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Payroll tax – what are your obligations?

Recent audit activity from all states’ revenue offices shows low confidence in taxpayers’ knowledge of their obligations when it comes to payroll tax.

As the rules around grouping, contractors and employing across multiple states can be quite tricky, they may be not far from the truth.

Most employers probably know that they need to pay payroll tax if their taxable wages exceed relevant state’s threshold (2017):

payroll-tax-thresholds

However, they may not be clear on what constitutes taxable wages for payroll tax or the fact that a group of entities shares only 1 threshold.

Based on assisting with the past audits, employers seem to miss the following:

  1. Taxable wages are not just wages; they include:

  • Salaries & wages
  • Some allowances
  • Fringe benefits
  • Superannuation
  • Some shares and options
  • Some contractor payments
  1. Not all contractor payments are exempt.

Main exemptions are:

 – Services provided for no more than 90 days in a financial year (Keep in mind that any length of time worked in a day will count as a whole day.)

 – Services required by your business for less than 180 days in a financial year

–  Services performed by 2 or more people

–  Services ancillary to the supply of goods

– Services not ordinarily required by your business

– Services provided by an owner-driver

– Services relating to door-to-door sales

– Services relating to selling insurance

 Detail explanation and examples for these can be found at https://www.business.qld.gov.au/business/employing/payroll-tax/taxable-wages/contractors/exemptions

  1. If you employ across the states, you don’t get the use of the full threshold in each state.

The threshold for each state gets reduced based on the split of wages across the states.

  1. Grouping rules, i.e. you cannot avoid payroll tax if you set up several entities to get under the threshold.

A group exists if:

  • corporations are related bodies corporate
  • employees are used in more than one business
  • the same person, or set of persons, has a controlling interest in 2 or more businesses
  • an entity has a tracing interest in corporations
  • a business is part of 2 or more groups.

Your business only needs to fit into one of these categories to be grouped. All businesses must register for payroll tax and they are all liable for the unpaid payroll tax. They also share only 1 threshold between them.

  1. Things that may trigger payroll tax audit:

  • Data matching with:
    • Workcover
    • ATO (payment summaries and business activity statements)
  • ASIC searches that may show related entities (potential groups)
  • History of failing to lodge returns

The penalties are substantial so it is to keep up with your obligations.

If you have concerns in regards to your payroll tax registrations and returns or need more information don’t hesitate to contact your Boring Accountant.

We also note that the audits are becoming more and more frequent and you should consider audit insurance for peace of mind. Even if all your affairs are in order it takes time and money to prove it to the tax authorities.

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