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Edited version of your private ruling
Authorisation Number: 1012477106146
Ruling
Subject: The correct withholding rate
Question
Is the marginal rate the correct withholding rate for a Long Service Leave Payment to a construction worker who no longer is in 'relevant employment' but remains employed by the same employer in a different role?
Answer
Yes
This ruling applies for the following period
Year ending 30 June 2013
Year ending 30 June 2014
The scheme commenced on
1 July 2012
Relevant facts
The entity administers an Act.
The entity also manages the fund, into which employers make contributions to fund the long service leave liabilities of the industry for industry employees. The entity also administers and makes payments to workers who qualify for a long service leave entitlement in accordance with the rules of the fund.
An employer has been contributing funds on behalf of a construction worker. No funds were contributed before 17 August 1993.
The worker was in "relevant employment" as defined under the Act. He remains with the same employer but changed roles so that he is no longer in "relevant employment".
Relevant legislative provisions
Taxation Administration Act 1953 Subsection 12-90(b) of Schedule 1
Taxation Administration Act 1953 Section 15-25 of Schedule 1
Reasons for decision
Subsection 12-90(b) of Schedule 1 of the Taxation Administration Act 1953 (TAA) states an entity must withhold an amount from an unused long service leave payment, to the extent that the payment is included in the individual's assessable income.
Section 15-25 of Schedule 1 of the TAA states for the purposes of collecting income tax and the other liabilities referred to in paragraphs 11-1(b), (ca), (da) and (db), the Commissioner may make one or more withholding schedules specifying the amounts, formulas and procedures to be used for working out the amount required to be withheld by an entity:
(a) from a withholding payment covered by Subdivision 12-B, 12-C or 12-D; or
(b) an alienated personal services payment to which Division 13 applies.
Schedule 28 - Pay as you go (PAYG) withholding tax table for unused leave payments on termination of employment is one of those schedules.
The table on how to work out the withholding amount is set out below:
Payment type |
Reason |
Accrued dates |
Withholding rates |
Long Service |
Normal termination (e.g. voluntary |
Pre 16 August 1978 |
5% of total at marginal rates |
Leave |
resignation, employment terminated |
16 August 1978 to |
|
|
due to inefficiency, retirement) |
17-August-1993 |
31.5% |
|
|
Post 17 August 1993 |
Marginal rates |
|
|
| |
|
Termination because of genuine |
Pre 16 August 1978 |
5% of total at marginal rates |
|
redundancy, invalidity or early |
16 August 1978 to |
|
|
retirement scheme |
17 August 1993 |
31.5% |
|
|
Post 17 August 1993 |
31.5% |
In this case the worker no longer performs "relevant employment" but is still employed by the same employer in a different role, therefore there is no obligation on the employer to continue to contribute to the fund on behalf of the worker. As there hasn't been a termination because of a genuine redundancy, invalidity or as a result of an early retirement scheme, and the accrual dates are all after the 17 August 1993, the long service leave payment to be made to the worker is to be taxed at marginal rates.
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