Australia: Employment Taxes Update – August to December 2018

Our colleagues at Greenwoods & Herbert Smith Freehills have published their latest Employment Taxes Update for August to December 2018.

Key points are:

  1. Sub-groups cannot be de-grouped for payroll tax from a wider group. The decision in the case of Xede held only single standalone entity can be. That makes it even more important to ensure sub-groups are not grouped with a wider group in the first place. Take particular care with contractual terms to ensure the provision of services by a sub-group to a wider group do not create grouping between them on the basis of inter-use of employees.
  2. Specify measurable deliverables for a results-based contract: The decision in the case of Douglass held that describing the contractor’s role in a collaborative project was alone insufficient to achieve that. Whether a contract is results-based is important in a number of  tests in employment-related taxes. To pass the PSI result-based contract test, the contractor would also need to supply any tools and equipment needed to undertake the work, and be liable to remedy its defective work. That is good practice to include from a tax perspective more broadly anyway.
  3. Total failure to either withhold from a wages payment or no-ABN contractor payment, or report it to the ATO, will render the payment non-deductible. The change applies from 1 July 2019. The non-deductibility penalty extends even to honest errors. Only voluntary disclosure conceding the failure stops the penalty. However, that won’t help where the tax treatment is instead contested but lost, as can happen where an individual is believed to be an ABN contractor (from whom withholding is not required) but found to be an employee (from whom withholding is required). Therefore it becomes more important to ensure ABN contractors really are properly characterised as ABN contractors.
  4. Transport, IT, security and cleaning industry subtracting needs to be reported to the ATO. The first annual report will be due for 2019/20. An entity does not need to report if the reportable services are less than 10% of its turnover. Takeaway food delivery charges for example could be enough to catch a restaurant in the reporting.

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