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Legislative Council - Fifty-First Parliament, Second Session (51-2)
2008-05-06 Daily Xml
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PAY-ROLL TAX (HARMONISATION PROJECT) AMENDMENT BILL

Introduction and First Reading

Received from the House of Assembly and read a first time.

Second Reading

The Hon. P. HOLLOWAY (Minister for Police, Minister for Mineral Resources Development, Minister for Urban Development and Planning) (23:57): I move:

That this bill be now read a second time.

I seek leave to have the second reading explanation inserted in Hansard without my reading it.

Leave granted.

The Pay-roll Tax (Harmonisation Project) Amendment) Bill 2008 makes amendments to the Pay-roll Tax Act 1971 ('the Act').

The Bill makes a number of amendments to the Act following commitments made by the Government at the March 2007 meeting of the States Only Ministerial Council for Commonwealth-State Financial Relations. All jurisdictions agreed to implement changes to pay-roll tax legislation and associated arrangements to improve inter-jurisdictional consistency and cut red tape for businesses.

The changes are the result of an extensive collaborative effort between the respective Treasuries and Revenue Offices of each State and Territory, and the outcome of a separate review of pay-roll tax provisions undertaken by New South Wales and Victoria.

The Bill does not alter South Australia's pay-roll tax rate, which from 1 July 2008 will be equal second lowest in Australia, or the tax-free threshold.

The Bill makes the following changes:

Firstly, all States and Territories have agreed to introduce standardised exemption thresholds for motor vehicle and accommodation allowances based on rates used by the Australian Taxation Office ('ATO').

Currently, motor vehicle and accommodation allowances paid to employees are liable for pay roll tax on amounts in excess of threshold levels that vary across jurisdictions.

The Act is to be amended to align the rate to the ATO large car rate using the 'cents per kilometre' method, and in respect of accommodation allowances, the Act is to be amended to align the exempt rate to the total reasonable amount for daily travel allowance expense as determined by the ATO for the lowest capital city in the lowest salary band.

Secondly, the Act is to be amended so that when fringe benefits are grossed up for pay-roll tax purposes, only the lower gross-up factor (Type 2) under Fringe Benefits Tax legislation is used.

Thirdly, the Act is to be amended to allow the exemption for taxable wages paid or payable in respect of services performed wholly in another country for a continuous period of more than 6 months to apply from the date that period of overseas service commences.

Fourthly, the Act is to be amended to include superannuation contributions for non-employee directors in the pay-roll tax base. Currently, South Australia and Queensland are the only jurisdictions not to include contributions to non-working directors in their tax bases.

Fifthly, the grouping provisions of the Act will be amended.

Pay-roll tax grouping provisions are an anti-avoidance measure to prevent the exploitation of the tax-free threshold. Corporations are grouped if they meet related corporations provisions in the Corporations Act 2001 (Commonwealth). Non-corporate entities are grouped either because a person or persons control the interests of two or more businesses (referred to as commonly controlled businesses) or because there is significant inter-use or sharing of employees.

In order to provide for inter-jurisdictional consistency, the grouping provisions will be amended in the following areas:

the definition of 'business' is to be amended to include 'the carrying on of a trust (including a dormant trust)' and 'the activity of holding any money or property used for or in connection with another business';

the criteria for groups arising from the use of common employees are to be amended to align with the New South Wales/Victoria legislative regime;

the control test is to be changed from '50 per cent or more' to 'greater than 50 per cent'; and

the adoption of the New South Wales/Victoria tracing provisions to provide for the grouping of entities with a corporation if the entity has direct, indirect or aggregate ownership connections exceeding 50 per cent in the corporation.

South Australia is to retain the Commissioner of State Taxation's discretion to disallow grouping except for related corporations pursuant to the Corporations Act 2001(Commonwealth).

Sixthly, the Act is to be amended to include specific provisions on employee share acquisition schemes to ensure consistency of treatment with other forms of remuneration.

An employee share acquisition scheme is a scheme by which an employer provides shares or rights to acquire shares, or units in a unit trust or rights to acquire units in a unit trust, to an employee in respect of services performed or rendered by the employee.

South Australia currently taxes employee share acquisition schemes through general provisions in the Act relating to the definition of wages. The amendments will make the pay-roll tax treatment of employee share acquisition schemes more transparent.

