Recent employment tax updates for finance and payroll leaders

Here we’ve summarised some of those key items which remain relevant as we approach FY24 including fringe benefits, single touch payroll, superannuation guarantee, employee vs contractor and employee share schemes.

Fringe Benefits Tax (“FBT”)

• Electric vehicles are exempt from FBT if the relevant exemption criteria has been met for those vehicles first held, or used, after 1 July 2022. Remember, as it is still a reportable fringe benefit employers need to calculate a notional taxable value.
• The ATO’s expanded definition of a “commercial car park” for FBT purposes is now in full swing, applicable from 1 April 2022. This expanded definition will pull in a lot of employers who previously weren’t subject to FBT on car parking provided to employees, particularly those based in the suburbs. Employers need to be mindful of any hospitals, universities, shopping centres etc. within 1km of business premises that are charging for all-day parking, even where a penalty rate is charged.

Read more on FBT or watch our webinar.

Payroll Tax

• The Office of State Revenue are currently very active with payroll tax audits given their data matching abilities that highlight potential issues.
• Employers to be wary of contractors/consultants arrangements, grouping issues, business acquisitions and overseas management.

Read more on payroll tax.

Single Touch Payroll Phase 2 (“STP2”) and data matching

• The key change is “disaggregation of gross income”, giving the ATO significantly greater visibility and transparency over your payroll system and whether the correct treatment for employment taxes (superannuation guarantee, pay-as-you-go withholding, payroll tax etc.) is being applied to payments made to employees.
• In turn, ATO’s data matching capabilities have largely increased, and they now have the ability to determine where errors are being made, potentially leading to ATO reviews.
• This data matching includes sharing of data with agencies such as the Fair Work Commission and Services Australia. Given the recent and regular media attention on “wage theft”, Fair Work wants employers to ensure they are adequately remunerating employees in accordance with relevant EBA’s/Awards and superannuation contributions have been calculated and paid correctly.
• If your business is not yet STP2 compliant, and you are unsure what the deferral due date is, check this now with your Digital Service Provider, as the last deferral due dates of 31 March or 30 June are fast approaching or recently passed.

Read more on Single Touch Payroll Phase 2 or watch our webinar.

Superannuation Guarantee

• Significant penalties apply where superannuation guarantee liabilities are not met for employees including potential part 7 penalties (up to 200% of the SGC shortfall) and the ability for the ATO to hold directors personally liable (Director Penalty Notices).
• Employers to be aware of ensuring the correct superannuation guarantee treatment (now as well as historically) is correct for all pay codes and whether payments are considered Ordinary Time Earnings – particularly with annual leave loading, bonuses, allowances and workers compensation.

Read more on Superannuation Guarantee or watch our webinar.

Employee vs Contractor

• This is a current focus area of the ATO and State Revenue Offices - employer’s need to have a robust system in place to correctly differentiate “employees vs. contractors”. And importantly, the contracts with both employees and contractors must clearly address the key facts of the arrangement and criteria for distinguishing between contractor or employee for tax purposes is considered and addressed.
• This is a complex area and there are significantly differing tax treatment and obligations for PAYG withholding, FBT, superannuation and payroll tax for an individual considered a common law employee, a genuine contractor, or is engaged via a company or trust.

Read more on engaging with contractors or watch our webinar.

Employee Share Schemes (ESS)

We are currently seeing the following trends in relation to the implementation of new plans or adjustments to existing plans:

• Private companies are generally either implementing an ESS Start – Up Option or Performance Rights Plan. 
• A Performance Rights plan is generally used by private companies that do not satisfy the ESS Start - Up rules.
• Listed companies are generally leaning more towards a performance rights plan over an option plan.

Implementation tips

• When implementing a plan companies need to consider a number of different factors including the tax, legal and a remuneration design and most importantly to overlay these factors against the company’s strategic objectives to ensure that from a commercial perspective, they are fit for purpose. 
• From a tax perspective, when considering the type of plan to implement, we recommend that companies do not simply focus on implementing a plan that accesses the 50% CGT concession, but rather they consider the potential net after tax return after taking into account the cost of acquiring the ESS interest and the tax cost.

We’ve also observed the following recent ATO activity:

• The ATO has recently issued a Tax Determination on their interpretation of what constitutes a genuine sales restriction. We recommend that this is reviewed for performance rights and option plans. 
• From 1 July 2022 the ESS rules were amended to remove as a taxing point the cessation of employment. As a result, if an employee ceases employment and is subject to deferred taxation, they will not be taxed on ceasing employment and the other deferred taxing points will apply.  This was a most welcome change as it alleviates the need to pay tax on the award on ceasing employment when the employee may not be able to sell the awards or otherwise access funds to meet the tax.

Register for our webinar to find out more.

Please reach out should you have any queries on any of the above.