Current employment tax challenges

Written by Paul Ellis

Paul Ellis is an Employment Taxes partner with EY’s People Advisory Services practice. He chairs The Tax Institute’s National FBT and Employment Taxes Technical Committee.

Current employment tax challenges

Taking a proactive approach in identifying key trends and issues and recommending improvements to the employment tax and superannuation systems is an important focus of the Institute’s National FBT and Employment Taxes Technical Committee.

Employment taxes present a uniquely interlocking web of State and Federal obligations, which continue to present increasing challenges. At the same time, it is becoming increasingly more difficult to resolve complex issues, whether with the tax authorities or through legislative change, where required. In addition to these challenges, we are also simultaneously on the cusp of a growing digital tax administration era, which is already shaping future employment tax compliance strategies.

Resolving complex matters 

Certainty of treatment is of critical importance to taxpayers. However, in employment taxes, there are now a number of key areas where taxpayers have had to live with uncertainty through multiple compliance cycles, the most notable being:
  • Defining “commercial car park” for FBT purposes – The Qantas decision in 2014 extended the potential reach of the FBT car parking provisions beyond CBDs and the ATO has had Taxation Ruling TR 96/26 under review since that time. In the meantime, expansion in the type and nature of car parking arrangements continues to create uncertainty and catch taxpayers well beyond the original intended reach of the rules. Urgent clarification and/or legislative change are required to arrest this unintended scope creep of the parking rules. 
  • FBT taxi travel exemption – State-based taxi licensing laws are evolving in response to Uber and other similar operators changing the face of the taxi industry. However, the ATO continues to resist, insisting that FBT taxi travel exemptions be limited to licensed taxis and exclude ride sharing services (see link), notwithstanding that the 2017 Uber GST case provides a basis to broaden the exemption to a more practical and commercial approach. 
  • FIFO workers – The John Holland case in 2015 provided a welcome approach to updating FBT rules applicable to FIFO workers. However, the ATO has been slow to embrace this change with objections filed by many taxpayers to recover FBT previously paid in relation to FIFO workers still bogged down in ATO red tape, in some cases for periods approaching 3 years. 
  • Business travel – Consultation with the ATO to update its approach to business travel more broadly has also been ongoing. However, finalisation of TR 2017/D6 is still pending. 
  • Contractors – As the gig economy continues to grow, the labyrinth of State and Federal employment tax obligations in relation to contractors make the engagement of contractors a potential minefield. 
Many of these have been ongoing issues for too long already. If existing ATO processes can’t resolve these issues, which impact a broad range of taxpayers, maybe it is time to investigate alternative mechanisms that can.

Digital tax administration 

Tax administrations around the world are increasingly embracing the digital world at a rapid pace, with Australia being no exception. Two common characteristics are readily identifiable. The first is the ever-increasing requirements for source data to be provided in digital form. In the Australian employment tax environment, the advent of Single Touch Payroll is a key development here, as well as the expanding electronic collection of contractor data. The second characteristic is the increasingly advanced use of data matching and data analytics. Indeed, the ATO recently hired a digital tax specialist to head up its data analytics function and increase its capability in this area.

Future employment tax strategies need to be driven by the increasing availability of real time data rather than by reaction to historical filings. The key lies both in developing a data strategy for proactive compliance that keeps taxpayers ahead of the revenue authorities as their data analytics becomes more sophisticated, as well as finding ways to utilise business knowledge to harness data and develop processes that are both more efficient and provide valuable business insights.

Members, we welcome your thoughts via the Vine Feedback inbox.

Kind regards,
Paul Ellis, CTA


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