Draft Tax Ruling dealing with deductibility of employee travel expenses

As reported in PwC Australia’s TaxTalk Alert, the Australian Taxation Office (ATO) released Draft Tax Ruling 2017/D6: Income tax and fringe benefits tax: when are deductions allowed for employees’ travel expenses. This Draft Ruling outlines the ATO’s current interpretation in relation to determining when an employee’s travel expenses (including transport and accommodation) are deductible for income tax and fringe benefits tax (FBT) purposes. This ruling also includes a significant number of practical examples which demonstrate the ATO’s view on the various circumstances under which travel expenses will be considered either deductible or non-deductible for tax purposes.

Following the release of TR 2017/D6, the ATO has withdrawn a number of other existing rulings which also relate to the deductibility of travel expenses, on the basis that these issues are now considered to be addressed in TR 2017/D6. The most significant withdrawal is Miscellaneous Taxation Ruling MT 2030, which, up until the release of TR 2017/D6, was the primary authority in relation to the ATO’s view on the distinction between living-away-from-home allowances (LAFHAs) and travel allowances. The ATO has indicated that the withdrawal of MT 2030 in favour of the release of TR 2017/D6 is primarily in response to ongoing taxpayer confusion in relation to the application of ‘21 day’ rule which appears in MT 2030. The latest ATO views on this issue are now incorporated into TR 2017/D6.

Comments on the Draft Ruling are due by 11 August 2017.

Federal Government takes action to address Superannuation Guarantee non-compliance

The Minister for Revenue and Financial Services has announced that the Federal Government will introduce a Bill into Parliament this year to legislate a key recommendation in the report of the Superannuation Guarantee Cross-Agency Working Group. The intention of this legislation will be to close an existing loophole and ensure that an individual’s salary sacrificed superannuation contributions do not reduce their employer’s superannuation guarantee obligation.

Under the current rules, salary sacrificed superannuation contributions reduce the base amount on which superannuation guarantee may be paid by the employer to meet their obligations.

Key superannuation rates and thresholds for 2017-18

The ATO has released updated superannuation rates and thresholds for the 2017-18 financial year. While there has been no change to the superannuation guarantee rate of 9.5 per cent from the 2016-17 financial year, the maximum super quarterly contribution base has increased from AUD51,620 to AUD52,760 per quarter.

Single Touch Payroll update

The ATO has provided an update on the roll-out of Single Touch Payroll, after a limited release from 1 July 2017 for a small number of digital service providers and their clients.

In September 2017, the ATO plans to write to all employers with 20 or more employees to inform them of their reporting obligations under Single Touch Payroll. This will be followed by an increase in the release of Single Touch Payroll solutions by digital service providers to employers.

From 1 July 2018, Single Touch Payroll reporting will be mandatory for employers with 20 or more employees.

New payroll tax measures for South Australia

The following key payroll tax measures were announced as part of the 2017-18 South Australian State Budget:

·       Job Accelerator Grant payments will increase by up to AUD5,000 per employee for businesses that hire apprentices or trainees (backdated to 1 July 2016), bringing the total value of grants when combined with existing grants to as much as AUD15,000 per employee, and

·       The South Australian payroll tax rate for small businesses is reduced to 2.5 per cent from 1 July 2017. This rate will apply to businesses with payrolls between AUD600,000 and AUD1 million, phasing up to the general rate of 4.95 per cent for payrolls above AUD1.5 million.

For details of other measures announced in the South Australian Budget, refer to TaxTalk Monthly: July.

NSW payroll tax on employment agency contract payments made to sub­contractors

In Knight Watch Security Services Pty Ltd v Chief Commissioner of State Revenue [2017], the NSW Civil and Administrative Tribunal held that the applicant (‘Knight Watch’) was liable for payroll tax on payments made to its sub-contractors under the employment agency contract provisions. This case involved the supply of sub-contracted security guards by Knight Watch to its client.

In reaching its decision, the Tribunal dismissed a number of arguments by Knight Watch including their submission that only the entity paying the individual who provides the services should be subject to payroll tax under the employment agency provisions. In addition, while section 41 of the Payroll Tax Act 2007 (NSW) was intended to prevent double taxation under the employment agency contract provisions where service providers were engaged under a ‘chain of on-hire’ arrangement (i.e. multiple entities sitting between the individual service provider and the end client), the Tribunal found no evidence of any other entity having paid payroll tax in respect of payments made to the individual service providers. Instead, in being found to be the employment agent closest to the ultimate client, the Tribunal agreed with the Chief Commissioner that Knight Watch was prima facie liable to payroll tax on payments made to its sub­contractors under the employment agency contract provisions, in accordance with the Chief Commissioner’s chain of on-hire ruling (Revenue Ruling No. PTA 027).

The Tribunal considered a number of recent employment agency contract decisions, however, as specific submissions on the application of these decisions to the applicant’s own circumstances were not provided, none were found by the Tribunal to be complementary to the position taken by Knight Watch. In particular, the Tribunal found that the procurement of a service provider for a client of the employment agent could reasonably mean ‘on behalf of’ or ‘in respect of the business interests of’ the client. This effectively meant that security guards provided to related corporations of the client were still considered to have been engaged under employment agency contracts, with Knight Watch being deemed to be the employment agent. Further, the recent decision in UNSW Global Pty Ltd v Chief Commissioner of State Revenue [2016], which held that employment agency contracts are limited to those involving the procurement of service providers to carry out the client’s business rather than for the benefit of the client’s business, was found not to be helpful to Knight Watch. This was on the basis that the security guards procured by Knight Watch were stationed at the client’s site, wore uniforms supplied by the client, performed their duties in accordance with the instructions given by the manager of the site and performed equivalent duties to employees of the client – all of which were considered to be indicators of service being carried out in the course of the client’s business.

This decision further highlights the risks associated with employment agency contract provisions.

NSW Office of State Revenue to change its name

Under the recently announced Administrative Arrangements (Administrative Changes—Revenue NSW) Order 2017, the name of the NSW Office of State Revenue is changed to Revenue NSW from 31 July 2017.

Update of skilled visa occupations lists

The Minister of Immigration and Border Protection has announced the Government has updated the approved occupations lists for a range of temporary and permanent skilled visas, effective from 1 July 2017. The Federal Government will update the lists on a six monthly basis as part of its reforms to skilled migration, announced earlier this year.

Changes to taxation of departing Australia superannuation payments for working holiday makers

From 1 July 2017, a new tax rate of 65 per cent applies to both the taxed and untaxed elements of a departing Australia superannuation payment (DASP) for working holiday makers, if the payment includes amounts attributable to superannuation contributions made while a person held a subclass 417 (Working Holiday) visa, subclass 462 (Work and Holiday) visa and/or an associated bridging visa. This represents an increase from the previous tax rates of 35 per cent (taxed element) and 45 per cent (untaxed element) applied to DASP for temporary residents.

In order to determine whether to apply the higher rate of tax to any DASP applications received, super funds will need additional details from DASP applicants (that is, visa information).

ATO releases FAQs for those affected by recent payroll company issues

The ATO has updated its guidance to include Frequently Asked Questions for employees and employers impacted by the alleged actions of Plutus payroll and associated companies, which is currently under the joint Australian Federal Police and ATO investigation, Operation Elbrus.