Payroll Tax Guide For Northern Territory Employers and Businesses

Other Types of Taxable Wages

GST is not Included as Wages for Contractors

Some payments businesses make to contractors will be taxable wages (see more information below).

Where this occurs, the GST component of the payment to the contractor is not included in taxable wages for your payroll tax return. Only the pre-GST component is treated as taxable wages.

Note: If a worker claims GST when not registered with the ATO for GST purposes, the ‘GST’ does not have the legal status of GST and forms part of taxable wages for payroll tax purposes. For your protection your business should have in place a system of validating the ABN and GST status of contractors you engage (see the ATO’s ABN Lookup website).

Superannuation Contributions made by Employer

The definition of wages includes employer superannuation contributions and before-tax contributions made by the employee through salary sacrifice arrangements. Additional personal employee contributions made from after-tax wages are not wages for payroll tax purposes.

Superannuation contributions include amounts paid or payable to superannuation funds, retirement funds, provident funds, retirement savings accounts and to defined benefit funds.

Where an asset other than money (for example, a house and land), is contributed to a fund by the employer, with no or reduced personal contribution by the employee towards those costs, this is called an ‘in-kind’ contribution.

The value of the in-kind contribution is taken to be a superannuation contribution and is subject to payroll tax.

Example: Johnnie Johnston is the sole director of JJ Builders Pty Ltd, a NT taxpayer with taxable wages of $3.5 million in 2014-15. The company owns its own business premises in Winnellie; the land and buildings are valued at $1 million. On 18 June 2015 the property is transferred (without payment) to Johnnie Johnston’s superannuation fund – that is, the owner of the land and buildings changes from JJ Builders Pty Ltd (in its own right) to JJ Builders Pty Ltd as trustee for the Johnnie Johnston Superannuation Fund. This constitutes a $1 million superannuation contribution in respect of Mr Johnston (a director and therefore employee) and the $1 million needs to be declared as taxable wages in the June 2015 payroll tax return for JJ Constructions Pty Ltd in the ‘Employer Superannuation Contributions’ category.

For further information on employer superannuation contributions and payroll tax, please refer to CG-PRT-001 Payroll tax on superannuation contributions made by an employer.

Salary Sacrifice Arrangements

A salary sacrifice arrangement refers to an arrangement between an employer and employee where the employee agrees to forego part of his or her future salary or wage in return for another form of non-cash benefit.

The non-cash benefits provided may include pre-tax superannuation contributions, provision of a motor vehicle, a laptop computer, car parking fees, rent subsidy, payment of school fees, membership fees or similar items.

Under a salary sacrifice arrangement:

the employee pays income tax on the reduced salary or wage;

salary sacrificed (pre-tax) superannuation contributions are classified as an employer contribution (not employee contributions); and

the employer may be liable to pay fringe benefits tax on the fringe benefits provided.

The payroll tax treatment under a salary sacrifice arrangement is as follows:

the reduced salary or wage on which the employee pays income tax is treated as taxable wages;

any pre-tax superannuation contribution classified as the employer contribution is taxable wages; and

the taxable value (if any) of the benefit under the Fringe Benefits Tax Assessment Act 1997 (FBTAA), grossed-up by the Type 2 factor as shown on the FBT return is taxable wages (see below).

If a benefit provided to the employee is exempt from fringe benefits tax, no payroll tax is payable in respect of the amount sacrificed for that benefit and payroll tax is payable only on the reduced salary on which the employee pays income tax.

The following examples outline the payroll tax treatment of various salary sacrifice arrangements:

Example 1: An employee has a current salary of $70 000 per annum. The employee negotiates with the employer for the provision of a $30 000 private-use car under a $7000 per annum salary sacrifice arrangement. The arrangement reduces the employee’s taxable salary by $7000 from $70 000 to $63 000. Under the FBT ‘statutory’ method, taking account of annual kilometres, if the value of the fringe benefit once grossed up by the relevant Type 2 factor is $11 765, the taxable wages associated with the employee (not taking account of superannuation, allowances and other benefits) comprises: Salary: $63 000 Fringe benefits: $11 765 Total: $74 765

Example 2: An employee’s current salary is $65 000 per annum. The employee negotiates with the employer for the purchase of a laptop computer (cost of $3000) to be used predominantly for work purposes under a salary sacrifice arrangement. The new salary will be reduced to $62 000 per annum. The laptop is exempt from FBT. Therefore, payroll tax is payable only on the $62 000 salary.