Exemption for maternity and adoption leave pay
Preamble
Section 53 of the Payroll Tax Act 2007 (the Act) exempts from payroll tax, certain wages paid or payable to employees in respect of maternity leave or adoption leave. Since 2010, NSW, Queensland and Northern Territory payroll tax legislation also allows for an exemption from payroll tax for certain wages paid or payable to employees in respect of paternity leave. The exemption applies to wages paid or payable to:
- female employees in respect of maternity leave;
- male and female employees in respect of adoption leave; and
- male employees in respect of paternity leave.
The exemption:
- is limited to a maximum of 14 weeks’ pay at the rate or amount of wages that would normally be paid by the employer if the employee had worked;
- applies irrespective of whether the leave is taken before or after the relevant birth or adoption; and
- must be supported by relevant records.
The exemption does not apply to fringe benefits.
For payroll tax purposes maternity, paternity and adoption leave are distinct from Paid Parental Leave (PPL) payments which are payments not liable to payroll tax (See revenue Ruling PTA 037). The purpose of this Revenue Ruling is to explain the application of the exemption for maternity, adoption and paternity leave pay and clarify the elements of the exemption.
Ruling
Definition of maternity leave (section 53(1)(a) of the Act)
Maternity leave is defined in the Act as leave given to a female employee in connection with her pregnancy or the birth of her child. The female employee may take maternity leave before or after the birth of her child (section 53(2) of the Act). Sick leave, recreation leave, annual leave or any similar leave taken in connection with a pregnancy or the birth of a child is not considered as maternity leave for payroll tax purposes.
Example 1
In relation to the birth of her child, Mary took long service leave of 10 weeks, annual leave of 4 weeks, PPL of 18 weeks and unpaid leave of 20 weeks. The wages paid for all the leave taken by Mary are taxable except the PPL.
Example 2
In relation to the birth of her child, Mary took long service leave of 10 weeks, annual leave of 4 weeks, paid maternity leave of 12 weeks and unpaid leave of 26 weeks. Only the wages paid for the 12 weeks maternity leave are exempt. Wages paid for the long service leave and annual leave are taxable.
Definition of adoption leave (section 53(1)(b) of the Act)
Adoption leave refers to leave given to an employee (male or female) in connection with the adoption of a child. The employee may take the adoption leave before or after the adoption of a child (section 53(2) of the Act). As with maternity leave, any sick leave, recreation leave, annual leave or any similar leave taken in connection with the adoption leave is not considered to be adoption leave for payroll tax purposes and is therefore not exempt.
Example 3
John has taken 6 weeks paid adoption leave in three distinct parts:
- one week to familiarise himself with the adoption process,
- two weeks to go interstate/overseas to meet the child, and
- a further three weeks after the child arrived in Sydney.
All six weeks are considered to be adoption leave. Consequently, wages paid for the six weeks leave are exempt.
Definition of paternity leave (clause 13A of Schedule 2 of the Act)
Paternity leave is defined in the relevant Acts as leave given to a male employee in connection with the pregnancy of a women with his unborn child or the birth of his child. The male employee may take paternity leave during the pregnancy or once the child is born. Sick leave, recreation leave, annual leave or any similar leave taken in connection with a pregnancy or the birth of a child is not considered paternity leave for payroll tax purposes.
Types of wages that are exempt
Wages paid to an employee which has no connection with the maternity, paternity or adoption are not exempt. Examples of payments made during a period of maternity, paternity or adoption leave that are not exempt include an annual performance bonus, payments of wages in excess of 14 weeks’ pay, commissions, overtime for services performed prior to the period of leave and advance payments for future periods of service occurring after the employee returns from leave.
Example 4
Jane goes on maternity leave in July 2017 and is paid a bonus in July 2017 which relates to services she provided in the financial year ending June 2017. That bonus is not exempt wages because it is not a product, incident or consequence of Jane taking maternity leave.
Fringe benefits provided to an employee on maternity, adoption or paternity leave are not exempt under any circumstances (see section 53(5) and Clause 13A of Schedule 2 of the Act.).
Maximum entitlement
For any one pregnancy or adoption, the exemption is limited to wages for a maximum of 14 weeks full time leave for a full-time employee or the equivalent amount if taken over a longer period e.g. 28 weeks leave being paid at half pay. In the case of a part-time employee, the exemption is limited to a maximum of 14 weeks leave paid at the applicable part-time rates of pay.
Example 5
Cathy is a part-time employee. She works 3 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 Cathy is $4,200 ($100 x 3 days x 14 weeks).
Example 6
ABC Pty Ltd has a policy of providing 12 weeks paid maternity leave. Stella, a full time employee elects to take the maternity leave over 24 weeks at half pay. Wages relating to this period are fully exempt.
Record keeping
To claim the maternity leave exemption, an employer must obtain a medical certificate or statutory declaration from the employee. These documents must specify that the employee was pregnant or that the employee has given birth and the date of birth (section 54(1) of the Act).
To claim the adoption leave exemption, an employer must obtain a statutory declaration from the employee stating that a child has been placed in the employee’s custody pending the making of an adoption order or that an adoption order has been made or recognised in the employee’s favour (section 54(2) of the Act).
The records substantiating a claim for the maternity and adoption leave exemption must be kept for five years (section 53 of the Taxation Administration Act 1996).
To claim the paternity leave exemption and employer must obtain a medical certificate or statutory declaration from the employee stating that a woman was pregnant or has given birth to their child and the date of birth (Clause 13A of Schedule 2 of the Act).
Please note that rulings do not have the force of law. Each decision made by Revenue NSW is made on the merits of each individual case having regard to any relevant ruling.
