27

		
2008

LEGISLATIVE ASSEMBLY OF THE
NORTHERN TERRITORY

TREASURER

PAY-ROLL TAX AMENDMENT (HARMONISATION) BILL 2008
SERIAL NO. 148

EXPLANATORY STATEMENT

GENERAL OUTLINE

This Bill provides for amendments to the Pay-roll Tax Act and the 
Pay-roll Tax Regulations to improve alignment with the payroll legislation of the other states and the Australian Capital Territory. 

All states and territories have been working together to improve pay-roll tax alignment in eight areas covering the timing of the lodgement of returns, motor vehicle allowances, accommodation allowances, fringe benefits, wages for work performed in another country, grouping of employers, employee share acquisition schemes and superannuation contributions. Consequently, each state and territory agreed to adopt common positions in relation to the eight areas.

The intent of the amendments made by the Bill is to ensure that the operation of the Pay-roll Tax Act in the eight agreed areas is generally consistent with the corresponding provisions of the Payroll Tax Act 2007 (NSW) and the Payroll Tax Act 2007 (Vic). Minor variations in language are not intended to alter the meaning of the corresponding provisions.

The Territory is not required to change its laws in relation to employer superannuation contributions and the payroll tax payment and lodgement dates, as they already accord with the agreed position. A summary of the changes being made by the Territory is provided below. More detail is provided in the clause notes.

The Pay-roll Tax Act is also amended to:

·	reduce the payroll tax rate to 5.9 per cent from 1 July 2008; and

·	adopt provisions that are identical to those in NSW and Victoria that tax termination payments. These payments are already taxed in the Territory in this fashion, but changes are required to clarify provisions in the Pay-roll Tax Act after the Commonwealth’s superannuation reforms commenced from 1 July 2007. Adopting the same laws as those in NSW and Victoria promotes further payroll tax consistency.

Motor vehicle allowance exemption

All states and territories have agreed to exempt motor vehicle allowances up to a set rate that is linked to the “large car” rate used by the Australian Taxation Office (ATO) for income tax deduction purposes. The “large car” rate is currently set at 70 cents per kilometre and is updated annually. Any payments that exceed that rate remain subject to payroll tax.

The Bill amends the Pay-roll Tax Act to provide the motor vehicle allowance exemption, as the Pay-roll Tax Act does not currently contain this exemption. In addition, specific record keeping provisions have been adopted that are consistent with other jurisdictions, including the ATO.

Provision of a motor vehicle allowance exemption recognises that motor vehicle allowances are more akin to reimbursing an employee for the use of their motor vehicle rather than being remuneration for services.

Accommodation allowance exemption

All states and territories have agreed to exempt accommodation allowances up to a set rate that is linked to the ‘lowest salary band/lowest capital city’ rate that is used by the ATO for income tax deduction purposes. That rate is currently $201.25 per night and is updated annually. Any payments that exceed that rate remain subject to payroll tax.

The Bill amends the Pay-roll Tax Act to provide the accommodation allowance exemption, as the Pay-roll Tax Act does not currently contain this exemption. 

Provision of an accommodation allowance exemption recognises that such payments are more akin to reimbursing an employee for accommodation costs incurred while travelling for work purposes rather than being remuneration for services.

Fringe benefits

In the Territory, fringe benefits are generally included as wages for payroll tax purposes and taxed according to their taxable value under the Commonwealth Fringe Benefits Tax Assessment Act 1986. However, living-away-from-home allowances, which are fringe benefits, are not taxed as a fringe benefit. Rather, the full amount of a living-away-from-home allowance is subject to payroll tax. 

The Bill amends the Pay-roll Tax Act to align the treatment of living-away-from-home allowances with the other states and the ACT by taxing them as a fringe benefit, such that only the amount of the allowance in excess of the Fringe Benefits Tax Assessment Act 1986 thresholds is subject to payroll tax.

This is the only change required by the Territory to conform with the agreed payroll tax treatment of fringe benefits.

Wages for work performed in another country

Wages paid for services performed in another country for more than six months are exempt from payroll tax. The exemption currently only applies to wages paid to an employee after six months of continuous service in another country has first been completed.

The Bill amends the Pay-roll Tax Act to extend the exemption so that it also applies to wages paid during the first six months of services in another country. However, at least six months of continuous service in another country is still required for the exemption to apply.

This is the only change required by the Territory to conform with the agreed payroll tax treatment relating to work performed in another country.

Employee share and option schemes 

An employee share acquisition scheme is a form of employee remuneration scheme under which a company issues shares to an employee for services performed for the company. Options can also be granted to purchase shares at a later date. These arrangements can be structured in various ways.

