A Guide to Understanding Tax Calculations

In the dynamic landscape of real estate, it’s crucial for professionals to have a comprehensive understanding of various financial aspects that impact your business. One such aspect is payroll tax, an essential obligation for eligible businesses operating in Australia. In this article, we’ll delve into the intricacies of how payroll tax is calculated, providing you with valuable insights to navigate this aspect of financial management.

What is Payroll Tax?

Payroll tax is a state-based tax imposed on the wages paid by employers. Payroll tax is a self-assessed tax, meaning that the onus is on you, as an employer, to ensure that any information you provide is correct and that you comply with your tax obligations. In Western Australia, Payroll tax assists to fund the costs of public services such as education, health, public safety, and law and order. As real estate agents operating in Western Australia, it’s vital to be familiar with the calculation methods to ensure compliance with the state’s regulations. Your total Australian taxable wages are used to determine whether you are liable, but you only pay tax on wages paid or payable in Western Australia or the Indian Ocean Territories (IOT).

Calculating Payroll Tax: The Basics

Payroll tax is calculated on the total wages paid by an employer during a specific period. In Western Australia, the tax is applied when an employer’s total Australian taxable wages exceed the annual threshold. The current annual threshold is $1,000,000. If your total Australian wages exceed this threshold, then you are required to be registered and lodge payroll tax returns. From 1 July 2023, the payroll tax rate is 5.5% on the taxable wages paid by employers or groups of employers. A diminishing threshold will apply for employers or groups of employers with annual taxable wages in Australia between $1 million and $7.5 million.

Key Steps in Payroll Tax Calcultions

  1. Determine Taxable Wages:
    • Include all cash and non-cash renumeration, including:
      • salaries and wages
      • commissions, bonuses and allowances (except those that are exempt – see point 3 for more information)
      • remuneration paid or payable to a director
      • superannuation contributions
      • payments to contractors
      • fringe benefits
      • salary sacrifice arrangements
      • termination payments
      • contributions to an industry redundancy fund or portable long service leave fund
      • employee share acquisitions
      • payments to trainees for training contracts registered after 1 July 2019
      • some allowances and reimbursements to cover expenses or as compensation for working conditions
  2. Calculate Total Australian Taxable Wages:
    • Combine the taxable wages of all entities within the same group, as payroll tax is often grouped for related entities. More information about payroll tax grouping can be found here.
  3. Consider Exemptions and Rebates:
    • Explore available exemptions to reduce the potential payroll tax liability. Note that the following are considered exempt wages for payroll tax purposes:
      • some motor vehicle and accommodation allowances à Generally, all allowances paid or payable to an employee are taxable for payroll tax purposes. However, there are specific provisions which apply to motor vehicle allowances and overnight accommodation allowances. As such, these allowances are not taxable to the extent that each of these allowances do not exceed the exempt component (exempt component being the number of business kilometres travelled during the financial year x exempt rate as per the ITAA 1997). See below “Exempt Allowances – Motor Vehicles and Accomodation” for more information.
      • overnight accommodation allowances paid to truck drivers
      • maternity, parental and adoption leave payments
      • paid parental leave
      • workers’ compensation payments
      • some subsidies or reimbursements from government authorities
      • some profit and trust distributions, and loans deemed to be income to the beneficiary or shareholder
      • apprentice wages
  4. Apply the Tax Rate:
    • From 1 July 2023, payroll tax is calculated at the rate of 5.5% on the difference between the taxable wages (less exempt wages) paid by an employer in Western Australia and the deductible amount of the tax-free threshold to which the employer is entitled.
    • Your payroll tax liability is calculated by the Office of State Revenue (OSR) after you have declared your taxable wages through Revenue Online (ROL).
  5. File and Pay:
    • Submit accurate payroll tax returns via ROL and pay the calculated tax within the specified deadlines to avoid penalties and interest.

Exempt Allowances - Motor Vehicles and Accommodation:

  1. Motor Vehicle Allowance:
    • Motor vehicle allowance paid on a per kilometre basis à generally the Fringe Benefits Tax Act exempts an expense if it is a reimbursement of car expenses for a car owned or leased by an employee that is calculated on a cents per kilometre method. There are circumstances where the fringe benefit exemption does not apply – e.g. where the expense relates to a holiday or relocation by the employee.
    • Motor vehicle allowance paid as a flat or fixed amount (i.e. not paid on a per kilometre basis) à this is not an exempt car expense benefit. In the absence of records confirming the business kilometres travelled, the total payments are subject to payroll tax. For example, a regular travelling allowance of $200 per month, paid to a sales person who keeps no records of the business use of his or her private vehicle, is taxable in full. However, where an employer can produce records to demonstrate the business kilometres travelled, the exempt component may be calculated. Where the allowance exceeds the exempt component, only the amount in excess of the exempt component is taxable.
    • Allowance paid as fixed amount plus a rate per kilometre à the total amount of the allowance that exceeds the combined total of the two exempt components will be taxable. The exempt components are the exempt fringe benefit component and the exempt component using the Australian Taxation Office rates per kilometre.
  2. Overnight Accommodation Allowance:
    • Overnight accommodation allowance is paid to cover temporary accommodation costs for a night’s absence from the employee’s usual place of residence, as required by their employment. Anything that is not considered temporary, are fully taxable.
    • An overnight accommodation allowance is different to a reimbursement or accommodation expense as it is a pre-determined amount paid to an employee where the employee is not required to substantiate the costs incurred.
    • This allowance will only be taxable to the extent that it exceeds the exempt rate. The exempt rate is the total reasonable amount for daily travel allowance expense using the lowest capital city for the lowest salary band for the financial year as determined by the Commissioner of Taxation.
    • In regards to meal and incidental allowances, these are also exempt up to the respective ATO limits.
  3. Living Away from Home Allowance:
    • A living away from home allowance is a fringe benefit and therefore, the value for payroll tax purposes is the value determined as per the FBT Act. If the allowances does not qualify as a living away from home allowance benefit under the FBT Act, it will be treated the same as overnight accommodation allowances.

Seek Professional Advice:

In conclusion, a sound understanding of payroll tax calculation is essential for effective financial management in the real estate sector. Stay informed, comply with regulations, and consider consulting with financial experts to ensure the smooth operation of your business. If you have any further questions or require any assistance in relation to this matter, please don’t hesitate to reach out to the friendly team at Optima Partners (info@optimapartners.com.au) for more information on payroll tax or how Optima Partners’ services can help your business.

Written By Sarah Koios – Tax Manager, Optima Partners

CCIWA, Business Law WA and REEFWA has taken all reasonable care in preparing this document. The contents of this document do not constitute legal advice and should not be relied upon as such. Specific advice for your situation should be sought from CCIWA, Business Law WA or a professional adviser before any action is taken. Neither REEFWA, CCIWA nor Business Law WA accept responsibility for any claim that arises from any person acting or refraining from acting on the information contained in this document.

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