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Legislative Council - Fifty-Second Parliament, First Session (52-1)
2010-05-26 Daily Xml
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PAYROLL TAX (NEXUS) 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 Mineral Resources Development, Minister for Urban Development and Planning, Minister for Industrial Relations, Minister Assisting the Premier in Public Sector Management) (22:05): 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.

The Payroll Tax (Nexus) Amendment Bill 2010 (the 'Bill') amends the Payroll Tax Act 2009 to vary the payroll tax nexus provisions where wages are paid to workers who provide their services in more than one State or Territory in a month, to the jurisdiction of the employee’s principal place of residence or, where the worker does not reside in Australia, to the jurisdiction where the registered Australian Business Number address of the employer is located.

A further minor technical amendment is being made to the employment agent provisions of the Act to ensure the continued operation of an existing exemption.

Currently, where an employee has provided services in more than one jurisdiction in a month, their wages are liable for payroll tax in the jurisdiction where the wages are paid (i.e. the location of the employees’ bank account into which the payment is made). The current legislative nexus for all States and Territories is the same in this regard.

Electronic banking makes it possible for employees to have a bank account or accounts located across Australia and/or overseas. After considering the application of the current nexus provisions, all jurisdictions expressed concern because of the potential for an employer to direct employees to situate their bank accounts for payment of wages in a State/Territory which has either the lowest rate or the highest threshold depending on which provided the most benefit in the circumstances ('forum shopping').

To negate the opportunity for 'forum shopping', in cases where services are performed in more than one jurisdiction, and to ensure administrative simplicity, State and Territory Revenue Commissioners recommended that the principal place of residence of an employee is a more suitable tax nexus to use going forward rather than the location of an employee’s bank account. This recommendation has been accepted.

The proposed principal place of residence nexus will address the potential avoidance opportunity.

From a policy perspective, the employee’s principal place of residence is the preferred nexus. In many cases, the location of a bank account may have no relationship whatsoever to the location of the employee or where the relevant services are provided.

An alternative of requiring employers to ascertain where work is undertaken in these situations would significantly increase employers' compliance costs.

In the limited circumstances where an employee does not have a principal place of residence within Australia, a secondary nexus will be required. In this regard, the employer’s ABN registered address will be used.

All States and Territories have formally announced their agreement to provide new payroll tax nexus provisions, with an application date of 1 July 2009, subject to retrospective legislation being passed by State and Territory Parliaments. This measure is essential to maintaining the payroll tax harmony established between the States and Territories.

The fact that the legislation will come into force after the commencement of the financial year does not present a problem, as a reconciliation of the total liability is undertaken subsequent to the close of the financial year.

The formal announcement made by South Australia, in regard to the new payroll tax nexus provisions, recognises that there may be transitional and implementation issues for some employers who may have to make changes to their payroll systems, which may affect the timeliness or accuracy of their monthly returns while necessary changes are made.

Accordingly, whilst there is no requirement for employers to lodge returns under the new arrangements until the legislation is enacted, RevenueSA has been willing to accept payroll tax returns in line with the proposed nexus from 1 July 2009. Alternatively, it will be permissible for employers facing transitional and implementation issues to make any necessary adjustments, without penalty, as part of the annual reconciliation process for the 2009-10 assessment year.

It has also been identified that a minor technical amendment to the employment agent provisions of the Act is required to ensure the continued operation of an existing exemption.

An exemption for employment agents is provided for wages paid to a service provider, under an employment agency contract, where the wages would be exempt from payroll tax under Part 4 of the Act had the wages been paid by the client to the service provider as an employee.

As part of the rewrite and repeal of the Pay-roll Tax Act 1971, several existing South Australian specific exemptions that are not provided in New South Wales and Victoria were moved from Part 4 to Schedule 2 of the new Act.

An unintended consequence of moving these South Australian specific exemptions to Schedule 2 of the new Act is that wages paid to persons provided by an employment agency to those organisations are arguably no longer exempt.

The opportunity is therefore being taken to make a minor technical amendment to the employment agent provisions of the Act to confirm that wages paid to persons provided by an employment agency to those South Australian specific organisations now listed in Schedule 2 of the new Act (and which, in their own right, are exempt from payroll tax) are exempt.

The amendment to the employment agent provisions applies retrospectively from 1 July 2009.

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 taken to have come into operation on 1 July 2009.

3—Amendment provisions

This clause is formal.

Part 2—Amendment of Payroll Tax Act 2009

4—Amendment of section 3—Interpretation

This clause inserts definitions that are relevant to the provisions that are now to form part of the Act. It is noted that Australian jurisdiction will mean a State or a Territory.

5—Substitution of sections 10 and 11

Sections 10 and 11 are to be replaced by new sections relating to what constitutes taxable wages, including where some of the work may have been performed out of the State.

New section 10 will provide that taxable wages are wages that are taxable in this jurisdiction (but will not include exempt wages).

Under new section 11, wages will be taxable in this jurisdiction if the wages relate to services performed wholly in this jurisdiction or, if that is not the case, wages will be taxable in this jurisdiction if—

(a) the employee is based in this jurisdiction; or

(b) if the employee is not based in an Australian jurisdiction, if the employer is based in this jurisdiction; or

(c) if neither the employee nor the employer are based in an Australian jurisdiction, if the wages are paid or payable in this jurisdiction; or

(d) if nothing under a preceding paragraph relates to an Australian jurisdiction, if the services were performed mainly in this jurisdiction.

Section 11 also contains a number of related rules.

Section 11A sets out the principles to be applied to determine in which jurisdiction an employee is based.

Section 11B sets out the principles to be applied to determine in which jurisdiction an employer is based.

Section 11C sets out principles to determine at which place wages are to be taken to be paid.

6—Amendment of section 13—What are wages?

The amendment to section 13 of the Act clarifies that the Act applies in respect of wages referred to in subsection (1)(a) to (e) (inclusive) that are paid or payable to or in relation to a person who is not an employee in the same way as it applies to wages paid or payable to an employee.

7—Amendment of section 24—Inclusion of shares and options granted to directors as wages

8—Repeal of section 25

9—Amendment of section 26—Place where wages are payable

These are consequential amendments.

10—Amendment of section 40—Amounts taken to be wages

This amendment clarifies that various exemptions set out in Part 3 of Schedule 2 will apply in connection with the operation of section 40 of the Act.

11—Insertion of Part 4 Division 9

This clause sets new section 66A, which will provide that wages are exempt wages if they are paid or payable for or in relation to services performed wholly in 1 or more other countries for a continuous period of more than 6 months.

12—Amendment of Schedule 3—Repeal and transitional provisions

These amendments will allow the regulations to make provisions of a savings or transitional nature consequent on the enactment of an Act amending the principal Act.

Schedule 1—Related amendment and transitional provisions

Part 1—Amendment of Taxation Administration Act 1996

1—Amendment of section 4—Meaning of taxation laws

This amendment updates a cross-reference.

Part 2—Transitional provisions

2—Transitional provisions

This clause sets out transitional provisions associated with the enactment of this measure.

Debate adjourned on motion of Hon. S.G. Wade.

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