Employee share acquisition schemes have been subject to payroll tax in the Territory since 1 July 1999. 

However, the Bill introduces provisions to tax share and option benefits provided to employees that are based on the NSW and Victorian provisions. This has resulted in a number of changes to the way shares and options are taxed and these changes are explained below.

The Bill amends the Pay-roll Tax Act to:

·	enable employers to choose either the date of the initial grant of the shares or options or the vesting date (that is, the date of vesting or issue of shares, or exercise of options) as the date when the shares or options are taxed. The Territory previously required payroll tax to be paid on the value of the employee share benefit when it is contributed to an employee share scheme;

·	align the valuation of shares or options with the valuation methodology that applies for Commonwealth capital gains tax purposes under Division 13A of the Income Tax Assessment Act 1936. The previous valuation rules were based on the Income Tax Assessment Act 1936, with the exception of unlisted options;

·	specify when shares and options are regarded as being paid or payable in or outside the Territory, based on whether the company is registered in or outside the Territory, when the services for which the shares and options are being granted were not performed wholly in the Territory. In these circumstances, the previous rules relied on the general nexus provisions of where the wages are paid (if the work is not performed wholly in the Territory);

·	reduce an employer’s payroll tax liability if the employer elects to pay payroll tax upfront on an option that is subject to performance conditions (for example, the shares in the company obtaining a certain value) and those conditions are subsequently not met. However, this will not be available if the relevant performance criteria have been met but the employee fails to exercise their rights. No crediting provisions previously existed in the Territory; and

·	remove the requirement to tax the grant or issue of units in a unit trust under the share and option provisions. Instead, units are to be taxed as a fringe benefit under the Fringe Benefits Tax Assessment Act 1986 of the Commonwealth, at the value determined in accordance with that Act. Previously, contributions of a unit or right to acquire a unit were taxed under the employee share scheme provisions.

Grouping

The Pay-roll Tax Act provides for the grouping of certain related persons. All the states and the ACT have similar provisions. 

Amendments are made to the Territory’s Pay-roll Tax Act to adopt identical grouping rules to those that operate in NSW and Victoria. This results in a small number of changes, including:

·	amending the definition of “business” to include the activity of holding any money or property used for or in connection with another business and the carrying on of a trust, including a dormant trust;

·	broadening the rules for grouping through inter-use of employees; and

·	introducing rules that specifically relate to the grouping of clubs and associations.

A more significant change is the introduction of provisions that enable interests to be traced through interposed corporations. These provisions operate to group persons where there is a controlling interest greater than 50 per cent after taking into account direct and indirect interests and the aggregation of these interests. This addresses complex business structures that otherwise avoid the grouping provisions.

Another significant change is the extension of the Commissioner of Territory Revenue’s discretion to exclude a member from a payroll tax group. The Commissioner’s discretion is no longer limited to groupings that occur through the inter-use of common employees or discretionary trusts. The discretion has been expanded to include all groupings, except for those that occur by corporations being related bodies corporate under the Corporations Act 2001 of the Commonwealth.

NOTES ON CLAUSES

Part 1 – Preliminary

Clause 1.	Short title

This is a formal clause which provides for the citation of the Bill. When passed, the Bill may be cited as the Pay-roll Tax Amendment (Harmonisation) Act 2008. 

Clause 2.	Commencement

This clause provides that the Bill commences on 1 July 2008. 

Part 2 – Amendment of Pay-roll Tax Act

Clause 3.	Act amended

This clause specifies that the Act being amended is the Pay-roll Tax Act.

Clause 4.	New Part 1, Division 1 heading

This clause inserts the heading ‘Division 1  Formal provisions’ before section 1 of the Pay-roll Tax Act. For simplicity, some Parts of the Act will be divided into Divisions and this is the first new Division.

Clause 5.	New Part 1, Division 2 heading

This clause inserts the heading ‘Division 2  Interpretative provisions’ after section 2 of the Pay-roll Tax Act. 

Clause 6.	Amendment of section 3 (Interpretation)

This clause amends section 3 to remove, introduce or modify various definitions in the Pay-roll Tax Act.

Subclause (1) removes from section 3(1) the definitions for “designated group employer”, “group”, “prescribed benefit” and “related”.

Subclause (2) inserts into section 3(1) new definitions for “designated group employer”, “director”, “group”, “ITAA”, “option”, “paid”, “private unit trust scheme”, “public unit trust scheme”, “share” and “unit trust scheme”.

A number of definitions have been inserted to simplify the legislation because they are referred to in a number of places; for example “director” and “ITAA”. Other definitions are consequential amendments necessary to reflect changes to section references; for example, “designated group employer” and “group”.

