PAYG Withholding Variation: Labour Hire reimbursements and allowances

Explanatory Statement

General Outline of Instrument

1. This variation is made by the Commissioner of Taxation (the Commissioner) under section 15-15 of Schedule 1 to the Taxation Administration Act 1953.
2. This instrument varies the rate of withholding required by a payer under the pay as you go withholding system for payments in a certain class of cases.
3. This is a legislative instrument for the purposes of the Legislation Act 2003.
4. This legislative instrument repeals and replaces Legislative Instrument No. F2006B00301 registered on the 10th of February 2006.

Date of effect

5.      The instrument applies from 1 April 2016 and will be withdrawn on 31 October 2016.

What is this instrument about

6.      Legislative Instrument No. F2006B00301 provided a variation to the rate of withholding for payments made to labour hire workers to nil in certain class of cases.

7.      That instrument is due for repeal on 1 April 2016 under the sunsetting provisions contained in section 50 of the Legislation Act 2003.

8.      This instrument replaces that instrument from that date and continues to provide the same treatment for the affected class of cases.

9.      We are currently consulting with industry bodies about the continuation of the withholding rules set down in that instrument. To enable that consultation to be completed through a proper process, we have used this new instrument to extend the provisions of the current instrument for a further seven months

What is the effect of this instrument

10.  This instrument applies to a payment by a labour hire entity to a labour hire worker within the class of cases described below:

• A payment for reimbursement of actual expenses incurred, and
• A payment for allowances of expected expenses incurred.

11.  For example, a labour hire entity is not required to withhold where:

• a payment is to compensate exactly for an expense already incurred by a labour hire worker, provided that:

1. the expense that the labour hire worker incurs is related directly to their work or services performed under the labour hire arrangement
2. the labour hire worker is advised they must keep the necessary written evidence to substantiate the deduction claimed for the expenses
3. the amount and nature of the reimbursement is shown separately in the accounting records of the payer, and
4. the reimbursement received must be included in the gross payment field on the payment summary,

• a payment made to the labour hire worker for work expenses such as travel between work sites where the usage is up to 5,000 business kilometres, provided that:

1. the labour hire worker is expected to incur expenses that could be claimed as a tax deduction at least equal to the amount of the allowance
2. the labour hire worker is advised that they must keep the necessary written evidence to substantiate the deductions claimed for car expenses and travel expenses, and
3. the amount and nature of the allowance is shown separately in the accounting records of the payer.

12.  The variation will continue to allow a nil rate of withholding from these payments.

13.  An assessment of the compliance cost impact indicates that the impact will be minor for both implementation and on-going compliance costs. The new instrument is of a minor or machinery nature.

Background

14.  This instrument has been developed to avoid the need for unnecessary withholding and to lessen reporting burdens on the labour hire entity for reimbursement and allowance payments to labour hire workers. Withholding is not justified in cases where workers are expected to be entitled to tax deductions equal to the amounts received.

15.  This instrument extends that treatment for a further seven months to enable consultation with industry groups to be completed before we determine what rules should be put in place for the longer term.

16.  Due to complications with the consultation process the Office of Best Practice Regulation may not have had time to confirm that a Regulation Impact Statement is not required.  Delaying the registration of this Legislative Instrument could lead to the situation where there is not an instrument in force and affected taxpayers would face increased reporting or withholding obligations. To avoid this situation the Commissioner will be registering this Legislative Instrument as an interim measure. This will allow for the continuation of the status quo while the Commissioner finalises consultation and is able to address all stakeholder concerns before reregistering a replacement Legislative Instrument by 31 October 2016.

Consultation:

17.  Consultation is currently occurring. When complete a new instrument will be made reflecting the requirements of affected industry participants.

Legislative references:

Taxation Administration Act 1953

Legislation Act 2003

Human Rights (Parliamentary Scrutiny) Act 2011

Statement of Compatibility with Human Rights

This Statement is prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

PAYG Withholding Variation: Labour Hire reimbursements and allowances

This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

This Legislative Instrument varies the withholding rate to nil for payments to a labour hire worker in certain class of cases:

1. A payment for reimbursement of actual expenses incurred by the labour hire worker, provided:
2. A payment for allowances of expected expenses incurred by the labour hire worker, provided:

This instrument has been developed to avoid the need for unnecessary withholding and to lessen reporting burdens on the labour hire entity for reimbursement and allowance payments to labour hire workers.

Human rights implications

This legislative instrument does not engage any of the applicable rights or freedoms because the new instrument is of a minor or machinery nature.

Conclusion

This legislative instrument does not raise any human rights issues.