Northern Territory Explanatory Statements

[Index] [Search] [Download] [Bill] [Help]

PAYROLL TAX AMENDMENT BILL 2009

2009

LEGISLATIVE ASSEMBLY OF THE
NORTHERN TERRITORY

TREASURER

PAYROLL TAX AMENDMENT BILL 2009
SERIAL NO. 72

EXPLANATORY STATEMENT


GENERAL OUTLINE

This Bill provides for amendments to the Payroll Tax Act to introduce new nexus rules for imposing payroll tax on wages paid or payable to employees performing services in more than one state or territory in any given calendar month.

All states and territories have worked together to reform the nexus. Under the previous nexus, where an employee has provided services in more than one state or territory the wages were taxable in the jurisdiction where the wages were paid.

Historically, employers usually paid wages to their employees in cash or by cheque. It is now common for wages to be paid by the electronic transfer of funds into a bank account. This means that the wages are paid in the jurisdiction where the bank account is credited. The Bank State Branch (BSB) number of the bank account was used to identify where the bank account is located.

Examples interstate have highlighted that using the location of an employee’s bank account as a payroll tax nexus can be problematic. This is because an employee may direct that portions of their wages be deposited into different accounts (such as their health insurance fund or superannuation fund), which are located in different states or territories.

Technically, it is possible, although not certain, that this could result in different parts of an employee’s wage being liable to payroll tax in different jurisdictions. If the Payroll Tax Act were administered in this way, ensuring that payroll tax was paid to the correct jurisdictions would place a significant red tape burden and compliance costs on both employers and government.

Also, in terms of payroll tax avoidance, an employer may consider directing where employees are to situate their bank accounts for wages to be paid into in order to manipulate where payroll tax would be payable (i.e. to the lowest rate or the highest threshold state, depending on which provides the most benefit in the particular circumstances).

Furthermore, the location of the bank account can in many cases have no relationship to the location of the employee or where the relevant services are provided.

The amendments made by the Bill are intended to overcome these problems and address these concerns. The Bill achieves this by changing the nexus from 1 July 2009, so that wages for a month are taxable in the Northern Territory if the wages relate to services performed in two or more Australian jurisdictions, or one or more Australian jurisdictions and partly outside all states and territories, and:

· the employee is based in the Territory (with reference to the employee’s principal place of residence); or

· if the employee is not based in a state or territory, the employer is based in the Territory (with reference to the employer’s registered business address if the employer has an Australian Business Number or, if not, the employer’s principal place of business); or

· if both the employee and employer are not based in an Australian state or territory, the wages are paid in the Territory; or

· the wages are paid or payable for services performed mainly in Territory where none of the preceding points apply (i.e. where both the employee and the employer are not based, and the wages are not paid or payable, in a state or territory).

Wages that relate to services performed wholly in the Territory remain taxable in the Territory and wages that relate to services performed outside all states and territories are also taxable in the Territory if they are paid or payable in the Territory.

NOTES ON CLAUSES

Clause 1. Short title

This is a formal clause which provides for the citation of the Bill. When passed, the Bill may be referred to as the Payroll Tax Amendment Act 2009.

Clause 2. Commencement

This clause provides that the Payroll Tax Amendment Act 2009 will be taken to have commenced on 1 July 2009. As the Payroll Tax Act also commenced on 1 July 2009, the Payroll Tax Amendment Act 2009 will be taken to have commenced immediately after the commencement of the Payroll Tax Act.

The date of 1 July 2009 has been chosen as it is important that any changes to the payroll tax nexus provisions are adopted by all states and territories from the same commencement date. This will ensure that employers do not become liable to payroll tax on the same wages in more than one jurisdiction.

Clause 3. Act amended

The Act being amended by this Bill is the Payroll Tax Act.

Clause 4. Amendment of section 3 (Definitions)

This clause inserts into section 3 of the Payroll Tax Act new definitions for “ABN”, “Australian jurisdiction”, “instrument” and “registered business address”. These definitions have been inserted to simplify the legislation because they are referred to in a number of places in the Bill.

The employer’s “ABN” and “registered business address” are relevant to new section 11B, inserted by clause 5 of the Bill, in determining the jurisdiction in which an employer is based.

The term “instrument” is relevant to new section 11C, substituted in by clause 5 of the Bill, in determining the place and date that wages are taken to have been paid.

