PAYROLL TAX (NEXUS) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 22 June 2010.)

The Hon. B.V. FINNIGAN (20:28): On behalf of the Leader of the Government, I thank all honourable members for their contributions on this bill, in particular the Hon. Rob Lucas who asked a number of questions regarding the Payroll Tax (Nexus) Amendment Bill 2010. On behalf of the Hon. Mr Holloway I provide the following responses. The Hon. Mr Lucas stated:

I seek from the government and their officers more details on the particular example that had evidently been highlighted to the member for Davenport. We are asking not for the name of the company but for details of the example in terms of the specific problem, the extent of possible avoidable payroll tax involved and any other detail that might assist members in understanding the particular problem that the government in other jurisdictions are seeking to stamp out.

I am advised that a large national employer who has employees who regularly provide services in more than one jurisdiction in a month had been paying payroll tax on an incorrect basis. The employer had been paying payroll tax based on the place of residence of their employees and not where the wages were paid, as the relevant provisions then required. This resulted in a large refund being due in one jurisdiction which was only partly offset by underpayments in some other jurisdictions, including South Australia. This situation caused all jurisdictions to review the nexus rules in relation to where services are provided by an employee in more than one jurisdiction during a month.

During the review process, concerns were expressed by some jurisdictions about the appropriateness of the payroll tax nexus (the location of the bank account) due to the ability of an employer to direct employees to situate their bank accounts for wage payments in a particular jurisdiction to take advantage of differential payroll tax rates and thresholds, that is, to forum shop for the lowest rate/highest threshold jurisdiction. In addition, concerns were raised that the bank accounts could be located offshore, avoiding the payment of payroll tax in any jurisdiction in these cases. Therefore, jurisdictions agreed that the principal place of residence of an employee is a more suitable tax nexus to use going forward than the location of an employee's bank account to address the potential avoidance opportunity.

From a policy perspective, the employee's principal place of residence location is the preferred nexus, as the location of the bank accounts can, in some cases, have no relationship whatsoever to the location of the employee or where the relevant services are provided. I am advised that the example that occasioned a review of the nexus provisions was not forum shopping per se, but the issue was raised as a possibility due to consideration of that matter, and jurisdictions have acted proactively to move toward a more sound and harmonised basis for payroll tax nexus in these circumstances.

The Hon. Mr Lucas also asked: whilst he understood government did not consult before, subsequent to the legislation have any industry groups or industries contacted the government and expressed their concern about either the overall nature of the legislation or, indeed, any aspect of it? I am advised that Revenue SA issued a bulletin on their website to announce the proposed new nexus arrangements for payroll tax on 29 June 2009 and all other jurisdictions also announced the changes on or around that date. I am advised that, since the bulletin has been published, Revenue SA has received no adverse comment from industry in relation to the proposed changes. Similarly, since the bill has been introduced, I am advised Revenue SA has received no adverse comments and is not aware of any comments being received in other jurisdictions.

The honourable member also asked: was a particular body consulted and, if not, why not; and if they were consulted, were any concerns raised by that particular body in relation to the proposed legislation? I am advised that the body referred to by the honourable member is the State Taxes Liaison Group (formerly Revenue SA, Accountants and Solicitors Consulting Group). They were not consulted on this bill. This is not the normal approach, as this group is usually consulted about impending legislative changes and, indeed, the group often provides valuable input in relation to proposed amendments.

I am advised that, due to the fact that these amendments were agreed to between all jurisdictions, there was limited scope for meaningful consultation to occur. A template amendment was drafted by the New South Wales parliamentary counsel, and therefore all jurisdictions would have had to agree to any changes. It is the normal practice of the government to consult on amendments to legislation, other than some anti-avoidance and budget measures. However, for the reasons stated, this did not occur in relation to these changes. It is also noted that this amendment provides a harmonised approach across Australia, something which industry bodies regularly seek.

The Hon. Mr Lucas also noted the member for Davenport sought written confirmation from the Treasurer in relation to what he thought might have been a changed definition for wages. His reading of the Treasurer's response is that he did not believe a written response was necessary because he had taken advice and indicated there had been no change to the definition or the practical impact of the wages section of the legislation. If that is the case, the honourable member asked the minister to confirm that again on the record in this chamber during his response to the second reading. I am advised and can confirm that there has been no change to the definition of wages.

I wish to thank again honourable members for their contributions and I commend this bill to the house.

Bill read a second time.

Committee Stage

In committee.

Clause 1.

The Hon. B.V. FINNIGAN: Honourable members have indicated informally that they have some questions regarding clauses of the bill, and as officers are not present this evening, I suggest that progress be reported.

Progress reported; committee to sit again.