Grouping provisions are designed to avoid a loss of payroll tax where related corporations or businesses under the same control split their payroll between the businesses to take advantage of the tax-free exemption level. However, many employers across Australia may not be aware of these provisions or their obligations under the rules.

Further, all members of the group become liable for the payroll tax debts of the group incurred while they are members of that group. This means that if one member defaults on the payment of payroll tax, the amount may be recovered from any of the other group members.

This article provides a basic overview of the payroll tax grouping rules.

Background

Payroll tax is a state or territory based tax payable by employers as a percentage of total wages they pay to their employees. 

Different jurisdictions have different payroll tax rates and general deduction thresholds. New South Wales, the Northern Territory, South Australia, Tasmania and Victoria have substantially identical payroll tax legislation and Queensland has legislation to align to these states and territories.

Payroll tax only becomes payable by an employer (or a group) when the total of all wages paid exceeds a general deduction threshold. The annual thresholds are different in each state and territory, as shown in the following table. 

Each state and territory also has a monthly threshold which is 1/12th of the annual threshold, with the exception of New South Wales and Tasmania, which have different thresholds for 28-day, 30-day and 31-day months, as shown in the following table.

Generally, employers are required to self-assess their payroll tax liability on a monthly basis, then reconcile it at the end of each financial year. Employers are required to register for payroll tax if during any one month their total Australian wages (or their group's total Australian wages) exceed the relevant monthly deduction threshold level.

For payroll tax purposes, the definition of "wages" is very wide. It includes:

There are, however, a number of payments specifically exempted from payroll tax, such as:

Example

ABC Pty Ltd has employees in both Victoria and Tasmania. In a 31-day month, the monthly wages paid for all of its employees total $50,000. As ABC Pty Ltd has businesses in more than one Australian jurisdiction, it needs to calculate its payroll tax liability in both states.

ABC Pty Ltd needs to register for payroll tax in Victoria, as its monthly wages total of $50,000 exceeds the monthly Victorian general deduction threshold of $47,916 ($575,000 divided by 12 months).

ABC Pty Ltd would not need to register for payroll tax in Tasmania, as its wages total does not exceed the monthly Tasmanian general deduction threshold ($106,164, which is the specific threshold for a 31-day month).

Nexus test for payroll tax

The payroll tax legislation includes provisions to determine in which Australian jurisdiction a payroll tax liability arises when the employees of a business work in more than one state or territory. The nexus provisions take into account these factors, in the following order, to determine the state or territory most closely connected with the employee's services:

The nexus test is also important when considering the available general deduction thresholds. If a business pays wages in more than one state or territory, the threshold is calculated as a proportion equal to the ratio of wages paid in the particular jurisdiction.

For example, if 25% of the total Australian wages were paid in Victoria, the relevant threshold for that state would be 25% of the full $575,000 Victorian threshold – that is, $143,750.

Payroll tax grouping: basic rules

The grouping provisions have the effect of deeming certain businesses to be related and including them in a group for payroll tax purposes. Businesses will be grouped if there is a common link between them. That is, if the grouping definitions are met, businesses are obliged to form a group unless they can obtain the relevant exemption.

Where payroll grouping occurs, a single threshold deduction applies to the group as if it were a single entity. Each group member has to register for payroll tax and lodge a separate return, but the calculation of their payroll tax liability is based on the group's total wages amount.

A payroll tax group will occur in the following circumstances.

Related companies

All corporations that meet the  Corporations Act 2001  definition of "related companies" are grouped. Under that definition, they are taken to be related if two or more companies are:

This applies even if the common ownership is by virtue of an overseas holding company. The potential exemption from grouping is not available at all to companies grouped under the related companies provisions.

Use of common employees

Businesses will be grouped when any services agreement between two or more businesses results in the employees of one business performing duties as employees for another business.

Not all service agreements will trigger this provision. In order for this to apply, the service agreement must set out the specific duties to be performed by the employees of a business for the other business.

Example

Alpha Pty Ltd and Beta Pty Ltd are related companies. During recent times, Beta Pty Ltd has struggled to meet increased demand from customers and it now requires additional administrative support at its head office, which is located in New South Wales.

Alpha Pty Ltd enters into a service agreement with Beta Pty Ltd under which Alpha will provide two of its employees to Beta. The employees will undertake specific receptionist, secretarial and administrative duties at Beta Pty Ltd for a period of six months.

This arrangement would be considered the provision of employees for specific duties connected with the business, so a grouping requirement between the two businesses would arise.

Alpha Pty Ltd and Beta Pty Ltd must therefore form a group for payroll tax purposes.

Commonly controlled businesses

Where two or more businesses are controlled by the same person or people, the businesses must group for payroll tax purposes. A "person" includes, for this purpose, an individual, a trustee or a corporate entity.

Businesses are considered commonly controlled where a person or people control more than 50% across different entities. For example, the following are commonly controlled businesses:

Except for entities grouped for payroll tax under the related companies provision, businesses may apply for an exclusion from grouping. The exclusion may be granted where the relevant state or territory is satisfied that the business is conducted independently and is not connected with any other group member.

Only one member of a payroll tax group can claim the group's threshold entitlement. The net effect is therefore a reduction in the availability of the threshold(s).

Consider your obligations

All businesses should carefully examine the implications of the payroll tax grouping provisions for their particular situation. Please contact us if you would like more information.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at  reception@rgoodman.com.au . 

© Copyright 2017. All rights reserved. Source: Thomson Reuters.  Brought to you by Robert Goodman Accountants.