Clause 5. Repeal and substitution of sections 10 and 11

This clause repeals sections 10 and 11 of the Payroll Tax Act and substitute new sections 10, 11, 11A, 11B and 11C. The new sections relate to determining when “wages” will be taxable in the Territory. That is, when “wages” will be “taxable wages”. Taxable wages are wages that are liable to payroll tax in the Territory.

New section 10(1) provides that taxable wages are wages that are taxable in the Territory. The term “taxable wages” is used regularly throughout the Payroll Tax Act and is fundamental to the Act. Section 3 of the Payroll Tax Act defines the term “this jurisdiction” to mean the Territory and the coastal waters of the Territory.

New section 10(2) provides that “exempt wages” are not taxable wages. Section 3 of the Payroll Tax Act defines “exempt wages” to mean wages that are declared by or under the Act to be exempt wages and notes that wages are declared to be exempt wages in various provisions such as sections 50-51, 53, 55-56, 58-59 and 61 to 66 and Schedule 2, Part 4 of the Payroll Tax Act.

Under new section 11(1), wages are taxable in the Territory if the wages relate to:

· services performed wholly in the Territory (this is consistent with the position currently in the Payroll Tax Act); or

· services performed in two or more Australian jurisdictions (which may not necessarily include the Territory), or one or more Australian jurisdictions (which may not necessarily include the Territory) and partly outside all states and territories, and:

o the employee is based in the Territory; or o the employer is based in the Territory, if the employee is not based in a state or territory; or

o the wages are paid in the Territory, where both the employee and employer are not based in a state or territory; or

o the wages are paid or payable for services performed mainly in Territory where none of the preceding points apply (i.e. where both the employee and the employer are not based, and the wages are not paid or payable, in a state or territory); or

· services performed outside all states and territories and are paid or payable in the Territory.

New sections 11(2) to (7) provide associated rules as to how to determine whether or not wages are taxable in the Territory. Reference is made to when the services are performed by the employee. Rules are also provided where no services are performed by the employee during the month in which the wages are paid or payable.

New section 11(2) clarifies that in determining whether new section 11(1)(a), new section 11(1)(b) or new section 11(1)(c) applies, regard must be had only to the services performed in the month in respect of which the question arises. The time period for determining whether the wages relate to:
· services performed by the employee wholly in the Territory; or
· services performed by the employee in 2 or more jurisdictions (or partly in one or more Australian jurisdictions and partly outside all Australian jurisdictions); or
· services performed by an employee wholly outside all Australian jurisdictions,

is the calendar month concerned rather than the financial year or any other period.


New section 11(3) deems wages that are paid or payable in a particular calendar month to relate to services provided by the employee in that calendar month.

This ensures that where wages paid or payable in a particular month relate to services performed in two or more months, only the place or places where services were performed by the employee in the calendar month in which the wages were paid or payable is considered in determining whether the wages relate to:
· services performed by the employee wholly in the Territory; or
· services performed by the employee in 2 or more jurisdictions (or partly in one or more Australian jurisdictions and partly outside all Australian jurisdictions); or
· services performed by an employee wholly outside all Australian jurisdictions.

For example, where an employer pays an employee a bonus in June and that bonus relates to services provided by the employee for the entire preceding financial year, only the services provided in June will be taken into account in determining whether the bonus relates to:
· services performed by the employee wholly in the Territory; or
· services performed by the employee in 2 or more jurisdictions (or partly in one or more Australian jurisdictions and partly outside all Australian jurisdictions); or
· services performed by an employee wholly outside all Australian jurisdictions.

That is, the place or places where services were performed by the employee from July to May of the next year will be disregarded in determining whether the bonus is taxable in the Territory.

However, the place or places where services were performed by the employee from July to May of the next year will be relevant in determining whether wages paid in those months are taxable in the Territory.

New section 11(4) and (5) ensure that payroll tax remains payable where wages are paid or payable to an employee in a calendar month where an employee does not perform any services. New section 11(4) achieves this by:
· using the place or places where services were performed by the employee in the most recent prior month to determine whether the wages relate to services performed by the employee wholly in the Territory or whether they relate to services performed in 2 or more jurisdictions (or partly in one or more Australian jurisdictions and partly outside all Australian jurisdictions); and
· taking such wages to relate to service performed by the employee in that most recent prior month.

New section 11(5) provides that where no services have been performed by the employee in any prior month:
· the wages are taken to relate to service performed by the employee in the month that they are paid or payable; and
· taking those services to have been performed at the place or places where it would be reasonably expected that the employee will perform services.

