Australia Payroll and Tax Overview

For ease of reference, we talk about a foreign company looking at investing in Australia or employing personnel in Australia. The following discussion equally applies to individuals, trusts etc. wishing to invest or employ in Australia.

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 work force 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 Australian Taxation Office (‘ATO’), and, depending on the level of wages and location of activities, with one or more State Revenue Offices. Much of the ATO and State Revenue Office registrations can be completed online.

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

• Registering for Superannuation
• Registering for Fringe Benefit Tax (‘FBT’)
• Registering for Payroll Tax
• Registering for Workers Compensation Insurance
• Goods and Services Tax (‘GST’)

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

A standard working week in Australia is typically Monday to Friday totalling 38 hours. The working day for commercial offices is typically from 8:30AM to 5:00PM. Lunch breaks range from 30 minutes to one hour.

General Information about Australia

Full Name: Commonwealth of Australia

Population: 24.99 million (World Bank, 2018)

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 and transport machinery

GNI per Capita: US $57,373.7 (World Bank, 2018)

Internet Domain: .au

International Dialling Code: +61

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

Income Tax in Australia

Australia taxes individuals on a progressive basis based on their annual taxable income.

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 salary sacrificed contributions to their superannuation fund, this salary sacrifice contribution is before tax and as such is a tax efficient way of saving for retirement. The tax free amount that can be contributed is subject to a contributions 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 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 in Australia

Monthly/Quarterly

• Payroll tax
• Rateable Remuneration based on different calculations of wages including Superannuation
• This must be submitted to each state revenue office by the 7th each month

Yearly

Payment Summary/Annual Statement of Earnings

• Details yearly salary for each employee including tax withheld, gross payments, Reportable Superannuation and Reportable Fringe Benefits Tax
• Employees may receive a payment summary by the 14th July, however if the employer has declared all income via STP, then an Payment Summary may not be needed
• The payroll vendor submits the reports to the ATO on behalf of the client through STP

BAS/IAS

• Report GST, PAYG Withholding, PAYG Instalments (‘PAYGI’) and FBT Instalments (‘FBTI’) to the ATO
• The ATO must receive forms on either a monthly or quarterly basis depending on the taxpayer
• The forms are submitted by the employer to the ATO (or their nominated in country accountant)
• The client is required to sign the form

Single Touch Payroll

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 if all income has been reported through 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.

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 declaration within 14 days of starting to avoid paying increased tax of 47.5%. If an employee does not provide this declaration within 14 days, the employer is required to lodge one on the employees behalf and withhold tax at the highest rate.

When employing a new start, an employer should request/file the employee’s personal information. The information you should request should include, but is not limited to the following:

• Name
• Residential address (Australian)
• Email address
• 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

Leavers must receive their final payment within the following payment cycle unless requested earlier by the client or at a date mutually agreed between the employer and employee. This 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. This is only upon request.

It is legally acceptable in Australia to provide employees with online payslips. Payslips must be issued to each employee within one working day of pay day in electronic or hard copy.

Payroll reports must be kept for at least seven years. The records can be kept electronically as long as the records can be printed out on request.