The new definitions of “option” and “share” are required for new Part 1, Division 7 of the Pay-roll Tax Act relating to the taxing of shares and options.

The new definitions of “public unit trust scheme” and “unit trust scheme” are required for the tracing provisions in new Part 5 of the Pay-roll Tax Act.

Subclause (3) amends the definition of “wages” in section 3(1) by specifically referring upfront to “remuneration” for clarity. This is because the term “remuneration” is used later in several paragraphs of the existing definition of “wages” in section 3(1) of the Pay-roll Tax Act. 

Subclause (4) omits the reference to “a member of the governing body” from paragraphs (b) and (baa) of the definition of “wages”. This is a consequential amendment as a result of the new definition of “director” inserted by subclause (2).

Subclause (5) amends paragraph (cb) of the definition of “wages” in section 3(1) to refer to the new provisions concerning the taxation of termination payments. 

Subclause (6) amends paragraph (e) of the definition of “wages” in section 3(1) to refer to the new employee share and option taxing provisions.

Subclause (7) removes section 3(3)(a) and subclause (8) amends section 3(4) to remove references to a prescribed benefit. This is because there are no longer any prescribed benefits, as the only prescribed benefits were those to tax employee share acquisitions schemes and these have been replaced by specific provisions in new Part 1, Division 7 of the Pay-roll Tax Act. 

Clause 7.	New Part 1, Division 3 heading

This clause inserts the heading ‘Division 3  Superannuation benefits’ after section 3 of the Pay-roll Tax Act.

Clause 8.	Amendment of section 3A (Superannuation benefits)

This clause amends section 3A(1) and (3) by substituting all references to “the Schedule” with “Schedule 1”. This is a consequential amendment resulting from the insertion of a new Schedule 2 dealing with motor vehicle allowances.

Clause 9.	New Part 1, Division 4 heading 

This clause inserts the heading ‘Division 4  Fringe benefits’ after section 3A of the Pay-roll Tax Act.

Clause 10.	Repeal of section 3C

This clause repeals section 3C of the Pay-roll Tax Act that deals with prescribed benefits. Currently the only prescribed benefit is a contribution to an employee share scheme. The employee share scheme provisions are to be replaced by the new share and option provisions under new Part 1, Division 7 of the Pay-roll Tax Act.

Clause 11.	 New Part 1, Division 5 heading 

This clause inserts the heading ‘Division 5  GST’ before section 3D of the Pay-roll Tax Act.

Clause 12.	New Part 1, Divisions 6, 7 and 8

This clause inserts three new Divisions into Part 1 of the Pay-roll Tax Act. Division 6 provides for the motor vehicle and accommodation allowance exemptions, Division 7 provides for the taxation of shares and options and Division 8 provides for the taxation of termination payments.

Division 6  Allowances

Division 6 consists of two new sections, sections 3E and 3F. Section 3E provides for the motor vehicle allowance exemption and section 3F provides for the accommodation allowance exemption.

Section 3E(1) specifies that wages do not include the exempt component of a motor vehicle allowance. “Exempt component” is defined in section 3E(4).

Section 3E(2) clarifies that if the total motor vehicle allowance paid or payable to an employee in a financial year is equal to or less than the exempt component, it is not to be included as wages for payroll tax purposes.

Section 3E(3) clarifies that if the total motor vehicle allowance paid or payable to an employee in a financial year is more than the exempt component, the portion that exceeds the exempt component should be included as wages for payroll tax purposes. 

Section 3E(4) specifies the formula for calculating the exempt component.

Section 3E(5) specifies the methods used to determine the number of business kilometres travelled during the financial year, which is one of the variables in the formula in subsection (4). The methods available are outlined in Schedule 2 of the Pay-roll Tax Act.

Section 3E(6) provides the Commissioner of Territory Revenue with the discretion to approve alternative methods that an employer may use to determine the number of business kilometres that an employee travels during a financial year.

Section 3E(7) sets out the exempt rate to be used to calculate the exempt component in section 3E(4). This rate would usually be that set at the large car rate prescribed by regulations under section 25-28 of the Income Tax Assessment Act 1997 of the Commonwealth. In which case the rate to be used is that set under the Income Tax Assessment Act 1997 for the financial year that immediately precedes the financial year in which the allowance is paid or payable. However, a rate set under the Pay-roll Tax Regulations is to be used, if no rate is prescribed under the Income Tax Assessment Act 1997.

Section 3F(1) provides that wages do not include an accommodation allowance paid or payable to an employee that does not exceed the exempt rate for a night’s travel away from home. The “exempt rate” is defined section 3F(3).