New section 11(6) provides that all wages paid or payable in a calendar month by an employer to the same employee are to be aggregated for the purpose of determining whether the aggregated wages relate to:
· services performed by the employee wholly in the Territory; or
· services performed by the employee in 2 or more jurisdictions (or partly in one or more Australian jurisdictions and partly outside all Australian jurisdictions); or
· services performed by an employee wholly outside all Australian jurisdictions.

New section 11(7) provides that where wages are paid in a different month to the month in which those wages became payable, the earlier of the two months is to be used in determining whether the wages relate to:
· services performed by the employee wholly in the Territory; or
· services performed by the employee in 2 or more jurisdictions (or partly in one or more Australian jurisdictions and partly outside all Australian jurisdictions); or
· services performed by an employee wholly outside all Australian jurisdictions.

Section 11A sets out the rules to determine the jurisdiction in which an employee is based, which will be the jurisdiction in which the employee’s principal place of residence is located.

Section 11A also provides that reference is to be made to the state of affairs that existed when the wages are paid or payable. Rules are provided to cover situations where an employee is based in more than one jurisdiction, an employee does not have a principal place of residence and where the employee is a “corporate employee”. The term “corporate employee” is provided for in section 11A(6).

Section 11B sets out the rules to determine the jurisdiction in which an employer is based. Generally, if the employer has an Australian Business Number, the jurisdiction in which an employer is based is the jurisdiction where the employer’s registered business address is located.

If the employer does not have an Australian Business Number, the jurisdiction in which an employer is based is the jurisdiction where the principal place of business is located.

Consistent with section 11A, section 11B provides that reference is to be made to the state of affairs that existed when the wages are paid or payable. Rules are also provided to cover the unlikely instance where an employer has neither a registered business address nor a principal place of business, and the situations where a business is carried on by an employer under a trust and where an employer has registered business addresses in different jurisdictions.

Section 11C sets out the rules to determine the place and date that wages are taken to have been paid or payable.

Clause 6. Amendment of section 13 (What are wages)

This clause inserts a new section 13(3) to ensure that the Payroll Tax Act applies to wages referred to in sections 13(1)(a) to (e) for a person who is not an employee in the same way as the Act applies to wages to an employee. An example of a person who may not be an employee is a company director.

Clause 7. Amendment of section 24 (Inclusion of shares and options granted to directors as wages)

This clause omits section 24(4) of the Payroll Tax Act because wages constituted by the grant of a share or option to a company director will be provided for by new section 11 (as a result of clause 5 of the Bill) and section 13 (as amended by clause 6 of the Bill).

Clause 8. Repeal of section 25

This clause repeals section 25 of the Payroll Tax Act. Section 25 of the Payroll Tax Act provides that where the grant of a share or option constitutes wages, the services in respect of which those wages are paid or payable are taken to have been performed during the month in which the relevant day occurs.

Section 25 of the Payroll Tax Act is no longer required as new section 11 (inserted by clause 5 of the Bill) will have this effect.

Clause 9. Amendment of section 26 (Place where wages are payable)

This clause amends the note to section 26(2) of the Payroll Tax Act as a result of section 10 being replaced and new section 11 being substituted by clause 5 of the Bill.

Section 26 of the Payroll Tax Act outlines when wages constituted by the grant of share or options will be taken to be paid or payable in the Territory. The place or places where wages are paid or payable is relevant where section 11(1)(b)(iii) or section 11(1)(c) apply.

Clause 10. New Part 4, Division 9

This clause inserts a new Division into Part 4 of the Payroll Tax Act. Division 9, consisting of new section 66A, provides for wages for services performed in other countries. New section 66A specifies that wages are exempt if they are paid or payable for services performed in another country for more than six continuous months.

This is consistent with the existing position provided for in current section 10(1)(a)(ii) of the Payroll Tax Act.

Clause 11. New Part 11

This clause inserts a new Part 11 into the Payroll Tax Act. Part 11, consisting of new section 113, provides for transitional matters relating to the Bill.

New section 113 ensures that even though the Bill will be taken to have commenced on 1 July 2009, employers are not required to lodge payroll tax returns under the new nexus arrangements until after the Bill is enacted. It also ensures that an employer can make any necessary adjustments that arise as a result of the new arrangements without penalty as part of the annual reconciliation process provided those adjustments relate to payroll tax returns due before the Bill is enacted.

That is, employers will be required to account under the new rules in any returns that are due to be lodged after the Bill is enacted, but in relation to prior returns, employers are able to account for any change in liability that results from the new rules in the annual adjustment process that will occur with the June 2010 return.











 

[Index] [Search] [Download] [Bill] [Help]