Australia payroll and tax overview.

Australia is the world’s sixth-largest country and lies between the Indian and South Pacific oceans. Historically, Australia’s economy was built on an abundance of natural resources including mineral and gold mining, along with a strong agricultural tradition which included the farming of sheep and cattle. Modern Australia has developed into one of the largest economies in the APAC region and the world - with a GDP over AUD$1.6 trillion, and an annual growth rate (since 1990) of around 3.3%. While the mining and manufacturing industries remain important, service sectors including finance, tourism, telecommunication and logistics also contribute significantly to the economy. Australia benefits from free trade agreements with partners across the globe, and is the 19th-largest exporter in the world. Australia is a member of the United Nations, the WTO, the OECD, and the Asia-Pacific Economic Cooperation forum. In 2018, Australia ranked 14 on the World Bank’s Ease of Doing Business survey.  

Why invest in Australia?

There are numerous business reasons to invest in Australia, including:

• Growth: Australia’s economy has grown consistently for over 25 years, outpacing any other economy in the developed world. The figures are exceeding expectations: the IMF predicts Australia will achieve an annual growth rate of 2.9% between 2017 and 2021.
• Location: One of the benefits of investing in Australia is the excellent connectivity it offers to the wider APAC region, the United States, and the rest of the world. Australia’s trade links are well served by its transport infrastructure which include several maritime and airline hubs - in fact, airline capacity in Australia is expected to increase 50% by 2020.
• Stability: Australia represents a strong, stable environment - both politically and economically - in which to do business. Australia weathered much of the global financial crisis and, in 2012, was one of only a few nations to retain a Triple-A long-term foreign currency credit rating.
• Industry: Many industries in Australia offer exciting investment opportunities. Australia is amongst the top gold, iron and uranium producers in the world, and a top-10 producer of agricultural commodities. The service sector is also a prominent investment target - in particular, the management, healthcare, education and tourism industries.
• Workforce: Australian businesses benefit from a talented and capable workforce. Around 50% of Australian employees have completed tertiary education, while around 15% of the population speaks a second language beyond English.

Foreign Direct Investment in Australia

The Australian Government proactively encourages inward investment, with a wide array of incentives to encourage investment in the national economy. In recent years the Government has tried to put measures in place to encourage employers to hire Australian nationals where possible, and to only use expatriate workforce where skill shortages exist.

Registering A Company and Establishing an Entity in Australia

A company wishing to employ staff within Australia must have a legal presence in Australia. This is usually via a branch or a subsidiary.  

There are various withholding and remitting requirements in Australia.  This may require registration with the (‘ATO’) Australian Taxation Office, and, depending on the level of wages and location of activities, with one or more State Revenue Offices.

Much of the Australian Taxation Office and State Revenue Office registrations can be completed online.

A company must apply for pay as you go (‘PAYG’) withholding registration by the day on which you're first required to withhold an amount from a payment.

Common types of registrations that need to be completed by companies looking to process payroll:

