NSW Payroll Tax – Common errors
Payroll tax is applied to a business’s New South Wales (NSW) taxable wages that exceed the payroll tax threshold. The payroll tax threshold for 2018 financial year is $750,000. An employer is required to pay 5.45% payroll tax on taxable wages above this threshold.
The NSW Office of State Revenue (OSR) uses data analytics and risk assessment processes to identify clients that may be non-compliant in their payroll tax obligations. These processes use specialist analytical software to review client data sourced from over 50 external agencies, including the Australian Taxation Office (ATO), Safe Work (former WorkCover), the Australian Securities and Investments Commission (ASIC) and Rental Bond Board.
The NSW OSR identified a payroll tax shortfall in 8 out of 10 audits conducted last year. The NSW OSR detected $158 million in underpaid payroll tax, which resulted in businesses having to pay an extra $34 million in interest and penalty tax.
Employers made the most errors when calculating their payroll tax liability in the following areas:
Payments made to contractors or consultants, irrespective of the legal entity type, are considered wages for payroll tax purposes even if they hold an Australian Business Number (ABN) and/or provide tools and/or equipment.
Contractors vs employees
Confusing employees with contractors. It is essential that before applying the contractors exemptions to workers, businesses properly determine whether the workers are in fact common law employees.
Contractor exemption – 180 days vs 90 days rule
Claiming the 180 days exemption as an extension of the 90-days rule and/or for extra labour used for peak periods.
Contractor exemption – Contractors engaging labour
Claiming the exemption when the additional labour engaged does not perform core services of the contract or that they are not engaged directly by the contractor.
FAILING TO RECOGNISE GROUPING OF EMPLOYERS
Many employers are confused by the payroll tax grouping provisions and fail to recognise that a grouping applies in their circumstances.
Other employers may recognise the grouping, but fail to understand how it impacts their payroll tax returns and liability.
Contributions to superannuation made on behalf of an employee, director of a company or deemed employee not being included as liable for payroll tax.
Not including the correct value of taxable fringe benefits under the Commonwealth Fringe Benefits Tax Assessment Act 1986.
Apprentices and trainees
All wages paid to apprentices and trainees are liable for payroll tax purposes (except for non-profit group apprenticeship and traineeship schemes). However employers are sometimes unaware that NSW has introduced specific provisions allowing taxpayers to claim a payroll tax rebate on wages paid to approved apprentices and trainees as recognised by the NSW Department of Industry.
Interstate wages and threshold entitlement
Employers often overlook that Australian wages comprise NSW wages plus all interstate wages. NSW wages are the wages subject to tax under the Act. Interstate wages are those wages subject to tax in the other Australian States and Territories (jurisdictions) under their equivalent payroll tax legislation. Payroll tax is payable on an employer’s NSW wages when its total Australian wages exceed the tax-free threshold (deduction amount).
Employers are sometimes unaware that allowances are generally included as taxable wages. The only allowances that are not wholly taxable are motor vehicle, accommodation, and living away from home allowances.
If you require assistance with NSW payroll tax or your business has been selected for a Payroll Tax Audit and you have been requested to complete an Employers Questionnaire you should contact us on (02) 9223 9166 to get assistance with completing this form and discussing your options. Alternatively you can submit an online enquiry form.