Payroll tax obligation is often overlooked by businesses. Australian State and Territory Revenue Offices regularly conduct audits and investigations to ensure all liable employers are complying with their legal requirements under payroll tax legislation.
What is Payroll Tax?
Payroll tax is a self-assessed State and Territory tax assessed on wages paid or payable by an employer to its employees, when the total wage bill of an employer (or group of employers) exceeds a threshold amount. The NSW threshold for 2021 financial year is $1,200,000 and an employer is required to pay 4.85% payroll tax on taxable wages above the threshold. While $1,200,000 is the 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.
When do you need to register?
Payroll tax is administered monthly. If your business’s monthly taxable wages exceed the monthly tax-free threshold you must register with the NSW OSR and pay payroll tax by the 7th day after the end of each month.
The 2020-21 monthly thresholds for NSW are as follows:
Days in the month Threshold
28 Days $92,055
30 Days $98,630
31 Days $101,918
If your annual taxable wages exceeded $1,200,00 for the year ended 30 June 2021, you have until the 21st of July 2021 to register and pay payroll tax.
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 onus of proving that any of the seven exclusions apply rests with the employer. Documents that substantiate that a contractor’s payment is not liable for payroll tax must be kept for each contract for services.
For payroll tax purposes, businesses may be grouped with other businesses if there is a link between the companies. Similarly, when one of the members of a group is also a member of another group, the groups may be combined as one group for Payroll Tax purposes under the subsuming provisions.
Businesses that are grouped for payroll tax can only claim one tax free threshold and are jointly and severally liable for any outstanding payroll tax.
NSW OSR uses data analytics and risk assessment processes to identify employers that may be non-compliant in their tax obligations. These processes use specialist analytical software to review employer data sourced from over 50 external agencies, including the Australian Taxation Office (ATO), Safe Cover NSW and the Australian Securities and Investments Commission (ASIC).
NSW OSR Audits focus on:
- Identifying and contacting individuals or businesses not currently registered within the tax system, but who are likely to have a liability
- Identifying employers who may have understated their liabilities through a program of desk and field audits
- Ensuring employers with an obligation to lodge returns do so in a timely manner
How to prepare for a payroll tax audit
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 relevant documents.
Other Payroll Tax Services:
If your business has been selected for a Payroll Tax Audit and you have been requested to complete an Employer Questionnaire you should contact us on (02) 9223 9166 to get assistance with completing this form, discussing your options and obtaining payroll tax audit advice. Alternatively you can submit an online enquiry form.