A business’ liability for payroll tax is outlined in the Payroll Tax Act 2007 (NSW). As it is a state tax it is regulated and collected by the NSW Office of State Revenue (OSR) and not the Australian Tax Office (ATO).
Payroll Tax threshold
Payroll tax is applied to a business’ New South Wales (NSW) wages that exceed the payroll tax threshold. The payroll tax threshold for 2015-16 is $750,000. An employer is required to pay 5.45% payroll tax on taxable wages above the threshold.
While $750,000 is a magic number, the entitlement to the full threshold may be reduced if:
- you start or stop employing in NSW within a financial year;
- you pay wages in another State or Territory;
- your business is part of a group of businesses.
What payments are liable for payroll tax?
Many employers make a mistake when assessing their liability for payroll tax by not including all liable payments. Any remuneration paid or payable by an employer to an employee for services provided are liable for payroll tax. Examples of remuneration are salary, superannuation, allowances, director’s fees, fringe benefits and all contractors’ payments unless at least one of seven exemptions applies.
The NSW OSR regularly exchanges information with the ATO and WorkCover. Thus, be prepared for a payroll tax audit. Some key risks areas that can trigger payroll tax audit include:
- payments to contractors that operate under a company structure but are, so called, “one-man show”;
- related entities and businesses (grouping and subsuming);
- not registering when required and/or failing to lodge monthly or annual returns by the due date.
The NSW OSR generally audits a taxpayer for all remuneration paid in the last 4 years. Therefore, a business is required to keep detailed employment records for all payments made to employees and contractors. A taxpayer may be asked to produce the copies of Profit & Loss Statements, Balance Sheets, PAYG payment summaries (Group Certificates), any contractor invoices and other documents.
If your business has been selected for a Payroll Tax Audit and you received a 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.