Section 3F(2) clarifies that wages only include the component of an accommodation allowance that exceeds the exempt rate.

Section 3F(3) defines the exempt rate for accommodation allowances. The exempt rate is usually that set by ATO determinations in respect of reasonable daily travel allowance expenses for the lowest capital city for the lowest salary band. If there is no determination made by the ATO, there is provision for a rate to be prescribed by the Pay-roll Tax Regulations.

Division 7  Shares and options

Division 7 concerns the taxing of shares and options in relation to an employee or director and consists of sections 3G to 3Q. Division 7 replaces the provisions that taxed contributions to employee share acquisition schemes.

Section 3G(1) specifies that wages, for payroll tax purposes, must include shares and options granted in relation to an employee for services performed by that employee.

Section 3G(2) specifies that shares and options are taken to be paid on the “relevant day”. The meaning of “relevant day” is detailed in section 3H.

Section 3G(3) provides that the employer is able to elect the relevant day and that this will be the day that wages are taken to have been paid or payable. 

Section 3G(4) ensures that the grant of a share or option to or in relation to an employee or director of an employer may be wages of the employee or director that are subject to payroll tax. This will be the case even where the grant of the share or option is to a third party. The grant of a share or option by a third party acting under an arrangement with the employer is already provided for in the existing definition of “wages” in the Pay-roll Tax Act.

Section 3H(1) permits employers to elect to treat the wages constituted by the grant of a share or option as having been paid or payable on the date the share or option is granted to the employee, or the date on which the share or option vests in the employee. Details about the grant of shares and options are included in section 3H(2), while details of the vesting of shares is included in section 3H(3) and the vesting of options in section 3H(4).

Section 3H(2) describes the circumstances in which a share or option is granted to a person and for this purpose adopts provisions of the Commonwealth Income Tax Assessment Act 1936.

Section 3H(3) defines the vesting day in relation to a share as being the day on which the share actually vests. This is when all conditions applying to the grant of the share have been met and the employee holds the legal or beneficial interest in the share.

Section 3H(4) defines the vesting day in relation to an option as being either the date on which the share relating to the option is granted to an employee or the date on which the employee exercises a right to have the option transferred to himself or herself.

Section 3J(1) specifies that if the employer does not include the value of a share or option as taxable wages in the financial year in which it was granted, then the relevant day for the share or option is deemed to be the vesting date.

Section 3J(2) specifies that if the value of a share or option that is granted by an employer is nil, or the wages constituted by such a grant would not be liable to payroll tax on the date of the grant, the wages consisting of the grant of the share or option will be treated as paid or payable on the date that the share or option was granted.

Section 3K(1) ensures that payroll tax will continue to be payable in respect of a grant of a share or option that is later withdrawn, cancelled or exchanged, if it is withdrawn, cancelled or exchanged for valuable consideration. If this section applies, the vesting day is taken to be the day on which the share or option is withdrawn, cancelled or exchanged and the market value of the share or option to be included in taxable wages is the amount of the consideration.

Section 3K(2) allows an employer a reduction in its taxable wages by the value of a grant of a share or option on which it previously paid payroll tax, where the grant is subsequently rescinded because the conditions attaching to it were not met. This reduction is to occur in the financial year in which the grant of the share or option is rescinded. An employer will only be entitled to a reduction if it relates to the grant of a share or option that was made to an employee on or after 1 July 2008, being the date section 3K(2) commences.

Section 3K(3) clarifies that the reduction provisions in subsection (2) will not apply if an employee chooses not to exercise his or her rights in respect of a share or option.

Section 3L provides that payroll tax is not payable on the grant of a share pursuant to the exercise of an option:

·	on which the employer has already paid payroll tax; or

·	if the option was granted before 1 July 1999 (that is, the commencement of the previous provisions taxing employee shares and options.

Section 3M(1) provides that any consideration paid by an employee in respect of the grant of a share or option is to be deducted from the value of the share or option for payroll tax purposes.

Section 3M(2) provides that the market value of shares or options is to be set in accordance with “Commonwealth income tax provisions”. That term is defined in section 3M(5).

Section 3M(3) describes modifications to the “Commonwealth income tax provisions” referred to in section 3M(2). Namely, the market value of an option is determined as if it were a right to acquire a share, reference to “taxpayer” in the “Commonwealth income tax provisions” is to be read as “employee” and reference to the Commissioner of Taxation is to be read as a reference to either the Commissioner or the Commissioner of Territory Revenue.

