricing mechanism and used in specified agriculture, fishing or forestry activities.
Which fuels are eligible for the credit

Businesses can claim fuel tax credits for:
 liquid fuels – for example, diesel and petrol
 gaseous fuels – such as liquefied petroleum gas (LPG)
 blended fuels.
Generally, fuel tax credits can be claimed:
 for fuel on which excise or customs duty has been paid at the full rate *
 where another entity has not previously been entitled to a fuel tax credit for the fuel - for example, if
LPG has been supplied for non-transport use in containers of 210kg capacity or less, the LPG supplier is
entitled to claim the fuel tax credits.
* The exception to this rule is non-transport LPG, liquid natural gas (LNG) and compressed natural gas
(CNG) used in certain exempt activities.
Ineligible fuels
The only fuels that are not eligible are:
 aviation fuels (aviation gasoline and aviation kerosene) – unless you have been declared by the Clean
Energy Regulator as a designated opt-in person under the opt-in scheme
 fuels you use in light vehicles of 4.5 tonne gross vehicle mass (GVM) or less, travelling on a public road
 fuel you acquired but did not use because it was lost, stolen or otherwise disposed of
 some alternative fuels, such as ethanol or biodiesel, which have already received another grant or
subsidy.
Businesses must be registered for both GST before the fuel tax credits can be claimed. These are claimed
on the business activity statement (BAS).
Fuel tax credit rates

Fuel tax credit rates have increased for fuel acquired from 1 February 2016. Rates are indexed on
1 February and 1 August each year in line with the consumer price index. The new rates can be found on
the ATO site at:
https://www.ato.gov.au/Business/Fuel-schemes/Fuel-tax-credits---business/Eligibility/Eligible-fuels/
Fuel tax credit eligibility tool

The ATO have a decision tool that helps businesses work out if they can claim fuel tax credits for the fuel
used in business. It also provides the current fuel tax credit rates that can be claimed for the eligible fuel
used.
https://www.ato.gov.au/Calculators-and-tools/Fuel-tax-credit-eligibility-tool/
Fuel tax calculator or step by step instructions

If after using the eligibility tool you are eligible to claim fuel tax credits, this calculator tool will help you
calculate the amount you can claim
https://www.ato.gov.au/Calculators-and-tools/Fuel-tax-credit-calculator/
Or follow step by step instructions at:
https://www.ato.gov.au/Business/Fuel-schemes/Fuel-tax-credits---business/Working-out-your-fuel-tax-
credits/Steps-to-calculate-your-fuel-tax-credits/
Time limit for claiming GST and fuel credits

There is a time limit for claiming GST credits and fuel tax credits. Credits must be claimed within four years
from an activity statement’s lodgement due date for the tax period the credits are first attributable.
Tax periods from 1 July 2012 – If an activity statement is lodged outside of the four-year time limit,
entitlement to the GST credits will cease, but any GST payable will remain payable. To ensure entitlements
to GST credits and fuel tax credits don’t expire, credits must be claimed in an activity statement lodged
within the four-year time limit.
Tax periods before 1 July 2012 – For tax periods starting before 1 July 2012 the entitlement to a credit can
be preserved by notifying the ATO of an entitlement to a refund. This must be done within four years of
the end of the tax period to which the refund relates.
10.8 Payment Methods
10.8.1 Electronic Methods (Compulsory for large withholders of PAYG)
By direct credit
You can transfer your payment to the Tax Office online from your cheque or savings account.
Details you need:
Bank: Reserve Bank of Australia
BSB: 093 003 Account number: 316 385
Account name: ATO direct credit account
Reference: Your EFT code
Direct debit payments

This provides businesses with the option of having the tax they owe electronically debited from their
nominated financial institution account (savings or cheque accounts only). Businesses wishing to use this
method must enquire through a tax agent or accountant authorised to use the Electronic Lodgement
Service.
phone 1800 802 308
email eft-information@ato.gov.au
Biller Code 75556

Businesses can pay their tax liability by telephone or the internet through BPAY. Payers are required to
contact their financial institution to organise for the payment to be made from a nominated account
(savings or cheque accounts only). Participants in this method of payment, key Biller Code 75556 and their
EFT code as the customer reference number. The EFT code being the string of numbers located
immediately above the barcode on the payment advice form or provided in the internet-based electronic
commerce system. You will receive a receipt number for any payment made by BPAY. For more
information about BPAY payments, phone 1800 815 886 or email acmshelpdesk@ato.gov.au.
Credit Card payments

To pay by credit card, go to
Government EasyPay (https://www.optussmartpay.com/governmenteasypay-ato/),
or phone 1300 898 089 to use the self-help telephone service.
10.8.2 Other Payment Methods (not available to large withholders)
By mail
Mail your original, completed activity statement with your cheque using the pre-addressed envelope
provided. If you misplace the envelope, you can send your activity statement to:
In VIC, TAS, WA, SA, NT
Australian Taxation Office Locked Bag 1936
Albury NSW 1936
In NSW, QLD, ACT
Australian Taxation Office Locked Bag 1793
Penrith NSW 1793
Post office payments

