The first question that always gets asked about Paid Parental Leave (PPL) is ‘do I have to pay tax on my payments?’ and then ‘how much tax will be taken out of my payments?’
For the 2018-19 year, Paid Parental Leave is $719.35 per week for 18 weeks and Dad and Partner Pay is the same rate but only for two weeks. The rate is based on the Australian minimum wage and increases at the start of each new financial year.
Yes, Paid Parental Leave and Dad and Partner Pay are taxable income which need to be included in your tax return, the amount of tax that you incur from your PPL will be different for each person as it depends on both your personal circumstances and what else is included in your return. If your payments stretch across two financial years then this will also apply for the second year.
There are also differences depending on whether you are self-employed or your PPL is paid to you by your employer.
When you are self-employed, your PPL is paid directly into your bank account by Centrelink. They will automatically withhold 15% as tax on the amount that they pay you each fortnight. When you prepare your online application for PPL you have the option of selecting a higher percentage if that is what you want.
At the end of the year, Centrelink will send to you directly a Payment Summary that will show the total amount paid to you for the financial year and the amount of tax withheld. These are the items that you will need to include in your tax return.
Working for an employer
If you are employed, your PPL will be paid to you by your employer as part of your regular pay cycle. Therefore that can be weekly, fortnightly or monthly. You will be paid your PPL by your employer if:
- you have worked for them for at least 1 year before the birth or adoption of your child
- you will stay with that employer until the end of your Paid Parental Leave period
- you are working for an Australian based employer, and
- you expect to get paid at least 8 weeks of Parental Leave Pay.
They will still be required to provide you with your regular payment receipt in the same way a you receive your salary, except it will specify that the payment is for Paid Parental Leave. The amount of tax that is taken out of your PPL through each pay cycle will depend on what other payments you are receiving at the same time – or not at all.
Paid Parental Leave is allowed to be received at the same time as annual leave and long service leave and can be paid during the same pay cycle period. If you are receiving Dad and Partner Pay you are not allowed to be receiving any other form of paid leave. You must be on unpaid leave.
You are also allowed to receive the governments PPL at the same time as any paid maternity or parental leave from your employer. This is why many people receive different amounts of pay while they are on parental leave and as a result the amount of tax taken out of your salary can be different from others. (The law to remove PPL from those receiving employer paid parental leave was not passed through parliament and is not relevant for the current financial year).
At the end of the financial year your employer needs to provide you with your PAYG Payment Summary, like any other year. This will include your Paid Parental Leave in your Gross Payment amount and Total Tax Withheld amount. These are the amounts that need to go on your tax return.