Payroll in Australia - Taxation Structure, Payroll Components
by Manju Shetija | 5 min read
The Australian economy is not just about mineral or metal mining, or agriculture and cattle rearing. It is much more diverse than it was a couple of decades ago. Today, Australia is one of the largest economies in the APAC region and the world in general, with a GDP of over 1.6 trillion AUD. The country has witnessed a steadfast annual growth rate of around 3.3% since the early 1990s. Other than mining and manufacturing industries, Australia’s service sectors including telecommunications, tourism, finance, and logistics, among others contribute significantly to the economy.
Laying the foundation
A company wishing to employ people in Australia is required to have a legal presence in the country. There are currently several (tax) remitting and withholding requirements for companies looking to establish themselves in Australia. This entails registering with the Australian Taxation Office (ATO), and depending on the salary levels as well as the location, an entity will be required to register with one or more tax offices. The majority of the form filling and registration process for a new company in Australia can be done via ATO and State Revenue Office registrations facility available online. As a company that reimburses employees/contractors, you are required to withhold tax and send it to the ATO at regular intervals which is known as Pay As You Go (PAYG) withholding.
Income tax in Australia
Australian Securities and Investment Commission (AISC) is the regulatory body in Australia which takes care of the formation and administration of companies. Companies who plan to establish in Australia have to obtain an Australian Business Number (ABN) as well as a Tax File Number (TFN) from the ATO to be able to operate and onboard employees. In Australia, the standard taxation year runs from July 1 to June 30. All tax rates are prescribed by the ATO and PAYG withholding is done as per these prescribed rates. However, withholding rates may vary basis the factors like an employee’s citizenship, age, Medicare levy exemption, etc. Further, employees can claim rebates while withholding is done by employers. One of the most common rebates that employee’s claim is on their Study and training support loans (STSL) debts with the ATO. On claiming these rebates, they can save on taxes in every pay period.
If a business happens to be a substantially large taxpayer, then it is required by law to pay its taxes within 7 to 8 days (depending on payroll processing day) of withholding from its employees. The employer must report any withheld amounts in the PAYG tax withheld section of their business activity statement (BAS), and pay all withheld amounts to ATO. The due date to lodge and pay your monthly BAS is the twenty-first day of the following month. In the case of an FTL (failure to lodge) of the PAYG tax on time, a penalty notice is automatically issued to the company in question. The FTL penalty depends on the size of the organization. Generally, one penalty unit of AUD 210 is applied for small entities; penalty unit is multiplied by two for medium-sized enterprises and a whopping multiplier of five penalty units is applied for large entities. A compound interest charge is applicable to all the tax penalties imposed based on interest.
Social Security in Australia
Employers are required to pay minimum super guarantee at the rate of 9.5% of employees’ ordinary time earnings (OTE) to the authorities concerned on the twenty-eighth day of the month following the end of the quarter. It is important to note that super guarantee charges are imposed on the employer for any shortfall in super guarantee contributions.
Employees in Australia also have the right to choose to make a salary sacrifice so that it can be funneled into their pension funds. Also, such salary sacrifice qualifies for employers’ obligation of minimum super. In employees’ hands, the deduction is available for super contributions so it is quite a tax-efficient means of saving. But the amount that can be paid as super for less tax is subject to a contribution limit.
Effective July 1, 2017, the maximum amount of concessional contributions that can be claimed during a financial year is AUD 25,000 annually, irrespective of age. An employee whose total contribution within a single year exceeds the contribution limit may be subject to some additional taxation on the exceeding of the contribution limit.
Australian payroll components
Australia’s taxation structure is characterized by constant regulatory changes. Among the most important and unique regulatory considerations are -
Seeking payroll solutions
Australia has one of the most diverse populations in the world and this wonderfully reflects in the workspaces of the country. Australia was ranked 18th in the World Bank's Ease of Doing Business Survey for the year 2019 and it was ranked 7th by the World Bank in terms of the Ease of Starting a New Business. All this points to the fact Australia is vested in developing new ventures in their nation. That also means many businesses and many compliance-related work.
With this in mind, every Australian employer should consider a payroll solution that takes into account the corresponding compliance standards. Ramco's Global Payroll solutions help in managing payroll compliance matters including record keeping/time collection, leave payouts, calculation of super guarantee contributions, tax withholding, garnishee order processing and pay event reporting & year-end reporting through STP. Ramco’s multi-country payroll platform is all-encompassing, it facilitates the seamless management of tasks such as payslip distribution, banking file lodgments, general ledger interface and a lot more.