Section 3M(4) specifies that section 3B of the Pay-roll Tax Act, which deals with the taxing of fringe benefits, excludes the grant of a share or option if the share or option is also a fringe benefit. This ensures that the grant of a share or option is not subject to payroll tax twice.

Section 3M(5) provides for the meaning of the term “Commonwealth income tax provisions”.

Section 3N provides for the inclusion in taxable wages of shares and option granted to directors.

Section 3N(1) ensures that the grant of a share or option to a director of a company as remuneration for the appointment or services of the director constitutes wages for payroll tax purposes.

Section 3N(2) provides that other provisions in Division 7 apply as if “employer” refers to “company” and “employee” refers to a “director” of that company.

Section 3N(3) defines, for the purposes of section 3N, a “director” to include a person to be appointed as a director of a company under a contract or other arrangement and a former director of the company.

Section 3N(4) provides that when shares or options are granted to a director by reason of their appointment as director, services for which the grant of the shares or options are provided are taken to have been performed by the director in the month in which the relevant day occurs. In addition, those services are taken to have been performed in the place where the director could be reasonably expected to perform them.

Section 3P provides that where the grant of a share or option constitutes wages, the services to which those wages relate will be taken to have been performed during the month in which the relevant day occurs.

Section 3Q provides specific rules for determining where wages constituted by the grant of shares and options are taken to be payable for payroll tax purposes.

Section 3Q(1) provides that wages constituted by the grant of a share or option will be taken to be paid or payable in the Territory if the share is a share in a “local company”, as defined in section 3Q(3), or the option provides for the acquisition of shares in a “local company”.

Section 3Q(2) provides that wages constituted by the grant of a share or option will be taken to be paid outside of the Territory, if section 3Q(1) does not apply.

This provision should be read in conjunction with the specific nexus rules in section 6 of the Pay-roll Tax Act. For example, even if the wages in respect of the grant of a share or option are taken to be paid or payable outside the Territory, they may still be liable to payroll tax in the Territory if the grant is made for services performed or rendered wholly in the Territory.

Division 8  Termination payments

Section 3R provides definitions for “employment termination payment”, “termination payment”, “unused annual leave payment” and “unused long service leave payment”.

Notably, the definition of “employment termination payment” extends the meaning of the Commonwealth Income Tax Assessment Act 1997 by including payments that are made after 12 months of a person being terminated.

Section 3S provides that termination payments constitute wages for payroll tax purposes.

Clause 13.	Amendment of section 6 (Pay-roll tax)

Subclauses (1) and (2) both amend section 6(1) of the Pay-roll Tax Act to provide for the payroll tax rate reduction from 6.2 per cent to 5.9 per cent and commencement of the new rate from 1 July 2008.

Subclause (3) amends section 6(2) of the Pay-roll Tax Act and omits section 6(2A) to provide that taxable wages do not include wages paid or payable in respect of services which are performed wholly in another country for a continuous period of more than six months. Such wages are exempt from tax from the commencement of the period of service in another country. Only wages paid after the expiry of the first six months of service in another country were previously exempt from payroll tax.

If an employee performs services for a continuous period of more than six months and that six month period spans the commencement of the Bill, the exemption is to operate over this period such that an employer can claim the exemption for wages paid after 1 July 2008, but not for any wages paid prior to 1 July 2008.

For example, if an employee performs services in another country for seven months, from 1 April 2008 to 31 October 2008, the wages for the period 1 April 2008 to 30 June 2008 are taxable. However, the wages for the period 1 July 2008 to 31 October 2008 are not taxable. Therefore, even though the employee only worked in another country for four months after 1 July 2008, the employer may take into account the period of time the employee worked in another country prior to 1 July 2008.

Clause 14.	Amendment of section 11A (Arrangements for avoidance of tax may be disregarded)

This clause amends section 11A(3) of the Pay-roll Tax Act. These are consequential amendments resulting from the insertion of Division 7 by clause 12 of this Bill, dealing with the taxing of the grant of shares and options and the removal of the previous provisions dealing with these.

Clause 15.	Amendment of section 11B (Arrangements for avoidance of tax by labour hire agents)

This clause amends section 11B(3) of the Pay-roll Tax Act. This is a consequential amendment as a result of clause 16 of this Bill.

Clause 16.	Repeal and substitution of Part IVA

This clause removes Part IVA of the Pay-roll Tax Act and replaces it with new Part 5 that inserts grouping provisions identical to those in Victoria and NSW. New Part 5 is broken down into four divisions covering interpretation provisions, business groups, tracing of interests in corporations and miscellaneous provisions.

