What the new Paid Parental Leave scheme means

In the 2009 Federal Budget on May 12, 2009, the Federal Government announced it would introduce a Paid Parental Leave (PPL) scheme. The scheme will be available to parents for births and adoptions that occur on or after January 1, 2011. Parents will be able to lodge claims from October 1, 2010.

You may be wondering why I’m writing about this scheme in a column on taxation. Well, surprise, surprise, it’s because the scheme has an interaction with the tax system – and what doesn’t seem to interact with the tax system these days! Perhaps Dr Henry has had something to say on that – we’ll know that when the Government releases his report.

SMEs need to be aware of this new scheme as they will likely need to discuss it with their tax adviser or accountant at some stage in the future.

While legislation for the new scheme has yet to be introduced in Parliament, the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA), who will administer the scheme, has been looking at the practical implementation details.

Notwithstanding tax issues, there will be other obligations on employers under the scheme and SMEs need to be aware of those details too. What follows is a brief overview.

The scheme will be available to parents for births and adoptions that occur on or after January 1, 2011. It will provide 18 weeks postnatal leave paid at the Federal minimum wage (currently $543.78 per week). Payments under the scheme will be taxable. In most cases, the person will receive the payment through their employer.

Mothers and primary carers not in full-time paid work will continue to receive the current forms of family assistance (including the Baby Bonus), if they meet the relevant eligibility requirements.

To be eligible for the Paid Parental Leave scheme, a parent in paid work:

• must have worked continuously with one or more employers for at least 10 of the 13 months before the expected date of birth or adoption;
• must have worked at least 330 hours in those 10 months (equivalent to around one full day of work each week); and
• must have an adjusted taxable income of $150,000 or less in the financial year prior to the date of birth or adoption of the child.

In general terms, adjusted taxable income is the sum of:

• taxable income;
• adjusted fringe benefits (that is, reportable fringe benefits x 0.535);
• tax-free pensions or benefits, eg. disability support pension paid to a person who is not old enough to receive the Age Pension, wife pension, where both the recipient and spouse (if applicable) are not old enough to receive Age Pension, invalidity service pension, where the recipient is not old enough to receive the Age Pension;
• income from overseas not reported in your tax return, eg. gifts or allowances of money from any foreign source on a regular basis (including regular money or gifts received from relatives living overseas), an overseas pension or benefit that is not assessable income;
• reportable superannuation contributions – this includes: reportable employer super contributions (eg. salary sacrificed super contributions) and personal deductible contributions;
• total net investment losses, eg. from shares, managed investment schemes (includes both net financial investment losses and net rental property losses),

less:

• child support the person has paid.

The scheme will cover employees, including casual employees, the self-employed and contractors. If a person returns to work before they have received all of their PPL entitlement, they may be able to transfer the unused part of their PPL to another caregiver (usually the father) who meets eligibility requirements.

Impact on employers

Employers will be responsible for making PPL payments only where the employee has completed 12 months continuous service prior to the date of birth or adoption of the child. The Family Assistance Office (FAO) will ensure that employers receive the required government funds in advance of their making PPL payments to the employee in their usual payroll cycle. Employers will not be required to make superannuation payments for government PPL.

The government PPL scheme will be able to be taken in conjunction with, or in addition to, employer-provided paid leave. Employer-provided paid leave could include recreation, long service or maternity leave. Employers who provide paid parental leave through an industrial instrument will not be able to withdraw that entitlement for the life of that instrument. During bargaining for a new agreement, employers and employees will be able to agree to modify existing employer-provided paid parental leave provisions in light of the new government scheme.

Points of note

For employers, the following points about the scheme should be noted:

• Paid Parental Leave will not be subject to superannuation guarantee payments.
• It is expected that most employers will report PPL payments through payment slips. It is not yet clear if such payments will need to be reported on a payment summary and, if so, how.
• The Family Assistance Office will work out if PPL will be paid through the employer. This will be on a case-by-case basis depending on how long the employee has worked for the employer, not employer-by-employer. The claim will be able to be lodged up to three months before the expected date of birth or adoption.

Because PPL will be taxable, and eligibility partly depends on satisfying the $150,000 adjusted taxable income test, SMEs will no doubt be seeking the assistance of their accountants and tax agents. It is understood that, at this stage, Centrelink is looking at payment delivery issues and interactions with employers, including how accountants will be involved.

While SME employers do not have to do anything about the scheme right now, it is worthwhile at least knowing something about it, as it will have an impact on them at some stage.

Some broad information on the scheme is also on the FaHCSIA website.

Terry Hayes is the senior tax writer at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.

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