Payroll tax is a self-assessed, general purpose state and territory tax assessed on wages paid or payable by an employer to its employees, when the total of taxable wages of an employer (or group of employers) exceeds a threshold amount.
Payroll tax is often overlooked by businesses. We often come across a situation where an employer didn’t even know that it had a payroll tax obligation. NSW Office of State Revenue (OSR) regularly conducts audits and investigations to ensure all liable employers are complying with their legal requirements under payroll tax legislation.
The NSW OSR payroll tax compliance program focuses on identifying and contacting liable employers who have failed to register with them for payroll tax purposes, and investigating registered customers who appear to have understated their wages. It uses data analytics and risk assessment processes to identify employers that may have payroll tax problem, ie be non-compliant in their payroll tax obligations. These processes use specialist analytical software to review 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.
Recent statistics gathered from Australia-wide compliance activities identified that over 90% of involuntary payroll tax registrations were due to the problems with payroll tax 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.
Problem with payroll tax? If you require assistance with 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 online enquiry form.