Division 1  Interpretation 

Section 17A provides an amended definition of “business” and inserts a definition of “group”. The definition of “business” is amended to include the activity of holding any money or property used for or in connection with another business and the carrying on of a trust, including a dormant trust. 

Section 17B provides that just because a person is not a member of a group constituted under one of the grouping provisions does not prevent them from being a member of a group constituted under any of the other grouping provisions.

Division 2  Business groups

Section 17C provides that when two or more groups form part of a larger group, the two or more smaller groups are not considered as groups in their own right.

Section 17D provides that corporations constitute a group if they are related bodies corporate within the meaning of the Commonwealth’s Corporations Act 2001. The Commissioner of Territory Revenue has no discretion to exclude such corporations from a group constituted under new section 17D of the Pay-roll Tax Act.

Section 17E provides for groups arising from the inter-use of employees. Where one or more employees of an employer: 

·	perform duties for one or more businesses carried on by the employer and one or more other persons; or

·	are employed solely or mainly to perform duties for one or more businesses carried on by one or more other persons; or

·	perform duties for one or more businesses carried on by one or more other persons, being duties performed in connection with or in fulfilment of the employer's obligation under an agreement, arrangement or undertaking for the provision of services to any of those persons;

the employer and each of those other persons constitute a group.

These provisions essentially reproduce the effect of the grouping rules for the inter-use of employees that previously existed in the Territory, with the following differences.

Part IVA, section 17C(a) of the Pay-roll Tax Act as in force before 1 July 2008 is replaced with two separate tests in sections 17E(1) and 17E(2).

Former section 17C(a) operates where one or more employees of an employer perform duties solely or mainly for one or more businesses carried on by:

·	the employer and one or more other persons (category 1); or

·	another person or persons (category 2).

The new test in section 17E(1) operates to group the employer with the person(s) identified in category 1. The requirement that the duties be performed by the employee or employees “solely or mainly” for or in connection with one or more businesses has been removed, thereby broadening the scope for grouping to occur.

The test in section 17E(2) operates to group the employer with the person(s) identified in category 2. The “solely or mainly” requirement is retained here.

New sections 17E(3) and (4) are based on former section 17C(b) of the Pay-roll Tax Act as in force before 1 July 2008. However, emphasis will no longer be on whether the agreement, arrangement or undertaking is in respect of the employment of, or performance of duties by, one or more employees of the employer. Instead, new section 17E is directed to whether the employee or employees perform duties for, or in connection with, the business or businesses concerned, being duties performed in connection with or to fulfil services that the employer is obliged to provide.

Section 17E(4)(a) provides that section 17E(3) applies to an agreement, arrangement or undertaking whether it is formal or informal, express or implied. This is consistent with former section 17C(b).

However, section 17E(4)(b) clarifies that for the purposes of section 17E(3), the agreement, arrangement or undertaking need not provide for duties to be performed by the employees or specify the duties to be performed by the employees.

Section 17F provides for groups arising through common control of two businesses. Under this section, a group exists where a person, or a set of persons, has a controlling interest in each of two businesses. The entities carrying on the businesses are grouped.

The rules for determining whether a person (or set of persons) has a controlling interest in a business vary depending upon the type of entity conducting the business (e.g. a corporation, partnership or trust), and generally relate to the level of ownership or control of the business, or of the entity conducting the business. The level of ownership or control required for an interest to be regarded as a controlling interest remains unchanged at more than 50 per cent.

In some circumstances, a person or set of persons will be taken to have a controlling interest in a business on the basis that a related person or entity has a controlling interest in that business. More specifically:

·	if a corporation has a controlling interest in a business, any related body corporate of the corporation (within the meaning of the Commonwealth’s Corporations Act 2001) will also be taken to have a controlling interest in the business;

·	if a person or set of persons has a controlling interest in a business, and the person or set of persons who carry on that business has a controlling interest in another business, the first-mentioned person or set of persons is taken to have a controlling interest in the second-mentioned business;

·	if a person or set of persons has a controlling interest in the business of a trust, and the trustee(s) of the trust has a controlling interest in the business of another entity (being a trust, corporation or partnership), the person or set of persons is taken to have a controlling interest in the business of that other entity.

These provisions essentially replicate the effect of the grouping rules that previously existed in the Territory to group persons who carry on businesses in which a person or set of persons has controlling interests. The main differences are: 

·	The provisions for grouping corporations by directors are simplified, by replacing former section 17D(3)(a) of the Pay-roll Tax Act as in force prior to 1 July 2008 with sections 17F(2)(c)(i) and (ii). 

New section 17F(2)(c)(i) provides that a person or set of persons, with an entitlement to exercise more that 50 per cent of the voting power at meetings of the directors of the corporation, has a controlling interest in the business carried on by the corporation.