Seventhly, consistent with harmonised positions in New South Wales and Victoria, South Australia will introduce exemptions, from 1 July 2008, for:

wages paid in respect of maternity and adoption leave (not including other forms of leave taken in conjunction with maternity or adoption leave);

wages paid to bushfire and emergency service workers while performing volunteer activities;

wages paid by charities in respect of employees directly undertaking the charitable activities of the organisation; and

wages paid under the Community Development Employment Projects Program.

Finally, the opportunity is being taken to make an administrative amendment to change from the use of the term 'eligible termination payment' to 'employment termination payment' and 'termination payment'. The need for this change arises as a result of Commonwealth Government superannuation reforms, which were introduced with effect from 1 July 2007.

This Bill enacts legislative changes to enhance harmonisation, but it is only the starting point in achieving greater consistency. South Australia remains committed to pay-roll tax harmonisation with all States and Territories.

To this end, it is the Government's intention that South Australia, with effect from 1 July 2009, will adopt the uniform pay-roll tax legislative model operating in New South Wales and Victoria. This will maximise the degree of harmony with New South Wales and Victoria and also with Queensland and Tasmania who have announced that they are also adopting the uniform pay-roll tax legislative model of New South Wales and Victoria.

National reform will bring even greater benefits to a greater number of taxpayers and further drive down the cost of doing business across jurisdictions.

I also take this opportunity to thank the members of RevenueSA's consulting groups and Business SA who have taken the time to provide valuable assistance in the formulation of the Bill.

I commend this Bill to the House.

Explanation of Clauses

Part 1—Preliminary

1—Short title

This clause is formal.

2—Commencement

The measure will be brought into operation by proclamation.

3—Amendment provisions

This clause is formal.

Part 2—Amendment of Pay-roll Tax Act 1971

4—Amendment of section 3—Interpretation

A number of amendments in this clause set out definitions that are connected to substantive amendments to be made by this measure or update existing terms.

A key definition under these amendments will be termination payment, which will be in line with the New South Wales and Victorian Acts and provide consistency with Commonwealth legislation. In particular, the amendment defines termination payment as a payment made in consequence of the retirement from, or termination of, any office or employment of an employee. This includes—

unused annual leave and long service leave payments; and

employment termination payments (within the meaning of section 82 130 of the Income Tax Assessment Act 1997 of the Commonwealth) that would be included in the assessable income of an employee under Part 2 40 of that Act, including transitional termination payments within the meaning of section 82 10 of the Income Tax (Transitional Provisions) Act 1997 of the Commonwealth, and any payment that would be an employment termination payment but for the fact it was received more than 12 months after termination.

The definition of termination payment also includes amounts paid or payable—

by a company as a consequence of terminating the services or office of a director; or

by a person who is taken to be an employer under the contractor provisions of the Act, as a consequence of terminating the supply of services by a person taken to be an employee under those provisions.

Other amendments revise various provisions associated with the concept of wages. For example, the method for determining the exempt component of a motor vehicle allowance will now be set out in Schedule 1 of the Act, as will the rules associated with accommodation allowances. Another amendment will set out the method for determining the value of taxable wages comprising a fringe benefit.

Finally, the treatment of superannuation benefits will extend to directors whose wages are subject to pay-roll tax and wages will be taken to expressly include the grant of a share or option to an employee by an employer in respect of services performed by the employee.

5—Amendment of section 8—Wages liable to pay roll tax

This amendment will allow the exemption for taxable wages paid or payable in respect of services performed wholly in another country for more than 6 months to apply from the date that the overseas service commences.

6—Amendment of section 12—Exemptions

This clause revises and extends exemptions under the Act. A new exemption will relate to wages paid to an employee while engaged as a volunteer member of an emergency services organisation under the Fire and Emergency Services Act 2005 in responding to an emergency situation under that Act. Another exemption will relate to wages paid to an employee in respect of maternity leave or adoption leave. Employers providing paid maternity or adoption leave will be entitled to an exemption from tax for any wages paid or payable to an employee, up to a maximum of 14 weeks maternity leave or adoption leave. The maternity leave exemption is available in respect of leave provided to female employees. The adoption leave exemption is available in respect of leave provided to employees of either gender.

7—Substitution of sections 18A to 18D

This clause provides for a revised set of grouping provisions.

