Parents can take paid leave for the birth or adoption of a child. This leave can be paid for by their employer and/or through the Commonwealth Government paid parental leave scheme. Wages paid or payable through both arrangements are exempt from payroll tax, but for different reasons.
From 1 July 2019, the exemption for maternity and adoption leave wages has been broadened to include all parental leave wages.
Please refer to:
- Revenue Ruling PTA-012v2 - Exemption for parental leave for information on wages paid for parental leave from 1 July 2019.
- Revenue Ruling PTA-012 - Exemption for maternity and adoption leave pay for information on wages paid for maternity and adoption leave before 1 July 2019.
Employer paid primary or secondary caregiver leave
Wages paid or payable to an employee on or after 1 July 2019 for primary or secondary caregiver leave for the birth or adoption of a child are exempt from payroll tax.
Primary caregiver for a child
This is the person who is pregnant with the child or the parent (regardless of 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
This is the spouse or domestic partner of the child’s primary caregiver.
For these purposes:
- 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.
- a person who is not married to the primary caregiver but they are living as couple, irrespective of gender, on a genuine domestic basis.
Sick leave, recreation leave, annual leave or any similar leave taken in connection with a pregnancy or the birth, or adoption, of a child is not considered primary or secondary caregiver leave for the purpose of this exemption.
Example 1: Mari, the primary caregiver, takes a mix of leave
Mari, the primary caregiver, takes 10 weeks of long service leave, four weeks of annual leave and 38 weeks of unpaid leave for the birth of her child.
The wages paid for all the leave taken by Mari are taxable.
Example 2: Lou, the secondary caregiver, takes a mix of leave
Lou, the secondary caregiver, takes 10 weeks of long service leave, four weeks of annual leave, 12 weeks of secondary caregiver leave and 26 weeks of unpaid leave for the arrival of her child.
Only the wages paid for the 12 weeks of secondary caregiver leave are exempt. Wages paid for the long service leave and annual leave are taxable.
Example 3: Johan adopts a child
Johan has taken paid leave as a secondary caregiver 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 secondary caregiver leave and therefore the wages paid for those weeks are exempt.
Types of wages that are exempt
Exempt wages include wages/salaries, employer superannuation contributions, allowances, bonuses and commissions. Fringe benefits provided to an employee on primary or secondary caregiver leave are not exempt.
Maximum entitlement
For any one child, the exemption is limited to wages for a maximum of 14 weeks of full-time leave for a full-time employee or the equivalent amount taken over a longer period, for example 28 weeks of leave at half pay.
In the case of a part-time employee, the exemption is limited to a maximum of 14 weeks of leave paid at the applicable part-time rates of pay.
Example 4: Chris, the 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 $4200 ($100 x 3 days x 14 weeks).
Example 5: Shorter paid leave policy
ABC Pty Ltd has a policy of providing 12 weeks of paid maternity leave.
Stella, a full-time employee, elects to take leave as a primary caregiver over 24 weeks at half pay. Wages relating to this period are fully exempt.
Record keeping
To claim the primary or secondary caregiver leave exemption, an employer must obtain a statutory declaration from the employee.
If the employee is the primary caregiver, the declaration must specify:
- That the employee is the primary caregiver for the child.
- Whether the employee is 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.
If the employee is the secondary caregiver for the child, the declaration must state:
- That the employee is the secondary caregiver for the child.
- Whether the employee is the spouse or domestic partner of the child’s primary caregiver.
Employers must retain these records for at least five years unless the Commissioner allows for them to be destroyed at an earlier date.
Commonwealth paid parental leave scheme
The Commonwealth Government commenced its national paid parental leave (PPL) scheme on 1 January 2011.
It provides eligible working parents of children born or adopted on or after 1 January 2011 with 18 weeks of PPL at the national minimum wage rate.
PPL payments are not subject to payroll tax because they do not constitute wages as defined under the Act. This is explained in Revenue Ruling PTA-037 - Paid parental leave.
The examples below explain how the PPL scheme interacts with other leave arrangements taken for the birth or adoption of a child.
Note: For wages paid before 1 July 2019, references to primary or secondary caregiver leave are references to maternity or adoption leave.
Example 6: Interaction with the Commonwealth’s PPL payments
Helena is a full-time employee paid $1500 per week (including employer superannuation contributions).
She is eligible to receive the Commonwealth Government’s PPL payment (currently $589.40 per week for 18 weeks). Her employer has agreed to provide paid parental leave but only to the extent of topping up Helena’s pay so that she receives her full pay for 18 weeks. Accordingly, Helena’s employer pays her $910.60 for 18 weeks. Combined with the Commonwealth Government’s PPL payments of $589.40 per week, Helen will receive $1500 per week for 18 weeks (a total of $27,000).
The PPL payments totalling $10,609.20 ($589.40 per week x 18 weeks) do not constitute wages and are not liable for payroll tax purposes.
The maximum entitlement for the primary or secondary caregiver leave exemption for her employer is $21,000 (Helena’s normal salary of $1500 per week x 14 weeks). In this example, the total of her employer funded parental leave payments is $16,390.80 ($910.60 per week x 18 weeks). As this amount is less than her employer’s maximum exemption entitlement, it is exempt from payroll tax.
Example 7: Payment of an additional wage amount (bonus)
Emily is a full-time employee paid $1000 per week (including employer superannuation contributions). Her employer provides paid maternity leave for 12 weeks.
In relation to the birth of her child, Emily takes 12 weeks of employer funded maternity leave ($1000 per week for 12 weeks) and 40 weeks of unpaid leave. Emily’s employer also pays her a one-off bonus of $2000 in respect of her maternity leave, which means she receives a total of $14,000.
The maximum entitlement for the primary or secondary caregiver leave exemption for her employer is $14,000 (her normal salary of $1000 x 14 weeks). Therefore $14,000 is exempt from payroll tax.
Example 8: Payment of an additional wage amount (superannuation)
Alice is a full-time employee paid $1500 per week in wages and $150 per week in employer superannuation contributions ($1650 per week in total).
For the birth of her child, Alice’s employer provides 13 weeks of paid parental leave (at $1650 per week). As an additional benefit for its employees, Alice’s employer also makes employer superannuation contributions at 10% ($150 per week) for up to 39 weeks while an employee is on unpaid parental leave. Therefore, Alice receives a total of $27,300 ($1650 x 13 weeks plus $150 x 39 weeks).
The maximum entitlement for the primary or secondary leave exemption for her employer is $23,100 ($1650 x 14). Therefore, $23,100 is exempt from payroll tax and the additional $4200 is taxable.
Example 9: Pro-rating the exemption for part-time employees
Paola is a part-time employee. She works four days a week at a rate (including employer superannuation) of $150 per day. The maximum exemption entitlement for the primary or secondary caregiver leave exemption for her employer is $8400 ($150 x 4 days x 14 weeks).
Paola elects to take her parental leave at half her normal rate of pay and her employer pays her $300 per week for 28 weeks, totalling $8400. As this amount is equal to the maximum exemption entitlement ($8400), it is exempt from payroll tax.
