Private ruling: Compensation payment, working holiday makers, withholding obligations
Date of advice: 13 February 2019
Published: May 2019
Ruling period: 1 July 2018 to 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Is the insurer required to register as an employer of Working Holiday Makers (WHM) under section 16-146 of Schedule 1 of the Taxation Administration Act 1953 (TAA), in respect of payments made under section 12-120 of the TAA, hereby referred to as Loss of Earnings (LOE) payments, where payments are made to individuals who held or continue to hold a working holiday maker visa in accordance with subsection 3A(1) of Income Tax Rates Act 1986 (ITRA 86). | A1: No, the insurer is not required to register as an employer of WHM under section 16-146 of Schedule 1 of the TAA as it is not paying salary, wages, commission, bonuses or allowances to WHM. | Q2: If the answer to questions 1 is “No”, is the insurer required to withhold from LOE payments to WHM visa holders in accordance with the ordinary resident and non-resident tax tables under section 12(1) of schedule 7 of ITRA 86 based on the WHM resident/non-resident disclosures in the Tax File Number declaration (NAT 3092) completed by the WHM and provided by the insurer. | A2: Yes. As the insurer doesn’t have to register as an employer of WHM, it doesn’t need to apply the WHM rates. Instead the insurer will apply the standard withholding rates. Refer to ato.gov.au, reference QC 50695 for further information on how to calculate the amount to withhold.

Relevant facts and circumstances: The insurer makes payments to individuals who have been injured in a transport accident in state A. The insurer makes loss of earnings (LOE) payments to individuals unable to perform their employment duties as a result of the accident. In accordance with Division 12 of Taxation Administration Act 1953 an entity is required to withhold Pay As You Go (PAYG) from the LOE payments and remit to the Australian Tax Office (ATO). The insurer has received confirmation from the ATO that PAYG is to be applied in accordance with subsection 12-120. The insurer withholds from its LOE payments in accordance with the relevant withholding schedule under subsection 15-25 based on the information provided by the LOE recipient to the insurer. Onus remains on the LOE recipient to provide the insurer with updated information should their personal circumstances change. Some individuals who receive LOE payments are in Australia on WHM visas in accordance with section 3(A)1 of ITRA 86. Payments to these individuals are for compensation for LOE, but they are not a payment of salary, wages, commission, bonuses or allowances. The insurer is sometimes unable to confirm residential address or tax status of the LOE recipient. Further information The insurer is considered to be a payer because they are making a payment that is a withholding event under Section 12 -120 Schedule 1 to the Taxation Administration Act 1953 . They can obtain a Tax File Number (TFN) declaration from the payee before making a payment and withhold from the payment using the correct tax table. To help their clients we suggest that they complete a TFN declaration so that the correct amount of withholding can be withheld from their payments. For information related to the completion of TFN form, refer to ato.gov.au QC16161. If the payee does not provide a TFN declaration, the payer needs to withhold at the no TFN rate 47% for resident payees and 45% for non-residents. This information can be found in the ATO website tax tables on QC16945. The tax tables are updated when there are any changes to rates and are the most reliable source for this information. If the payee has not completed the residency question on the TFN declaration then this is not considered a completed form and the payer would withhold from the payee at the highest rates stated in the above. The payer could ask the payee to complete the form and then withhold at the new withholding rate. If the payee has not provided a TFN declaration form then the payer would use the rates above for the 2018/19 financial year. This is the highest rate of tax to withhold and our tax tables on QC16945 have this information. Section 15-50 Schedule 1 of the TAA covers what the TFN declaration and a withholding declaration are for.

Relevant legislative provisions: Income Tax Rates Act 1986 Subsection 3A | Taxation Administration Act 1953 section 16-146 of Schedule 1 | Taxation Administration Act 1953 section 12-120