Payroll tax in ACT no longer exempted

congo on 11/06/2014 - 14:48
Last edited 11/06/2014 - 14:49

Hi there,

I am a contractor in ACT, and my agent has just informed me that the ACT Revenue office will no longer allow exemption to Payroll tax as of July 1st.

This change is not due to be passed by the ACT government until August, but if it is passed it will be implemented retrospectively to July 1 (this includes payments made in July for hours worked in the month of June).

The payroll tax level in the ACT is 6.85%.
Super has been increased to 9%, living expenses has gone up, the take home income (after tax) at the end of the day isn't great compared to other first world nation such as US…

Is there much we can do to prevent/minimise this?

Thanks.

Financial

Comments

mskeggs on 11/06/2014 - 14:55

+2
the take home income (after tax) at the end of the day isn't great compared to other first world nation such as US*

You have been misinformed.
The AU tax rate is only marginally higher than the US, plus they need to pay for health insurance that is covered by Medicare, plus most states there have state sales tax, and property taxes are high too.
Every other OECD country has taxes near to, or higher than Australia.
Citation:
http://www.treasury.gov.au/Policy-Topics/Taxation/Pocket-Gui…

(sorry, I left Mexico and Chile out. They also have a lower tax burden, but I would argue deliver substantially less services for tax payers).
- congo on 11/06/2014 - 14:57
  
  -1
  
  That may be true.
  But I have a lot of colleagues who have take up same roles in the US, and they have advised me that due to the high living costs in Australia, the take home income (after tax and expenses) in US is much better….
  
  Thanks for the link tho..look interesting.
  - mskeggs on 11/06/2014 - 15:02
    
    +3
    
    I don't disagree if you mean you can buy things cheaper. They have a laughably low minimum wage with fabulously inadequate welfare. This makes lots of things less expensive, but has societal costs. Perhaps you could move there or another jurisdiction with low costs like Singapore or Hong Kong?
    - congo on 11/06/2014 - 15:04
      
      Well, that the plan, save money here, then move to HK and live of the saving :-)
      I love HK btw.
    - jaypehm on 11/06/2014 - 15:47
      
      +1
      
      With these countries like you mentioned, the problem is that everyone earns a ridiculously low wage unless you are on an executive pay package. It makes little sense to go to these jurisdictions to work on a salaried basis unless you are in industries that these jurisdictions are renowned for, e.g. insurance, finance, legal services. HK has a really low minimum wage and Singapore has NO minimum wage if I am not wrong.
      
      City states like Singapore and HK also suffer from out-of-this-world prices on big ticket items like property and car ownership (e.g. a brand new toyota sedan costs upwards of SGD120,000). Assistance on things like healthcare etc are little and/or non-existent. On a whole, this thread sums it all up.
      
      Bringing savings offshore to retire in these jurisdictions might be viable. I reckon it would be tough to raise a family there if OP is considering that, especially as a salaried worker. Instead of such a drastic step, why not simply speak with an accountant? A consultation would cost even less than an air ticket to Singapore/HK.
    - congo on 11/06/2014 - 16:36
      
      Thanks. Will defn seek advise from accountant.
      Retirement is a long time goal, cheaper to retire in HK than Oz IMO.
      By then the family would have grown up.
    - mskeggs on 11/06/2014 - 19:44
      
      +1
      
      Good luck to you, but you can understand that seeking a lower tax rate to maximise your savings so you can spend them elsewhere is exploitative of the country you are earning in?
- mskeggs on 11/06/2014 - 15:00
  
  +3
  
  As for the comment that ACT now levying payroll tax on contractors, a large motivator of companies like Auspost and Telstra making employees redundant and re-employing them as contractors was to avoid costs like payroll tax.
  Effectively they were seeking to lower their business costs by increasing the burden on every other tax payer, who would need to cover the hole left by their actions.
  I sympathise that you are getting slugged with an unexpected tax rise, but the real culprit here is the business that outsourced jobs in the first place.
  Is there scope for you to band together with the other contractors working for your employer to pass these costs back up to them?
  - congo on 11/06/2014 - 15:03
    
    OK I didn't realise this…
    What do you mean by: "pass these costs back up to them?" Who is them?
    - mskeggs on 11/06/2014 - 19:53
      
      I misunderstood your position, as I read you as being an independent contractor, working for your self. If you are working for a recruitment/staffing company, I am not sure why they you are liable for payroll tax?
donbot on 11/06/2014 - 15:03

+1

The way to reduce/minimise it - is not pay taxable remuneration for yourself.

