Exempt leave for payroll tax

Some parts of your employees’ paid leave are exempt from payroll tax. Exempt leave includes:

• parental
• adoption
• surrogacy
• cultural parent
• defence.

Exempt leave is also exempt from the mental health levy.

Other types of leave are taxable (e.g. recreation, sick, annual and long service leave; domestic and family violence leave).

Parental, adoption, surrogacy and cultural parent leave

The amount of exempt leave depends on whether the employee is full-time or part-time.

• Full-time employees—the exemption is limited to wages to a maximum of 14 weeks. The leave may also be taken over more than 14 weeks at a reduced rate of pay per week.
• Part-time employees—if the leave is taken
  • before 16 April 2011, the exemption is limited to a maximum of 14 weeks at the part-time rate of pay
  • from 16 April 2011, the exemption includes leave taken over a longer period for wages equivalent to 14 weeks at the part-time rate of pay.

The public ruling on the exemption for parental, adoption, surrogacy or cultural parent leave pay (PTAQ014A.3) has more information, including examples of when the exemption applies.

Parental leave

Parental leave (maternity and paternity) must be in connection with a pregnancy and can be taken before or after the child’s birth.

Keep records of:

• medical certificates
• statutory declarations relating to the pregnancy or date of birth.

Adoption leave

Adoption leave can be taken before or after the adoption.

Keep a record of the employee’s statutory declaration that the child has been placed in their custody and that an adoption order has been made (or is coming).

Surrogacy leave

Surrogacy leave can be taken before or after the child starts living with the employee under a surrogacy arrangement.

Keep a record of the employee’s statutory declaration that the child is living with them under a surrogacy arrangement.

Cultural parent leave

Cultural parent leave can be taken before or after a cultural recognition order is made transferring the rights and responsibilities for a child to the employee.

Keep a record of the employee’s statutory declaration that the child is living with them under a cultural recognition order.

Australian Defence Force

Wages you pay an employee who is on leave serving or training as a member of the Australian Defence Force are exempt.

Also consider…

• Learn about culture recognition orders under the Meriba Omasker Kaziw Kazipa (Torres Strait Islander Traditional Child Rearing Practice) Act 2020.
• Read the Surrogacy Act 2010.
• Learn about exemptions for contractors and employment agents.