• Registering for Superannuation:  The employer may be required to make superannuation contributions (‘SCG’) for all those employees who are deemed eligible i.e. if the company has employees between 18 and 69 years of age who are paid generally $450 or more in a calendar month.  These contributions are typically made about 4 times in a year. You can visit the website of the Australian Taxation Office (ATO) to determine whether or not your business needs to make superannuation contributions. There is no requirement for the company to register for Superannuation. Instead there is a requirement to pay the guarantee to eligible employees and their ‘complying superannuation fund’. It is the employer’s responsibility to make sure each employee is registered and having their contributions paid to a complying fund.    
• Registering for FBT (Fringe Benefit Tax). FBT is a tax that business owners have to pay on certain fringe benefits that they may provide to their employees or to their families and other associates.  This includes the use of mobile phones, conveyance expenses as well as several other fringe benefits.  On the ATO website you can establish whether you need to pay FBT or not and can download an application form to register for FBT.  Once you have completed the registration process, you will need to file a FBT return and pay the appropriate amount of tax before the due date every year. An accountant can help you to determine your exact liability in terms of fringe benefit tax arising from your business. It is important to note, that FBT year will always be from the 1st of April to the 31st of March no matter of the company's financial calendar.
• Registering for Payroll Tax: Payroll tax is a tax levied by each State separately, that Australian businesses have to pay on the wages and benefits (including superannuation) that are paid to their employees.  Each State Revenue Office collects the payroll tax from eligible businesses.  There is an exemption threshold and if your company wages do not exceed that threshold limit then you do not have to pay payroll tax.  The exemption threshold is determined by the Australia wide wages, therefore if the total wages that your business pays in all of Australia exceed the threshold limit for that particular State, then your business is liable to pay payroll tax. The rate of tax as well as the exemption threshold limits differ from State to State, hence you need to know the exact requirements in your particular State with regards to payroll tax.  Your nominated in country accountant can assist in registering and filling of the returns.
• Registering for Work Cover: Work Cover is a worker’s rehabilitation and compensation scheme that is run by various State Governments in Australia. Most Australian businesses which employ workers on a full-time, part-time or casual basis, whether by written or oral contract, are required to provide workers’ compensation to their employees. As part of their scheme, businesses pay a certain amount as Work Cover levy each year, which will be used to compensate any employee that suffers injury or sickness while at work by providing a range of benefits including financial payments, medical expenses, rehabilitation services, or a lump sum payment. Certain businesses are exempt from registering for the Work Cover scheme - that status is determined by various factors, including:
• The industry in which the business operates
• The nature of the work performed by employees
• The safety performance of the business

Although specific criteria vary by state, businesses may be exempt from paying the Work Cover levy if they pay below a certain total wage amount (around $7,500), or if they do not employ any apprentices or trainees.

• Goods and Services Tax (‘GST’): Whilst not related to employment and payroll, all branches and subsidiaries will be required to register with the Australian Taxation Office and obtain an ABN (Australian Business Number). Companies or branches with a turnover of more than $75,000 will also be required to register for Goods and Services Tax.  This tax is very similar to Value Added Tax (VAT)  applicable to Europe and other countries. Goods and Services Tax (GST) is reported to the ATO on business activity statements (BAS) which are lodged electronically on an annual, quarterly or monthly basis. Should you require further guidance about your GST obligations, you should contact your nominated in country accountant.

Business Banking in Australia

It is not mandatory to make payments to employees or the authorities from an in-country bank account.

Working Days and Working Hours in Australia

The standard working days in Australia are typically Monday to Friday.  The working day for commercial offices is usually eight hours, typically from 8:30AM to 5:00PM.  Lunch breaks range from half an hour, to one hour.

Basic Facts about Australia

Australia is the world’s sixth-largest country: beyond its mainland, it comprises the island of Tasmania and several smaller islands. Australia is surrounded by ocean - with the Pacific on its eastern coast, and the Indian Ocean to the west. Its closest neighbours are Papua New Guinea and Indonesia to the north, and New Zealand to the south-east. Indigenous people inhabited the Australian continent for millennia before settlement by Europeans, in the 17th and 18th centuries, brought trade, population growth and rapid urbanisation. The modern Australian nation was formed in 1901 when its separate territories federated as a commonwealth, and the country became a parliamentary constitutional monarchy. A population of over 21 million people is concentrated in Australia’s urban centres, which are mostly situated around its temperate coastal regions. By contrast, Australia’s sparsely-populated interior is hot, arid and dry. Australia’s geographic profile stretches from deserts to dense jungle, and the country is home to a huge diversity of animal, marine and insect life.

General Information

Full Name: Commonwealth of Australia

Population: 23.7 million (Census, 2015)

Capital: Canberra

Largest City: Sydney

Major Language: English

Monetary Unit: 1 Australian dollar = 100 cents

Main Exports: Ores And Metals; Wool, Food And Live Animals; Fuels, Transport Machinery And Equipment

GNI per Capita: US $64,540  (World Bank, 2015)

Internet Domain: .au

International Dialling Code: +61

The standard tax year runs from 1st July to 30th June.

