What’s emerging? Payroll tax - point of taxation for employee remediation payments
A summary of key superannuation underpayment scenarios and the corresponding NSW payroll tax treatment - 10 November 2021
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Over the past few years, and particularly in the context of the Superannuation Guarantee (SG) Amnesty, we have seen a marked increase in employers reviewing their superannuation compliance and, where appropriate, undertaking remediation measures.
To address any confusion with respect to the payroll tax taxing point for such remediation, Revenue NSW has released CPN 021: Employer Superannuation Contributions (CPN 021), providing employers with the Chief Commissioner’s position on how such amounts should be treated for NSW payroll tax purposes.
We have summarised below some of the key superannuation underpayment scenarios and the corresponding NSW payroll tax treatment:
| Underpayment Scenario | Point of taxation? |
| Underpaid wages | Year wages should have been paid |
| Superannuation Guarantee contributions relating to underpaid wages | Year/Month in which contributions are actually paid |
| Employer lodged Superannuation Guarantee Charge (SGC) | Year/Month in which SG Statement was lodged |
| Employer lodged SG Amnesty statement | Year/Month in which SG Amnesty Statement was lodged |
| Default SGC issued by ATO | Year/Month of default assessment |
| Amended SGC issued by ATO | Year/Month of original assessment |
| Additional payment to employee as compensation for late payment of wages or superannuation contributions | N/A - not taxable |
| Additional superannuation payment as compensation for late payment of wages or superannuation contributions | Year/Month in which contributions are paid |
What does this mean for employers?
On a practical level, the CPN explicitly notes that underpaid wages are taxable in the financial year in which the wages should have been paid, where superannuation is generally taxable at the date of payment/statement.
As such, to the extent that you have remediated historical underpayments of wages, it is evident that Revenue NSW expects the lodgment of a voluntary disclosure letter to amend your payroll tax liability in prior years. This is also the clear messaging within the proposed NSW Wage Theft legislation, which also includes a retrospective period extension beyond the general 5 years (see PwC’s What's Trending? article).
If you have lodged a SGC statement during and or post the amnesty period, you should include the SGC amounts (Individual SG Shortfall in WA) in the payroll tax return for the year in which the SGC statement was lodged with the ATO.
Additionally, given SGC and SG Amnesty amounts are usually processed outside the payroll system (i.e. via Accounts Payroll), SGC amounts may be missed for payroll tax purposes. Accordingly, you should consider implementing checks into your process to ensure they have been properly captured and, where appropriate, lodge a voluntary disclosure where they have been missed.
We expect this to be the first of similar guidelines released by each State or Territory, with an aim to have a harmonised view across all jurisdictions (except where legislation prevents). Notwithstanding the absence of commensurate aligned guidance in other jurisdictions, we understand a similar approach has been recently agreed. Accordingly, we recommend notifying the relevant revenue authority of any wage underpayment prior to payment - to ensure voluntary disclosure status and to ensure that wages are included in the correct payroll tax year.