New section 17F(2)(c)(ii) provides that if a director or set of directors, with an entitlement to exercise more that 50 per cent of voting power at meetings of the directors of the corporation are under an obligation to act in accordance with the direction, instruction or wishes of a person or set of persons, that person or set of persons has a controlling interest in the business carried on by the corporation.

·	A person or set of persons has a controlling interest in the business carried on by a body corporate or unincorporated if they constitute more than 50 per cent of the board of management or control the composition of the board. As a result, unincorporated associations and clubs may be grouped with other persons under this provision.

·	The operation of the grouping provisions where a person or set of persons has a controlling interest in the business of a trust has been better explained. New Sections 17F(5), 17F(7) and 17F(8) expand on former section 17(6) of the Pay-roll Tax Act as in force prior to 1 July 2008.

Sections 17F(5), 17F(7) and 17F(8) specifically provide for grouping in relation to a trust, corporation and partnership, respectively. In comparison, former section 17D(6)(b) implicitly covered grouping in relation to each of these different types of entities.

Also in section 17F, rather than referring to a person or persons together, the term “a person or set of persons” is used. This clarifies that for the purposes on section 17F, these persons need not be acting in concert.

Section 17G(1) provides that an entity (being a person or two or more associated persons) and a corporation form part of a group if the entity has a controlling interest in the corporation. 

Section 17G(2) provides that a controlling interest exists if the entity has a direct interest, an indirect interest or an aggregate interest in the corporation, and the value of that interest exceeds 50 per cent.

Section 17G(3) provides that Part 5, Division 3 of the Pay-roll Tax Act applies for determining whether an entity has a direct, indirect and aggregate interest and the value of such interests.

Section 17G(4) sets out definitions relevant to this section.

Section 17H(1) provides that, where any person is a member of two or more groups, those groups will form a single group. Under section 17C, the smaller groups that have been subsumed cease to exist as groups for the purposes of the Pay-roll Tax Act.

Section 17H(1) and section 17C are the equivalent provisions of former sections 17E(1) and 17E(2) of the Pay-roll Tax Act as in force before 1 July 2008 and are intended to operate in an identical manner.

Section 17H(2) provides that when two or more members of a group, when considered together, have a controlling interest in a business, all the members of the group and the person or persons who carry on the business will together constitute a group.

Division 3  Business groups – tracing of interests in corporations 

New Division 3 applies to new section 17G. This Division provides that an entity’s interest in a corporation for the purpose of determining whether the entity has a controlling interest, may be a direct or an indirect interest. Indirect interests may be traced through interposed corporations, and may be aggregated with direct interests for the purpose of determining whether an entity has a controlling interest. An entity is defined in new section 17G(4) and may be a person or two or more associated persons.

Section 17J provides that Division 3 applies for the purposes of grouping an entity with a corporation under section 17G.

Section 17K(1) provides that an entity has a direct interest in a corporation if the entity can directly or indirectly exercise, control the exercise, or substantially influence the exercise of voting power attached to voting shares in the corporation. 

Section 17K(2) provides that the percentage interest of voting power that an entity controls is the percentage of the total voting power which the entity can exercise, control or substantially influence. If an entity is two or more persons who are associated persons, then the percentage interest of voting power is that percentage based on the associated persons acting together. 

Diagram 1 below illustrates an entity holding a direct interest.

Diagram 1

Sections 17L(1) and (2) provide that an entity has an indirect interest in a corporation (called the indirectly controlled corporation) if the entity is linked to that corporation by a direct interest in another corporation (called the directly controlled corporation) that has a direct and/or an indirect interest in the indirectly controlled corporation.

An example of how sections 17L(1) and (2) operate is provided by section 17L(3). An illustration of the example is set out below in Diagram 2.

Diagram 2

Section 17L(4) provides that the value of an indirect interest in an indirectly controlled corporation is determined by multiplying the value of the entity’s direct interest in the directly controlled corporation by the value of the directly controlled corporation’s interest in the indirectly controlled corporation.

An example of how the value of interests are derived is provided by section 17L(5). An illustration of the example is set out below in Diagram 3.

Diagram 3

Section 17L(6) provides that it is possible for an entity to have two or more indirect interests in a corporation. If there are two or more indirect interests then the entity will have an aggregate interest. Aggregate interests are dealt with in section 17M.

Section 17M(1) provides that an entity has an aggregate interest in a corporation when it has either a direct interest and one or more indirect interests, or two or more indirect interests. Diagram 4 illustrates each of these arrangements.

