PAYG Withholding Variation: Labour Hire reimbursements and allowances

Administered by Department of the Treasury

Legislation au F2016L01580 In force Legislative Instrument

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Explanatory Statement

 

PAYG Withholding Variation: Labour Hire reimbursements and allowances

 

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 to nil.
  3. This instrument repeals and replaces instrument PAYG Withholding Variation: Labour hire reimbursements and allowances (F2016L00436), registered on 30 March 2016.
  4. This is a legislative instrument for the purposes of the Legislation Act 2003.
  5. Under subsection 33(3) of the Acts Interpretation Act 1901, where an Act confers a power to make, grant or issue any instrument of a legislative or administrative character (including rules, regulations or by-laws), the power shall be construed as including a power exercisable in the like manner and subject to the like conditions (if any) to repeal, rescind, revoke, amend, or vary any such instrument.

 

Date of effect

6.      This instrument commences on the day after its registration on the Federal Register of Legislative Instruments.

 

What is this instrument about

7.      Legislative Instrument No. F2016L00436 provided a variation to the rate of withholding for payments made to labour hire workers to nil in certain class of cases.

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

9.      From the day after it is registered on the Federal Register of Legislative Instrument, this instrument replaces that instrument and continues to provide the same treatment for the affected class of cases.

 

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.

 

Consultation:

15.  The ATO has consulted extensively with a major industry body.

16.  Through this consultation process, there has been no opposition to continue to provide the same treatment for the affected class of cases.

 

 

 

Legislative references:

Taxation Administration Act 1953

Legislation Act 2003

Acts Interpretation Act 1901

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, and
  2. A payment for allowances of expected expenses incurred by the labour hire worker.

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.

 

Overview

The PAYG Withholding Variation: Labour Hire Reimbursements and Allowances 2016 is a legislative instrument issued under the authority of the Commissioner of Taxation pursuant to section 15-15 of the Taxation Administration Act 1953. This instrument, registered under the Legislation Act 2003, aims to address the issue of unnecessary withholding and reduce the reporting burden on labour hire entities by setting the withholding rate to nil for specific payments to labour hire workers. The policy objective of this legislation is to streamline tax compliance by ensuring that withholding is not required when workers are expected to be entitled to tax deductions equal to the amounts received. The instrument repeals and replaces the previous variation (F2016L00436) and will continue to provide the same treatment for the affected class of cases, effective from the day after its registration on the Federal Register of Legislative Instruments.

Scope and Application

The PAYG Withholding Variation: Labour Hire reimbursements and allowances (F2016L01580) applies to payments made by labour hire entities to labour hire workers. Specifically, it alters the withholding rate to nil for certain reimbursement and allowance payments. The instrument targets payments that compensate for actual expenses incurred or allowances for expected expenses directly related to the labour hire worker's employment, provided the worker maintains proper documentation and the amount and nature of the reimbursement or allowance are clearly recorded in the payer's accounting records. This change is designed to avoid unnecessary tax withholdings and reduce reporting burdens on labour hire entities. The instrument operates under the Commonwealth's jurisdiction and replaces a previous legislative instrument that had a sunset clause. It does not specify any exclusions or exemptions, and the variation is of a minor nature, implying minimal impact on compliance costs. The instrument comes into effect on the day following its registration on the Federal Register of Legislative Instruments.

Key Provisions

The main sections of the PAYG Withholding Variation: Labour Hire Reimbursements and Allowances legislation (F2016L01580) primarily focus on altering the withholding rates for specific payments made to labour hire workers. Under section 15-15 of the Taxation Administration Act 1953, this instrument establishes that the withholding rate for certain payments to labour hire workers is set to nil. Specifically, it targets reimbursements for actual expenses incurred and allowances for expected expenses incurred, provided specific conditions are met (section 11). This instrument replaces the previous one (F2016L00436), which was set to expire on 1 November 2016, thereby ensuring continuous applicability of the nil withholding rate for the specified cases. Entities governed by this Act, primarily labour hire entities, are obliged to ensure that the payments in question adhere to the outlined conditions. This includes ensuring that the reimbursements or allowances are directly work-related, that the labour hire workers are informed about the necessity of maintaining evidence to substantiate the deductions claimed, and that the amounts and nature of these payments are distinctly recorded in the payer's accounting records. Furthermore, these payments must be included in the gross payment field on the payment summary (section 11). In terms of compliance and enforcement, this instrument does not explicitly delineate specific offences, penalties, or consequences for breaches. However, the general framework under the Taxation Administration Act 1953 implies that non-compliance could result in civil or criminal penalties. The specific penalties could vary based on the nature and severity of the breach, but typically, penalties for non-compliance with tax withholding obligations can include fines and, in severe cases, criminal charges. The exact penalties would be determined in accordance with the prevailing tax laws and the discretion of the court or relevant authority.

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Taxation Law
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Legislative Instrument
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Commencement Provisions
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Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.