The way to do this properly - speak to an accountant.
- congo on 11/06/2014 - 15:07
  
  Thanks. Setup my own company or trust structures?
  I looked into briefly into this, there is a lot of admin costs… only worth it if I had 10 other contractors interested…
  - mini2 on 11/06/2014 - 19:36
    
    LOL @ trust. Look at what happened to Freelance Global.
  - Kenb0 on 13/06/2014 - 07:36
    
    If you're doing this as a one man company, most likely you'll be caught under PSI rules and a lot of stuff available to companies won't be available to you or won't be feasible
derpdeder on 11/06/2014 - 15:11

I am not familiar with ACT tax law but other states have a threshold under which you do not have to pay it. ACT's threshold is $1.75 million in staff wages per year. Is your total wage bill greater than this?

How many different companies do you do contract work for?
- congo on 11/06/2014 - 15:31
  
  Hi derpdeder,
  I go through a management and payroll company.
  They take like 10-20% of the pay.
  
  These companies would make more than then threshold.
  - Kenb0 on 13/06/2014 - 07:38
    
    If they're taking that much off the top, then they're ripping you off on the "admin" fee. I used to pay 3-4%, depending on what was packaged, etc.
scotty on 11/06/2014 - 17:58

+1

Super has been increased to 9%

By the way, superannuation guaranteed rate would be increased to 9.50% from 1 July.

As of payroll tax, it's just something that I don't understand but understandable when you are in the shoes of the State government. We, as individuals, are already paying income tax to the federal government. Why the employers still need to pay more (from 4.75% to 6.85% depending on where the business is) to the states?

Yes there are thresholds but for some states, i.e. Victoria at $550k/year, it would have hit a lot of SME as well. At the end the real cost to the employers can be quite a bit more than just employee's $xxx salary. Companies would just have to recover that extra cost somewhere.
congo on 11/06/2014 - 18:55

+1

Thanks Scotty, didn't realise they increase superannuation to 9.5%…
As a contractor, there is no annual leave or sick days or training…

Super = 9.5%
Management Company = 15%
Payroll Company = 3%
Tax = 40%?

Plus I commute to ACT, so I have to rent a place in ACT to stay Mon-Fri + petrol costs…

After all of the taxes and expenses, there really isn't much left…
- mini2 on 11/06/2014 - 19:34
  
  +2
  
  You sure the "management company" isn't your recruitment agency? If so, the rate down here is around 7-12% so 15% must be really racking it in. In fact what's bizarre is that the percentage was never meant to be yours to begin with, it's always been your hourly rate x this amount x GST billed to the client so I don't really know what you're complaining about.
  
  If you're really paying an effective tax rate of 40%, either you're earning wayyyyyy too much or your payroll people aren't salary packaging enough things or LAFHA/travel allowance being applied incorrectly.
  
  Anyway, this whole thing comes about "harmonising" (read: reducing) the amount of payroll tax exempted companies so this tax have always existed, just that the payroll people were previously exempt so it's got nothing to do with the payroll size/threshold. Setting up a company in most cases will not make yourself exempt from this…I'm not an accountant so please and seek professional advice elsewhere.
  
  I've figured out a way out from this, it's somewhat convoluted and the recruitment agencies might not agree plus all involved will lose some of their privacy i.e. others WILL find out what they're earning. Anyway, it's been passed onto my payroll's accountants for further clarification.
  - congo on 11/06/2014 - 20:19
    
    Thanks.
    I haven't been a contractor for very long, so still got a fair bit to learn…
    What your way out of this if I could ask?
    
    Btw, tax isn't 40%, its lower, but not sure exactly how much.
- lplau on 12/06/2014 - 19:51
  
  Also quite a few contractor earn obscene amounts. I knew quite a few where I was working who was easily in the 2-4k per day mark.
  - mini2 on 12/06/2014 - 21:12
    
    $4k a day x 261 business days…that's a mil a year.
    - n0u on 13/06/2014 - 02:48
      
      That's definitely on the high end, but 2k is not unheard of. It's a tradeoff of earnings vs job security, but I guess when you're good enough to command those rates you wouldn't have too many issues with being out of work…
    - mini2 on 13/06/2014 - 11:42
      
      Seen plenty of $1-1.5k but $2k is kinda rare even if you've got PV working on Defence.
  - congo on 13/06/2014 - 11:44
    
    WOW 2-4K a day is HUGE!!
    
    I have been a perm for over 12 years, only started out as a contractor last year.
    
    But after I do the calculation, I regret becoming a contractor…
    
    I do get paid a little more as a contractor, but not much more if I factor in all of the expenses.
    The little extra $ isn't worth it, since I am giving up my job security…
    
    If I had an option of going back to being a perm, I will take it…
    - mini2 on 13/06/2014 - 12:42
      
      It all depends…if you're living a baller lifestyle down here then of course it will burn a massive hole in your pocket. Heck I'm boarding with a colleague, I truck my food down from Sydney (yeah a bit stale eating the same thing for the entire week) and get an AU wagon on gas. For sure it's a shitty lifestyle but at least safer than in mining or O&G.
      