Diagram 4

Section 17M(2) provides that the value of an entity’s aggregate interest in a corporation is the sum of the entity’s direct and indirect interests in that corporation.

An example of how sections 17M(1) and (2) operate is provided by section 17M(3). An illustration of the example is set out below in Diagram 5.

Diagram 5

Division 4  Miscellaneous 

Section 17N(1) provides that the Commissioner of Territory Revenue may determine that a person is not a member of a group. A determination is to be in writing.

Section 17N(2) provides that such a determination can only be made if the Commissioner is satisfied that the business conducted by that member is carried on independently of, and is not connected with, the business conducted by any other member of the group. In considering the application of this discretion, the Commissioner will have regard to the nature and degree of ownership and control of the businesses, the nature of the businesses and any other relevant matters.

Section 17N(3) provides that a determination to exclude a person from a group cannot be made if it is grouped by section 50 of the Commonwealth’s Corporations Act 2001 (that is, grouping occurred under section 17D).

Section 17N(4) provides that a determination that a person is not a member of a group can be made in relation to a larger group (that is, a group where the smaller group has been subsumed into a larger group under section 17H).

Section 17N(5) provides that the Commissioner may make a determination to exclude a person from a group that takes effect on a date earlier than the determination. However, the determination cannot take effect earlier than 1 July 2008, being the date section 17N commences. This aligns with section 17S, which sets out when new Part 5 of the Pay-roll Tax Act applies and when old Part IVA continues to apply.

Section 17N(6) provides that the Commissioner may also revoke a determination if satisfied that the circumstances in which a determination may be made to exclude a person from a group do not apply to the person.

Section 17N(7) provides that the revocation of a determination may take effect from a date earlier than the determination. 

Sections 17P, 17Q and 17R are renumbered sections and are equivalent to sections 17J, 17K and 17L of the Pay-roll Tax Act as in force before 1 July 2008.

Section 17S is a transitional provision that provides that new Part 5 of the Pay-roll Tax Act only applies to groupings in respect of the 2008-09 financial year and subsequent financial years, and that the provisions in force prior to 1 July 2008 will continue to apply to groupings and exclusions from groupings under the former Part IVA of the Pay-roll Tax Act.

Section 17S is consistent with section 26 of the Taxation Administration Act that provides that a tax liability is to be assessed by reference to the provisions of the relevant taxation law as in force when the liability arose. 

Clause 17.	Amendment of section 59 (Agents and trustees)

This clause amends section 59(2) of the Pay-roll Tax Act. This is a consequential amendment arising from the repeal of Part IVA and the insertion of Part 5 into the Pay-roll Tax Act.

Clause 18.	Amendment of Schedule heading

This clause provides for the renaming of “Schedule” to “Schedule 1” as a result of clause 19 of the Bill, which inserts a new Schedule into the Pay-roll Tax Act.

Clause 19.	New Schedule 2

This clause inserts new Schedule 2 that sets out the record keeping requirements that form part of the motor vehicle allowance exemption that is inserted by clause 12 of the Bill.

Clause 1 of Schedule 2 defines “business journey” for the purposes of the Schedule.

Clause 2 of Schedule 2 provides for certain information to be recorded by an employer if the employer elects to use the continuous recording method for determining the number of business kilometres travelled during a financial year.

Clause 3 of Schedule 2 provides for certain information to be recorded by an employer if the employer elects to use the averaging method for determining the number of business kilometres travelled during a financial year. The averaging method allows employers to record the percentage of business kilometres travelled to total kilometres travelled in the “relevant 12-week period” (this term is defined in clause 4 of Schedule 2), and use this percentage to determine business kilometres travelled throughout the whole financial year, as well as the next four financial years.

Clause 4 of Schedule 2 defines the meaning of “relevant 12-week period” and provides specific rules for this period.

Clause 5 of Schedule 2 provides that an employer that has elected to use the averaging method may nominate in writing to replace one motor vehicle with another motor vehicle. This nomination must be recorded in the financial year in which the nomination is to take effect, however, the Commissioner has the discretion to allow this occur in a later year. The replacement motor vehicle will be taken to be the original motor vehicle and steps to record the average number of business kilometres travelled do not need to be repeated for the replacement motor vehicle.

Clause 6 of Schedule 2 provides for an employer to change from using the averaging method to the continuous recording method, or vice versa, from the beginning of a financial year. The requirements for the particular method chosen, as detailed in clauses 2 and 3 of Schedule 2, must be complied with.

Part 3 – Amendment of laws

Clause 20.	Laws amended

This clause makes consequential amendments to the Pay-roll Tax Regulations, as detailed in the Schedule, arising from the amendments made by this Bill.