Using a personalised pre-printed payment advice form with a barcode, payers can pay in person at any
Australia Post outlet. Photocopies of payment advice forms are not accepted. Businesses will receive a
receipt under this method of payment. Payments can be made by cash and cheque, however, no more
than $3,000 is accepted in cash. A book of personalised payment advice forms can be ordered by
contacting the Tax Office on 13 24 78.
These are available in pamphlet form by contacting your local Tax Office.
Change of registration details ATO website
Cancelling your GST registration ATO website
GST calculation worksheet for BAS ATO website
How to register for an Australian Business Number ATO website
Options for reporting and paying GST – businesses that report GST quarterly 4149
Reporting and paying GST – monthly payers 4150
Reporting your GST using the accounts method ATO website
Varying your GST instalments 4239
Goods and services tax – how to complete your activity statement 7392
Fuel tax credit – how to complete your business activity statement 15531
GST for small business 3014
Luxury car tax – how to complete your activity statement ATO website
Wine equalisation tax – how to complete your activity statement ATO website
Making adjustments on your activity statements 11035
Correcting GST mistakes 4700
10.9.1 Informative Web Sites & Tools

www.ato.gov.au – Employers can access current information, including the latest rulings and
determinations. Various forms are also downloadable.
www.abn.business.gov.au – Employers can find out whether a particular Superannuation Fund is a

complying fund.
www.aph.gov.au – Updated information on the progress of legislation. All current and previous legislation
is downloadable.
www.treasury.gov.au – This site contains information on Double Tax Agreements as well as fact sheets on
relevant legislation which has been tabled in parliament but has not yet received Royal Assent. Once a
particular piece of the legislation has received Royal Assent, fact sheets etc., are then available on the Tax
Office sites.
www.abr.business.gov.au – This site enables searching for an Australian Business Number (ABN) or to
check the validity of an ABN.
www.sbr.gov.au – This website provides further information on the SBR program

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AUSTRALIA WIDE

TAXATION & PAYROLL TRAINING

Section 1 The Pay As You Go (PAYG) Withholding System

Section 2 Payment Summaries & other Reporting Requirements

Section 3 The National Industrial Relations System (Fair Work)

Section 4 When Employment Ends

Section 5 The Superannuation Guarantee

Section 6 Fringe Benefits Tax (FBT)

Section 7 Workers’ Compensation

Section 8 Payroll Tax

Section 9 Goods & Services Tax (GST)

Section 10 Reporting GST on the Business Activity Statement (BAS)

Need more help?

1.1 How to Register for PAYG Withholding

1.2 Who is an employee

1.2.1 Taxation of Independent Contractors: Alienation of Personal Services Income

Self-assess or Apply for a Personal Services Business Determination

NEW EMPLOYEE CHECKLIST Tick when

Check employee is legally able to work in your organisation

Provide TFN Declaration to employee

Provide Standard Choice Form (where applicable)

Ensure remuneration is included for payroll tax purposes

Provide a safety induction with the employers OHS representative

The withholding declaration is completed by an employee (payee) to claim rebates or as a means of

1.3.1 49% withholding when no TFN is quoted

1.3.2 Who can sign documents

1.3.4 Who is not required to include a TFN on the TFN declaration

1.3.5 Items on the TFN Declaration

Tax File Number (TFN) (Item 1)

Residency status (Item 7)

Tax-Free Threshold (Item 8)

Claiming Tax Offsets (Items 9 & 10)

HELP (Higher Education Loans Programme) (Item 11a)

1.3.6 Obtaining and lodging a TFN Declaration

 fill in the form on screen; or

1.4.1 When is an Employee Required to Complete a Withholding Declaration

Obtaining and lodging a Withholding Declaration

Limitations on Withholding Declarations

1.5.1 Types of PAYG withholding variation forms

How the employee accesses and lodges the variation form

Start date of variation

Finishing date of variation

1.6.1 At which time is salary and wage income taxable?

End of financial year payments to employees

Payments of salary and wages include:

Payments from which tax is not withheld include:

1.6.3 Subscribe to Tax Office emails

Tax calculator on-line and tax tables in paper form

Low income tax offset

Budget repair levy

Medicare levy variations

2016/17 Private Health

Under 65 years old 27.791%

1.7.2 Foreign Employees/Non-residents

Penalties for employing an illegal worker

Visa Entitlement Verification Online (VEVO) for Organisations

To register, employers should access

Client Group Category Description

Annual income 2016/17 Marginal rate

Australian Resident Employees Working in a Foreign Country

Double Tax Agreements

Australian Non-residents in a Foreign Country (not in Australia)

SFSS Repayment income thresholds 2016/17 Repayment rate (% of RI*)