Payroll in Australia: Understanding tax law changes Payroll in Australia: Understanding tax law changes

Payroll in Australia: Understanding tax law changes
31 Mar 2015

For multinational organisations looking to expand their operations, Australia is a welcoming destination. Not only does the country boast a strong economy and educated workforce, but its location enables companies to truly operate around the clock.

At the same time, its proximity to the rapidly growing economies of Southeast Asia opens the door to business with these markets. With a business culture similar to those in the west, companies can avoid the cultural and language barriers often encountered when expanding to this part of the world.

Still, there are several challenges companies will encounter when establishing or expanding operations in the country, especially when it comes to compensating employees. In particular, the nation’s tax laws are very complex and vary across Australia’s six states and two territories.

A number of new changes enacted for 2015 are further complicating the issue of employee taxation, driving the need for employers to ensure they understand these changes and how they can comply.

Changes to Medicare levy

One of the biggest changes is that the Australian government has decided to implement a 0.5 per cent increase to the Medicare levy, in order to help fund the National Disability Insurance Scheme. This brings the Medicare levy to a total of two per cent of an employee’s yearly salary.

In addition, the government also announced an increase in the Medicare levy low-income threshold. For families with children, the lower income limit has been raised from 33,693 AUD to 34,367 AUD, with an increase of 3,156 AUD for each child.

Low income families will continue to remain exempt from taxes, unless their incomes increase by more than the consumer price index (CPI). At the other end of the spectrum, individuals with an income of 180,000 AUD per year or more are now required to pay a two per cent budget repair levy for every dollar of taxable income.

Removal of tax offsets

The removal of several tax offsets, such as the dependent spouse tax offset, came into play in 2015. Moreover, the government cancelled the mature age workers’ tax offset, a credit designed to encourage older workers to remain in the workforce.

In its place, Australia introduced a new wage subsidy to encourage business to hire mature workers. Employers who hire a mature aged job seeker (50 years or older) who has been receiving income support for at least six months will be eligible to receive 3,000 AUD after the individual’s first six months of employment, 3,000 AUD after one year, a further 2,000 AUD after 18 months and an additional 2,000 AUD after two years.

Delay in superannuation increases Employers in Australia must also be familiar with changes to the Employer Superannuation Guarantee. Although it was previously announced that the superannuation contribution would be raised in 2015, this has since been delayed.

As a result, the contribution will remain at 9.5 per cent until 2021, at which point it will be raised 0.5 per cent each year, reaching 12 per cent in 2025.

In addition, individuals who made personal contributions to superannuation in excess of their non-concessional contribution cap from 1 July 2013 have the option to withdraw these amounts and any associated earnings. The associated earnings will then be taxed at their personal tax rate.

Additional changes

Other key changes regarding payroll and taxation in Australia include:

• Students with Higher Education Loan Programme (HELP) debts will be required to repay their loans sooner, once they earn 50,638 AUD per year or more
• Starting on 1 April 2015, Fringe Benefits Tax (FBT) rates will increase from 47 per cent to 49 per cent, to prevent high earners from using fringe benefits to avoid paying the tax levy
• Paid paternity leave will be introduced on 1 July 2015, providing six months of paid paternity leave, including superannuation up to a maximum of 50,000 AUD
• The pension age will increase from 65 to 70 by 2035, affecting anyone born on or after January 1, 1966.

Ensuring payroll success

Given the major taxation changes coming into effect in Australia throughout 2015, it is crucial that organisations, either already operating in the country or looking to establish a presence there, understand these changes and how it impacts payroll. Employers will benefit from working with a global payroll provider specialising in the nuances of payroll in Australia rather than having to keep track of these changes themselves.

As a result, multinational organisations can tackle the challenges of payroll in Australia - or wherever they have employees - with confidence and in full compliance of all local regulations.

Contributed by CloudPay

 

For multinational organisations looking to expand their operations, Australia is a welcoming destination. Not only does the country boast a strong economy and educated workforce, but its location enables companies to truly operate around the clock.

At the same time, its proximity to the rapidly growing economies of Southeast Asia opens the door to business with these markets. With a business culture similar to those in the west, companies can avoid the cultural and language barriers often encountered when expanding to this part of the world.

Still, there are several challenges companies will encounter when establishing or expanding operations in the country, especially when it comes to compensating employees. In particular, the nation’s tax laws are very complex and vary across Australia’s six states and two territories.

A number of new changes enacted for 2015 are further complicating the issue of employee taxation, driving the need for employers to ensure they understand these changes and how they can comply.

Changes to Medicare levy

One of the biggest changes is that the Australian government has decided to implement a 0.5 per cent increase to the Medicare levy, in order to help fund the National Disability Insurance Scheme. This brings the Medicare levy to a total of two per cent of an employee’s yearly salary.

In addition, the government also announced an increase in the Medicare levy low-income threshold. For families with children, the lower income limit has been raised from 33,693 AUD to 34,367 AUD, with an increase of 3,156 AUD for each child.

Low income families will continue to remain exempt from taxes, unless their incomes increase by more than the consumer price index (CPI). At the other end of the spectrum, individuals with an income of 180,000 AUD per year or more are now required to pay a two per cent budget repair levy for every dollar of taxable income.

Removal of tax offsets

The removal of several tax offsets, such as the dependent spouse tax offset, came into play in 2015. Moreover, the government cancelled the mature age workers’ tax offset, a credit designed to encourage older workers to remain in the workforce.

In its place, Australia introduced a new wage subsidy to encourage business to hire mature workers. Employers who hire a mature aged job seeker (50 years or older) who has been receiving income support for at least six months will be eligible to receive 3,000 AUD after the individual’s first six months of employment, 3,000 AUD after one year, a further 2,000 AUD after 18 months and an additional 2,000 AUD after two years.

Delay in superannuation increases Employers in Australia must also be familiar with changes to the Employer Superannuation Guarantee. Although it was previously announced that the superannuation contribution would be raised in 2015, this has since been delayed.

As a result, the contribution will remain at 9.5 per cent until 2021, at which point it will be raised 0.5 per cent each year, reaching 12 per cent in 2025.

In addition, individuals who made personal contributions to superannuation in excess of their non-concessional contribution cap from 1 July 2013 have the option to withdraw these amounts and any associated earnings. The associated earnings will then be taxed at their personal tax rate.

Additional changes

Other key changes regarding payroll and taxation in Australia include:

• Students with Higher Education Loan Programme (HELP) debts will be required to repay their loans sooner, once they earn 50,638 AUD per year or more
• Starting on 1 April 2015, Fringe Benefits Tax (FBT) rates will increase from 47 per cent to 49 per cent, to prevent high earners from using fringe benefits to avoid paying the tax levy
• Paid paternity leave will be introduced on 1 July 2015, providing six months of paid paternity leave, including superannuation up to a maximum of 50,000 AUD
• The pension age will increase from 65 to 70 by 2035, affecting anyone born on or after January 1, 1966.

Ensuring payroll success

Given the major taxation changes coming into effect in Australia throughout 2015, it is crucial that organisations, either already operating in the country or looking to establish a presence there, understand these changes and how it impacts payroll. Employers will benefit from working with a global payroll provider specialising in the nuances of payroll in Australia rather than having to keep track of these changes themselves.

As a result, multinational organisations can tackle the challenges of payroll in Australia - or wherever they have employees - with confidence and in full compliance of all local regulations.

Contributed by CloudPay