New section 18A provides definitions of business and group for the purposes of this Part.

New section 18B ensures that when 2 or more groups form part of a larger group, the 2 or more smaller groups are not considered as groups in their own right.

New section 18C provides that corporations constitute a group if they are related bodies corporate within the meaning of the Corporations Act. The Commissioner has no discretion to exclude such corporations from a group constituted under this clause.

New section 18D provides for groups arising from the inter-use of employees. Where—

1 or more employees of an employer perform duties for 1 or more businesses carried on by the employer and 1 or more other persons; or

1 or more employees of an employer are employed solely or mainly to perform duties for 1 or more businesses carried on by 1 or more other persons; or

1 or more employees of an employer perform duties for 1 or more businesses carried on by 1 or more other persons, being duties performed in connection with or in fulfilment of the employer's obligation under an agreement, arrangement or undertaking for the provision of services to any of those persons,

the employer and each of those other persons constitutes a group.

New section 18DA provides for groups arising through common control of 2 businesses. Under this section, a group exists where a person, or a set of persons, has a controlling interest in each of 2 businesses. The entities carrying on the businesses are grouped. The rules for determining whether a person (or set of persons) has a controlling interest in a business vary depending upon the type of entity conducting the business (e.g. a corporation, partnership or trust), and generally relate to the level of ownership or control of the business, or of the entity conducting the business. The level of ownership or control required for an interest to be a controlling interest is 'more than 50 per cent'.

In some circumstances, a person or set of persons will be taken to have a controlling interest in a business on the basis that a related person or entity has a controlling interest in that business. More specifically—

if a corporation has a controlling interest in a business, any related body corporate of the corporation (within the meaning of the Corporations Act) will also be taken to have a controlling interest in the business;

if a person or set of persons has a controlling interest in a business, and the person or set of persons who carry on that business has a controlling interest in another business, the first-mentioned person or set of persons is taken to have a controlling interest in the second-mentioned business;

if a person or set of persons has a controlling interest in the business of a trust, and the trustee(s) of the trust has a controlling interest in the business of another entity (being a trust, corporation or partnership), the person or set of persons is taken to have a controlling interest in the business of that other entity.

New section 18DB provides for groups arising from the tracing of interests in a corporation. Under this section, an entity (being a person or 2 or more associated persons) and a corporation form part of a group if the entity has a controlling interest in the corporation. Such 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 per cent.

New section 18DC applies new Division 3 for the purposes of section 18DB.

New section 18DD provides that an entity has a direct interest in a corporation if the entity can directly or indirectly exercise, control the exercise, or substantially influence the exercise of voting power attached to voting shares in the corporation. The section also provides that the percentage interest of voting power which an entity controls is the percentage of the total voting power which the entity can exercise, control the exercise of, or substantially influence the exercise of.

New section 18DE provides that an entity has an indirect interest in a corporation (called the indirectly controlled corporation) if the entity is linked to that corporation by a direct interest in another corporation (called the directly controlled corporation) that has a direct and/or an indirect interest in the indirectly controlled corporation. The section also provides that the value of an indirect interest in an indirectly controlled corporation is determined by multiplying the value of the entity's direct interest in the directly controlled corporation by the value of the directly controlled corporation's interest in the indirectly controlled corporation.

New section 18DF provides that an entity has an aggregate interest in a corporation when it has either a direct interest and 1 or more indirect interests, or 2 or more indirect interests. The section also provides that the value of an entity's aggregate interest is the sum of the entity's direct and indirect interests in that corporation.

8—Insertion of heading

9—Repeal of section 18H

These clauses are consequential.

10—Substitution of section 18I

New section 18I, to be enacted by the amendment in this clause, provides the Commissioner with a discretion to exclude a member from a group if satisfied that the business conducted by that member is independent of, and not connected with, the business conducted by any other member of the group.

In considering the application of this discretion, the Commissioner will have regard to the nature and degree of ownership and control of the businesses, the nature of the businesses, and any other relevant matters. The discretion is not available for corporation that are related bodies corporate under section 50 of the Corporations Act.

11—Insertion of Schedules 1 and 2

This clause inserts new Schedule 1, relating to motor vehicle and accommodation allowances, and new Schedule 2, relating to shares and options.

Debate adjourned on motion of Hon. D.W. Ridgway.

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