      On another front, I don't know what you're claiming through your payroll management as that could make a difference or three in your overall experience.
    - congo on 13/06/2014 - 13:13
      
      Yeah I agreed with you…
      When my lease runs out I think I will have to room share with others.
      Don't think I can save much else, I don't cook and petrol cost is the same anywhere.
      
      I looked into car leasing but I don't think its worthwhile..
      
      Payroll does other things like laptop, mobile salary scarafice but I haven't made the most of this..
      
      I don't think that there are any other perks?
    - mini2 on 13/06/2014 - 13:37
      
      I was paying $400 a week for a place to crash. I was like, geez am I working for the accommodation or what? $1600 put a huge dent in my pocket. Because I was living in commercial accommodation, I can't cook or heat food up so food cost was killing it. That's another dent of $100 a week.
      
      Fuel was a huge issue when I was driving something else. I actually went as far as getting a jerry can and keep trucking fuel down. It stinks like crap in summer with the fume. The difference is now a lot smaller given fuel vouchers are restricted to 4c. Ended up saving $5 a week?
      
      Food isn't cheap down here. I don't know if you're on the north or southside but it's pricey as and the only cheap eatery I could think of is around Civic. All my food is pre-cooked back in Sydney and gets heated up, probably cost me $30 a week that way. Or just goto Costco and munch on $2 hotdogs.
      
      Talk to your payroll people about LAFHA (I suspect you may have missed the boat if you've been down here for a year) or travel allowance which very very very few places offer this due to compliance issues.
    - congo on 13/06/2014 - 18:04
      
      Yeah I think I may have missed the boat with LAFHA…
      For my next extension I wont be going with any payroll company, the 3 - 4% that they charge isn't worthwhile any more..Insurance is only about 1%
      
      yeah I will need to half my rent and start living of noddles…
      
      I am in Woden area, so prices are average…
spy on 12/06/2014 - 22:01

Many independent contractors at my place have not had a pay rise for 4 years. They certainly bring specialist skills and deliver value for money otherwise they would have been out the door by now. Too bad for them its a shrinking market and employers can generally continue to drive a bargain. This latest development will mean contracting will no longer be as viable an option for many but pity for them, ongoing APS positions are seldom being advertised due to APS wide cuts.

As for contracting arrangements through large national/international companies that's a whole separate discussion.
- Pizdets on 13/06/2014 - 08:29
  
  I guess it depends on where you contracted. Where I was the pay rise stopped only last financial year. Then the renewal of contracts ceased. Just need to wait for cycle to restart. When the next government comes in they will start hiring again.
- mini2 on 13/06/2014 - 11:44
  
  Biggest problem with becoming a perm is the massive pay drop, lose most of the salary packaging benefits in exchange for LSL/training/sick leave etc. It wasn't that bad when a supplementary AWA in addition to your usual APS grade (often loaded it up to the point it's even better than being a contractor) but that gravy train have stopped years ago.
- congo on 13/06/2014 - 11:46
  
  My rate has dropped twice since last year…
  Being a perm, you have access to company laptops, offices, parking, per diems, hotels, long service, overtime, and importantly training…
  
  You don't realise this until its gone…
congo on 13/06/2014 - 18:52
I have had a look online
http://forums.whirlpool.net.au/archive/1917200

Department I work for pays 110% (inc GST)

Agency pays ATO 10% GST which leaves 100%

Agency takes 3% which leaves 97%

Payroll company takes 2% which leaves 95%

Payroll company gives 9% of that 95% to super company which leaves 86.5%

Payroll company gives a portion of that 86.5% to the ATO as PAYG tax (see www.taxcalc.com.au for an estimate)

So my gross pay before tax is around 86.5% of what the department pays (ex GST), most of the difference being super.

From this guy's example, agency - 3% payroll - 2%.
I am paying WAY too much to my agency….

They also have a restraint clause so I can't exactly leave them for someone else cheaper…
- mini2 on 13/06/2014 - 19:31
  
  I don't get where 3) comes from. Should've been 0% if you're using a payroll to sort your money out.
  
  You could try switch agencies, those non-compete clause aren't exactly enforceable as they're restriction of trade effectively. However, it wouldn't surprise me if that particular agency will blacklist you for life across Australia (I've done something similar in the past and they will not touch me AT ALL). I did received a number of stern worded letters/e-mails from the agency and their lawyers but I told them to get stuffed.
  - congo on 13/06/2014 - 19:56
    
    LOL, you have balls mini2.
    If the lawyers start emailing me, I will likely give in..
    
    I have asked around work, and most agencies actually take out 10-20%.
    They are recruiting company, they help you find a job, so they are entitled to some cash back?
    
    But 20% is a bit unfair…
congo on 17/06/2014 - 17:30

interesting read:
http://the-riotact.com/government-payroll-backflip/127987

Payroll tax in ACT no longer exempted

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