Exemption for parental leave
|Issue date||24 September 2019|
|Replaces||PTA-012 (applicable to 30 June 2019)|
|Date of effect||
1 July 2019
This ruling replaces PTA-012 to take into account amendments to the parental leave exemption that took effect from 1 July 2019.
Because this exemption is not harmonised with other Australian jurisdictions, neither is this Revenue Ruling.
Until 30 June 2019, section 53 of the Payroll Tax Act 2007 (the Act) exempted certain wages paid or payable to an employee on maternity leave or adoption leave from payroll tax. From 1 July 2019, this exemption has been extended to wages paid or payable in respect of parental leave to both primary caregivers and secondary caregivers.
The purpose of this Revenue Ruling is to explain the application of the exemption for parental leave pay and clarify elements of the exemption.
The parental leave exemption from payroll tax:
- Applies to wages paid or payable by an employer to an employee in respect of leave for the employee's role as primary caregiver or secondary caregiver for a child.
- Applies to all types of wages paid or payable in respect of that leave other than fringe benefits.
- Applies in cases of a pregnancy or the birth or the adoption of a child.
- Does not apply to sick leave, recreation leave, annual leave or any similar leave.
- Is limited to a maximum of 14 weeks’ pay (or a pro-rata amount).
- Applies irrespective of whether the leave is taken before or after the birth or adoption.
- Applies to wages paid or payable on or after 1 July 2019.
- Must be supported by keeping relevant records.
Further information about the requirements of this exemption is set out below.
Payments made by an employer under the Commonwealth Government’s Paid Parental Leave (PPL) scheme are different to wages paid or payable by an employer in relation to parental leave provided by the employer. PPL payments are not subject to payroll tax – see Revenue Ruling PTA-037.
Primary caregiver for a child
The primary caregiver is the person who is pregnant with the child or the parent of any gender who has the principal role of providing care and attention to the child.
There can only be one primary caregiver for a child at any one time.
Secondary caregiver for a child
The secondary caregiver is the spouse or domestic partner of the child’s primary caregiver. A spouse means a person to whom the primary caregiver is married.
A domestic partner means:
- a person who is in a registered domestic relationship with the primary caregiver, or
- a person who is not married to the primary caregiver but they are living as couple, irrespective of gender, on a genuine domestic basis.
Exempt wages include wages/salaries, employer superannuation contributions, allowances, bonuses and commissions paid or payable in respect of leave for the employee’s role as a primary or secondary caregiver. Fringe benefits provided to an employee while on parental leave are not exempt (clause 17B(5) of Schedule 2 of the Act).
Wages paid in respect of sick leave, recreation leave, annual leave or any similar leave taken in connection with a pregnancy or the birth or the adoption of a child are not exempt. This means that if an employee uses a mix of leave types in relation to a pregnancy or adoption, only the wages in respect of parental leave are exempt.
Wages must relate to the period of parental leave to be exempt. This does not include:
- Payments made during the period of parental leave that relate to services provided prior to the period of leave, such as back pay, commissions relating to sales that were made prior to the period of leave or an annual performance bonus to the extent that it relates to a period outside the period of leave.
- Advance payments for future periods of service occurring after the employee returns from parental leave.
If an employee takes parental leave in distinct parts, the exemption applies to wages in respect of each part.
Example 1: Mix of leave
Lou, a primary caregiver, takes 10 weeks long service leave, four weeks annual leave, 12 weeks parental leave as primary caregiver and 26 weeks unpaid leave for the arrival of her child.
Only the wages paid for the 12 weeks of parental leave are exempt. Wages paid for the long service leave and annual leave are taxable.
Example 2: Leave taken in distinct parts
Johan takes paid leave as a secondary caregiver in respect of the adoption of a child in three distinct parts: one week to familiarise himself with the adoption process; two weeks to travel to meet the child; and a further three weeks after the child arrives in Melbourne. All six weeks are considered parental leave in respect of his role as secondary caregiver and the wages paid for those weeks are exempt.
Example 3: Annual bonus paid that is not in relation the period of parental leave
Jane commences parental leave as a primary caregiver in July 2019 and is paid a bonus in July 2019 which relates to work she performed in the financial year ending June 2019. That bonus is not exempt wages because it is not related to the period of parental leave.
Example 4: Annual bonus paid in relation to part of the period of parental leaveJane commences parental leave as a primary caregiver on 1 May 2019 and is paid a bonus in July 2019 which relates to work she performed in the financial year ending June 2019. The portion of the bonus that relates to the months of May and June 2019 is exempt wages.
For any one pregnancy or adoption, the exemption is limited to wages for a maximum of 14 weeks full time leave for a full time employee or the equivalent amount if taken over a longer period, e.g. 28 weeks leave being paid at half pay. In the case of a part-time employee, the exemption is limited to a maximum of 14 weeks leave paid at the applicable part-time rates of pay.
The exemption is available for wages up to the maximum entitlement for both a primary caregiver and a secondary caregiver.
Example 5: A part-time employee
Chris is a part-time employee and secondary caregiver. He works three days a week at a rate (including employer superannuation contributions) of $100 per day. The maximum amount of exempt wages that can be paid to Chris is $4,200 ($100 x 3 days x 14 weeks).
Example 6: Shorter paid leave policy taken at half pay
ABC Pty Ltd has a policy of providing 12 weeks parental leave for primary caregivers.
Stella, a full time employee elects to take parental leave for the birth of her child as a primary caregiver over 24 weeks at half pay. Wages relating to this period are fully exempt.
Parental leave for primary caregivers
To claim the exemption in respect of parental leave for an employee’s role as a primary caregiver, an employer must obtain and keep a statutory declaration from the employee stating that the employee is a primary caregiver for the child and:
- is pregnant with the child, or
- was pregnant with the child and the date of birth of the child, or
- is the parent of the child who has the principal role of providing care and attention to the child.
Parental leave for secondary caregivers
To claim the exemption in respect of parental leave for an employee’s role as a secondary caregiver, an employer must obtain and keep a statutory declaration from the employee stating:
- that the employee is a secondary caregiver for the child, and
- whether the employee is a spouse, or domestic partner, of the person who is the primary caregiver for the child.
The statutory declarations substantiating a claim for the parental leave exemption must be kept for five years (section 55 of the Taxation Administration Act 1997).
Commissioner of State Revenue
Note: Rulings do not have the force of law. Each decision made by the State Revenue Office is made on the merits of each individual case having regard to any relevant ruling. All rulings must be read subject to Revenue Ruling GEN-001.