Taxation is calculated in line with the Australian Tax Office (ATO) tax rates and is based on whether the employee is a resident or not. Employees are able to claim various reductions or additions through the payroll, for example, if they have a Higher Education Loan Payment (‘HELP’) debt with the ATO they are able to have more tax deducted for each pay period.

If the company is a large remitter for taxation, they are required to pay taxes to the authorities within seven days of the funds being withheld from the employee. Otherwise, the taxes get paid monthly by the 21st of the following month. This is paid electronically by the payroll provider.

Employers are required to pay superannuation for employees. The superannuation rate is currently 9.5% of ordinary time earnings(‘OTE’), which came into effect from July 1st 2014. Employers are able to cap the amount of superannuation being paid (if in the employee’s contract) to employees once the employees earning reach a threshold imposed by the ATO at the commencement of each new financial year ( the cap amount changes each year). The cap amount changes each year. Employees are also able to increase their contributions from pre-tax dollars to a certain limit based on their age. Superannuation must be paid to the authorities by the 28th of the month following/subsequent to each quarter.

All companies are required to obtain an Australian Business Number (‘ABN’) and Tax File Number (‘TFN’) from the ATO where they are carrying on business in Australia or employing staff in Australia. This can take from 21 days to two months depending on the location of directors.Again your nominated in country can assist in registering for these numbers.

The Australian Securities and Investment Commission (‘ASIC’) regulates the incorporation and administration of companies.  Incorporation of subsidiary companies normally takes less than a week.

There is no requirement for a third party to be licensed in order to make any tax withholding and remittance on behalf of a client.  However, only licensed tax agents or BAS preparers are permitted to file fringe benefits tax returns or business activity statements on behalf of clients.

Further information can be found via the following governmental websites:

• Australian Taxation Office (‘ATO’):  www.ato.gov.au
• Fair Work Australia: www.fairwork.gov.au
• Australian Securities and Investments Commission (‘ASIC’): www.asic.gov.au

Income Tax in Australia

If a company is a large remitter for taxation, they are required to pay taxes to the authorities within seven days of the funds being withheld from employees. Otherwise, they get paid monthly by the 21st of the following month.

Failure to lodge (FTL) PAYG tax on time will result in a penalty notice being issued automatically. The FTL penalty depends on the size of the organization, $170 for small entities, $340 for medium entities; $850 for large entities applies. The maximum penalty that can be imposed is for five periods. A compounding interest charge is applicable to all interest based taxation penalties.

The ATO has a document available entitled “About Penalties and Interest” on their website.

Social Security in Australia

Superannuation must be paid to the authorities by the 28th of the month following/subsequent to each quarter. Employee deductions on behalf of Centrelink must be paid to the government agency by the 6th of the following month.

Employees are allowed to make a salary sacrifice to contribute to their superannuation fund, this salary sacrifice is before tax and as such represents a tax-efficient way of saving. The tax free amount that can be contributed is subject to a contribution cap.

Previously, the maximum amount of concessional superannuation contributions (e.g. employer-paid and salary sacrificed contributions) that could be paid in a financial year were as follows:

• For individuals aged 49 or over – up to AUD 35,000 per annum
• For individuals aged under 49 – up to AUD 30,000 per annum

As of 1 July 2017, the maximum amount of concessional contributions which can be made during a financial year (e.g. between 1 July and 30 June) is AUD 25,000 per annum, regardless of age. An employee whose total contributions in a year exceed the contribution cap may be liable for additional tax on the excess contributions.

Reporting Tax In Australia

Monthly/Quarterly

• Payroll Tax/ Work Cover
• Ratable Remuneration based on different calculations of wages including Superannuation
• This must be submitted to each state revenue office / Insurance Company by the 7th each month / annually
• Client submits this information as it contains data external to payroll

Yearly

• Payment Summary/Group Certificate
• Details yearly salary for each employee including tax withheld, gross payments, Reportable Superannuation and Reportable Fringe Benefits Tax
• Employees must receive a payment summary by 14th July.
• The payroll vendor submits the reports/files to the ATO on behalf of the client.
• No physical signature is required on these forms.

