Exemptions: Payroll Tax Employer Guide

Payments of compensation made in accordance with the Workers’ Compensation and Injury Management Act 1981 are not subject to payroll tax. This is the case whether or not the payment to the employee is made by the employer or the insurer.

However, amounts paid to incapacitated workers in excess of the amount prescribed by the legislation (i.e. make-up pay) are subject to payroll tax.

Revenue Ruling PTA 015 ‘Workers’ Compensation Payments’ clarifies how workers’ compensation payments are treated for payroll tax purposes.

Section 41C of the PTA Act provides a payroll tax exemption for new employees with a disability. The exemption applies to wages paid in the first two years of employment.

To be eligible for the exemption, the following criteria must be satisfied:

• the employee is a new employee hired on or after 1 July 2012
• the employer is in receipt of a disability wages subsidy or form of Disability Services Commission support for the applicable employee
• the employee is employed and remunerated in accordance with the minimum standards established under industrial law.

Apprentices under training contracts

Wages paid by an employer to an apprentice are exempt if the wages are for a period during which the employee is an apprentice under a registered training contract that

• is for a class A or class B qualification under the Vocational Education and Training Act 1996 (VET Act)
• is in accordance with a requirement imposed under section 60C(5) of the VET Act, and refers to the apprentice under the training contract as an “apprentice”.

If the arrangement meets all the above criteria, the wages paid to that apprentice will be exempt from payroll tax for the duration of the contract.

Where a contract is suspended, an exemption is not available. All wages paid or payable to an apprentice during a period in which an apprenticeship contract is suspended must be declared as taxable wages.

Trainees under training contracts

Wages paid to eligible trainees under a training contract registered prior to 1 July 2019 are exempt from payroll tax.

Wages paid to trainees under a training contract registered from 1 July 2019 are not exempt from payroll tax. 

Wages paid or payable to an employee, who is absent from their regular employment to serve in the Defence Force, are exempt from payroll tax.

Employers can claim an exemption from payroll tax for wages paid to emergency services workers while performing volunteer activities.

Specifically, this exemption covers volunteer fire fighters, State Emergency Service volunteers and Volunteer Marine Rescue Services volunteers.

Paid maternity leave, parental leave and adoption leave, up to a maximum of 14 weeks full pay, is exempt from payroll tax.

For example, the exemption may apply to wages paid or payable for a 28 week period of maternity leave if the wages are paid at half the rate at which the wages would normally be paid or payable to the employee.

For more information on the payroll tax treatment of parental, maternity and adoption leave payments, see Revenue Rulings PTA 012 ‘Exemption For Maternity, Parental and Adoption Leave Pay’ and PTA 037 ‘Paid Parental Leave’.

Overnight accommodation and motor vehicle allowances are exempt from payroll tax up to certain limits.

The exempt rates for motor vehicle allowances and overnight accommodation allowances are determined by the Australian Taxation Office (ATO). ). The motor vehicle exempt rate to be used is the cents per km rate from the previous year (for example, the rate used in 2023/24 is the ATO 2022/23 rate).

Overnight accommodation allowance

An overnight accommodation allowance is paid to cover temporary accommodation costs for a night’s absence from the employee’s usual place of residence as a consequence of employment.

Any amounts above the prescribed level are considered wages and therefore payroll tax is payable on that portion that exceeds the exempt amount.

An overnight accommodation allowance is distinguished from a living away from home allowance. An overnight accommodation allowance is generally paid where there is no change of employment location whereas a living away from home allowance is paid where the employee has moved and taken up temporary residence away from his or her usual place of residence. These allowances are subject to different Commonwealth taxation treatments. An overnight accommodation allowance is treated as assessable income in the hands of the employee whereas a living away from home allowance is a fringe benefit.

Revenue Ruling PTA 024 ‘Overnight Accommodation Allowances Paid to Truck Drivers’ provides information on the payroll tax treatment of motor vehicle and accommodation allowances.

Motor vehicle allowance

A motor vehicle allowance is paid or payable to an employee to compensate them for any business use of their own private vehicle. The exempt component of a motor vehicle allowance is calculated using the formula –

E = K x R

where

• E is the exempt component
• K is the number of business kilometres travelled during the period
• R is the exempt rate

Example - Calculating the exempt component

• In July 2016, Bob travels 600km (K) in total for work and is paid an allowance of $500 by his employer.
• If the exempt rate is 66c/km (R), Bob’s employer would receive an exemption on the allowance of $396.
  • E = 600km x 66c
• Where an allowance exceeds the exempt component, only the amount in excess of the exempt component is taxable.
  • $500 - $396
• Therefore, the employer only needs to include $104 as taxable wages

Business kilometres must be recorded using either the continuous recording method or averaging method in order to qualify for the exemption. In the absence of records confirming the business kilometres travelled, the total payment is subject to payroll tax.

Example - Using the averaging method

• Dave keeps a logbook from 1 July to 23 September. Over these 12 weeks, Dave travels a total distance of 50,000 km, and works out from the odometer reading that he travelled 40,000 km for business.
  • Dave’s business-use percentage is (40,000 km ÷ 50,000km) x 100 = 80%
• In October, Dave travels 20,000 km in total and receives an allowance of $18,000.
  • The average number of business kilometres travelled in October is 20,000 x 80% = 16,000km
  • Dave’s employer will receive an exemption on the allowance of 16,000km x 0.66c = $10,560
• Dave’s employer only needs to include as taxable wages $18,000 - $10,560 = $7,440

Revenue Ruling PTA 005 ‘Exempt Allowances – Motor Vehicle and Accommodation’ provides further information on the payroll tax treatment of motor vehicle and accommodation allowances.

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