Payroll Tax Grouping Across Different States

This article has been reproduced with permission from ESV Group. For more information visit www.esvgroup.com.au or phone 02 9283 1666


Payroll tax is levied on an employer by the relevant state revenue authority, in cases where an employer pays “taxable wages” over a certain threshold. As payroll tax is levied on a state by state basis, the rates and thresholds vary, however given recent harmonisation projects undertaken by the state revenue offices, the broad concepts around the calculation of tax are aligned.

For businesses paying wages across multiple states, thresholds will be adjusted according to the proportion of wages paid in each state. Such businesses may also be ‘grouped’, which means that only one tax free threshold can be claimed. This can make a significant difference to the liability of the group.

THRESHOLDS AUSTRALIA WIDE

Applicable thresholds are determined by taking into account wages paid Australia wide, and are reduced depending on the proportion of wages paid in each state.

For example, if an employer pays $1.1 million of wages in Queensland and $750,000 of wages in New South Wales, whilst individually they do not exceed the relevant state threshold, their reduced thresholds would be as follows:

Item

NSW

Queensland

Actual Taxable Wages

$750,000

$1,100,000

Percentage of total wages

40.5%

59.5%

State Threshold

$750,000

$1,100,000

Reduced Threshold

$303,750

$654,500

Taxable wages are defined in each state but broadly include wages, superannuation, bonuses, fringe benefits and termination payments. It is important to note that payments to certain contractors are also included in taxable wages to determine thresholds and tax liabilities.

GROUPING PROVISIONS

Complex grouping provisions apply in each state and seek to group businesses that are under common control.

Whilst is it commonly accepted that businesses with the same owners are grouped, the grouping provisions are broader reaching. Accordingly, business that are only tangentially related may be grouped for payroll tax purposes.

Grouping can occur in the following ways:

  • Related companies– all companies that meet the definition of related companies in the Corporations legislation are grouped for payroll tax purposes. This broadly covers a holding company / subsidiary relationship, as well as grouping different subsidiaries under the same holding company.
  • Use of common employees– these provisions group employers where an employee of one entity performs duties mainly for the other entity, even where these services are performed under an arrangement for services between the two entities. This is very broadly ranging and accordingly, care needs to be taken when constituting such agreements.
  • Commonly controlled businesses– these provisions group employers with common ownership or common directors. This is more broadly ranging than the related companies provision, as it does not rely on a subsidiary / parent relationship, but looks at the ownership and directorships and where there is common majority ownerships or directorships, employers will be grouped.

Where any of the above conditions are satisfied, employers are automatically deemed to be grouped. In order to be excluded from the group, an employer must request the discretion of the relevant revenue authority based on a wider ranging set of factors and on balance, the revenue authority will arrive at a decision.

If you require assistance with reviewing your current grouping situation, or payroll tax compliance more broadly, please contact us or speak to your engagement partner on 02 9283 1666