Australia – ATO Updates Guidance on Leave Loading and S - KPMG Global
close
Share with your friends

Australia – ATO Updates Guidance on Leave Loading and Superannuation Guarantee

Australia – ATO Updates Guidance on Leave Loading and S

This report covers the issue of leave loading payments in Australia and updated guidance from the tax authority.

1000

Related content

flash-alert-2019-026

SUBSCRIBE

To subscribe to GMS Flash Alert, fill out the subscription form.

As part of their preparations for entry into Australia’s Single Touch Payroll (STP)1, many organisations have taken a proactive approach in revisiting their payroll system configurations for superannuation and PAYG withholding.  As part of these reviews, many have identified that the superannuation configuration for “leave loading”2 needs to be adjusted.

In an interesting development, the Australian Taxation Office (ATO) recently updated the guidance on its website regarding leave loading.3

WHY THIS MATTERS

Leave loading has evolved beyond its “paid in respect of lost ability to work overtime” origins and is now paid by employers for a variety of reasons and in different circumstances.

In the lead up to the end of 2018, this issue was circulating among payroll and finance teams causing headaches for all the wrong reasons.  The new guidance from ATO, therefore, for many employers, could make it challenging to demonstrate that that the leave loading they have paid to employees can be distinguished from, say, a general “holiday bonus” – and, there might be a superannuation guarantee obligation.  Employers may need to consider a comprehensive assessment to establish that their superannuation obligations have indeed been met.

Employers with globally mobile workforces should try to check whether their Australian population receives leave loading payments (leave loading is quite a common compensation item in Australia particularly in the energy and natural resources, construction and infrastructure industries).

Guidance on Leave Loading Updated by ATO

The ATO recently updated the guidance on its website to highlight its long-held view that leave loading should form part of the base for superannuation guarantee (“SG”) contributions (i.e., ordinary time earnings).  Per SG 2009/2, the only circumstances where the ATO considers that leave loading can be excluded from SG calculations is where it can be demonstrated that leave loading is specifically paid in respect of “the lost ability to work overtime.”

KPMG NOTE

The practical issue for many employers is that while leave loading may have historically been provided for these specific circumstances, over the course of time, workplace practices mean leave loading is paid to a broader population of employees.  In these circumstances, it may be difficult to demonstrate that leave loading can be distinguished from a general “holiday bonus” and a superannuation guarantee obligation can arise.

Employers who pay above the SG may have some flexibility in demonstrating that their obligations have been met; however, a thorough assessment would be required to confirm that this is the case.

Employers should not leave superannuation on leave loading to chance.  It is advisable to check your employment agreements and check your payroll configuration – consultation with your professional tax adviser could be helpful in this regard. 

FOOTNOTES

1  For an earlier report covering STP, see GMS Flash Alert 2018-037 (22 February 2018).

2  In basic terms, in Australia, leave loading is an additional compensation item typically paid during a period when an employee is on annual leave.  

3  For additional information, see the following ATO web pages:

The information contained in this newsletter was submitted by the KPMG International member firm in Australia.

© 2019 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

KPMG International Cooperative (“KPMG International”) is a Swiss entity.  Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Connect with us

 

Want to do business with KPMG?

 

Request for proposal