BAS/IAS

• Report GST, PAYG Withholding, PAYG Instalments( ‘PAYGI’), and FBT Instalments to the ATO
• The ATO must receive forms on either a monthy or quarterly basis depending on the taxpayer.
• The forms are submitted by the employer to the ATO (or their nominated in country accountant) (A payroll vendor would not submit these forms as they contain non-payroll related information)
• The client is required to sign the form.

Single Touch Payroll in Australia 

The Australian Government has legislated to simplify business reporting obligations via a concept known as Single Touch Payroll (‘STP’). Businesses familiar with the United Kingdom RTI (Real Time Information) process for reporting employee wages and taxes will note that the STP system will be very similar. The most significant difference will be the lack of Tax Code adjustments in STP.

The salient points to note are:

• STP requires electronic reporting of the employee salary, PAYG (pay as you go) withholding and superannuation to the ATO at the time the salary is paid to the employee.
• When the superannuation obligation is paid by the employer – the relevant fund will notify the ATO. This will prevent employers from delaying in remitting
  superannuation for the employees as is an issue at present.
• No year-end payment summaries will be required.
• Employees will be able to provide their tax file number and superannuation fund choice via their myGov account.
• Should the employee not provide the information via the myGov portal, the employer will be able to advise the ATO electronically via STP.
• The employer can choose to remit the PAYG at the same time as paying the salary, but is able to continue to pay as they are currently doing.
• Employers with 20 or more staff are required to adopt STP by 1 July 2018. Other employers can elect to adopt STP should they wish to.
• All employers can also elect to adopt STP from 1 July 2017.

New Employees in Australia

Employers are required to register a new start by sending a TFN declaration form to the ATO – this is done electronically through the payroll software.  The employee must provide the employer with their TFN to avoid paying an increased tax of 47.5%. When employing a new start, an employer should request to file the employee’s personal details. The information required (but not limited to) is as follows:

• Name
• Address ( Australian)
• Phone number
• Date of birth
• Start date
• Completed and signed TFN Declaration form
• Completed superannuation choice form
• This form identifies the employees nominated superannuation fund
• If no fund is nominated by the employee, a ‘default’ fund should be offered to the employee. This ‘default’ fund is normally the fund utilised by a large number of workers in the same industry.

Expat employees must be registered within 14 days of receipt of document

Leavers in Australia

Employees who leave an organisation must receive their final payment within the following payment cycle unless requested earlier by the client. Alternatively, this can be a date mutually agreed between the employer and employee. This process can vary and may be stated in the award or EBA specific to that employer or industry. If requested by an employee, a separation certificate is completed by the agent on behalf of the client and submitted to the government agency called Centrelink, but this is only upon request.

Payroll in Australia

Australian payroll regulations vary by state and territory but employers generally process employee pay through a pay-as-you-go-system. PAYG allows employers to withhold taxes from their employees’ salaries - that tax is charged progressively, up to 30% for the highest earners. Broadly, employer withholding obligations apply to:

• Payments to employees and company directors
• Labour hire agreement employees
• Voluntary agreement employees

PAYG deductions must be reported on a Business Activity Statement (BAS), submitted to the Australian Taxation Office on a monthly or quarterly basis. A payroll tax is also payable in Australia - the tax is assessed on wages over a certain threshold amount which are paid (or payable) to employees by an employer. Once again, threshold amounts vary by state and territory. The complexity of Australia’s state and federal payroll laws means that foreign businesses may wish to engage a global payroll provider to ensure that their pay process is completed accurately and efficiently, and in compliance with regulations.

Payslips must be issued to employees within one working day of salary payment - and may be delivered online. Payroll reports must be maintained for at least 7 years.