Biggest Changes to Payroll and Taxation in Australia: Part II

For the growing multi-national organization, Australia provides a very welcoming business environment and access to a large, well-educated workforce. But establishing operations in the country is not without its share of challenges. As discussed on the previous post in this series, Australia has complicated taxation laws, made all the more challenging by several changes introduced for 2015. And as more companies expand to the country to leverage its strong economy, understanding these new regulations is essential for success.

In addition to changes made to the Medicare levy and the removal of various tax offsets, one of the most drastic policy changes is the introduction of a delay in superannuation increases. Through Australia’s superannuation program, employers are currently required to pay 9.5 percent of an employee’s salary (for those earning $450 or more per week) into a superannuation fund, available when they retire. The government has previously announced the employer superannuation contribution would be raised in 2015, but this move has since been delayed until 2021. At this point, the employer contribution will increase by 0.5 percent each year, until reaching 12 percent in 2025. Moreover, employees who have made contributions to their superannuation fund in excess of their non-concessional contribution cap since July 1, 2013 have the option to withdraw these amounts and any associated earnings. These associated earnings would then be taxed at the personal tax rate.

This delay in the increase of the superannuation rate may be good news to employers in Australia, but there are still several more changes employers must be aware of when compensating their Australian employees:

• Increase in Fringe Benefits Tax (FBT): Australia requires that employers pay a fringe benefits tax on most non-cash benefits provided to employees. As of April 1, 2015, the FBT tax rate has increased from 47 percent to 49 percent. This increase was implemented to prevent high-earning employees from using fringe benefits to avoid paying the tax levy.
• Paid Parental Leave: Starting on July 1, 2015, the amount of paid parental leave will increase from 18 weeks to 26 weeks of pay at the primary caregiver’s replacement wages, including superannuation.
• Raise in Pension Age: Also recently introduced is an increase in the pension age from 65 to 70 by 2035. Though no changes will be made to those currently between 65 and 70 and receiving pensions, this will impact those born on or after January 1, 1966.

Employers considering a move into Australia will be met with some challenges, particularly with the country’s dynamic taxation policies and the new changes introduced for 2015. Therefore, it is crucial to understand the changing landscape and how it impacts their payroll processes. But rather than doing it alone, employers will benefit from working with a global payroll partner that understands these policies and can help them ensure a successful payroll strategy in Australia, or anywhere else in the world.