In March 2016, IR issued the Commissioner’s operational position with respect to holiday pay and whether the payments of such amounts were subject to PAYE at normal salary and wage rates or were to be treated as extra pays and taxed as such. The item concluded that where the holiday pay was paid as a component of the employee’s usual salary and wages on an ongoing basis (the most common method), it was to be taxed as a payment of salary and wages and not as an extra pay. Where however the holiday pay was paid as an additional amount to the regular pay for the pay period, it was deemed to be an extra pay and was to be taxed at the associated rates.
A non-resident seasonal worker uses the NSW tax code which attracts a PAYE withholding rate of 10.5% and it is Parliament’s intention that this should be a final tax, exempting the worker from having to file an annual income tax return. Holiday pay for non-resident seasonal workers is usually paid at the completion of their season in one lump sum and therefore in accordance with the March 2016 operational position was an extra pay, required to be taxed at the extra pay rates, which could subject the non-resident seasonal worker to a rate exceeding 10.5% where their combined annual income exceeded $14,000. Consequently IR has now issued an interim operational position to ensure that Parliamentary intention is maintained, setting the extra pay rate for non-resident seasonal workers to 10.5%.
The operational position is temporary (1/4/16 – 31/3/18) while further work is undertaken by IR to clarify the PAYE rules that should apply to non-resident seasonal workers in order to fully satisfy Parliament’s intention.