02 9683 5999During the past year there has been an increase in revenue raising activity from the NSW Office of State Revenue on a number of fronts but particularly in respect of payroll tax. This article covers a number of key payroll tax areas that businesses should be aware of and draws on our experience in helping a number of our clients through payroll tax audits. All references below are in relation to NSW payroll tax.
SHOULD A BUSINESS REGISTER FOR PAYROLL TAX?
In general if a business has ‘taxable wages’ less than $689,000 for the period 1 July 2012 to 30 June 2013 then no payroll tax is payable for that year. ‘Taxable wages’ include gross wages, superannuation, payments to contractors in certain instances and other payments as outlined below.
Even if you anticipate your business will have less than $689,000 in taxable wages in the 2013 financial year your business may still need to register for NSW payroll tax if its Australia-wide wages exceeds $52,855 in a 28 day month (Feb), $56,630 in 30 day month (eg. Nov) or $58,518 in a 31 day month (eg. Dec).
The NSW rate of payroll tax from 1 July 2012 is 5.45% of wages in excess of $689,000.
WHAT PAYMENTS ARE ‘TAXABLE WAGES’?
The following payments are subject to NSW payroll tax:
- Appointment of an administrator to the company
- Winding up the company
- Payment of the debt
WHAT PAYMENTS ARE EXCLUDED
The following payments are excluded from NSW payroll tax:
- Company dividends even if they are to employees.
- Trust distributions to beneficiaries even if they’re to employees.
- Motor vehicle allowances if they do not exceed $0.75 per kilometre during the 2013 financial year.
- Accommodation allowances if they do not exceed $248.25 per night during the 2013 financial year.
- Any payment to partners of a partnership in respect of profits
There are other exemptions such as maternity leave pay and payments to employees of particular not-for-profit organisations.
DO THE WAGES OF MY BUSINESS NEED TO BE COMBINED WITH THE WAGES OF ANOTHER BUSINESS?
Related businesses can be ‘grouped’ for payroll tax purposes. This means that the grouped businesses share one payroll tax threshold and effectively pay more tax. There are a number of ways that businesses can be grouped including if they use common employees between the businesses or are controlled by the same person.
PAYMENTS TO CONTRACTORS
Payments to contractors are automatically subject to payroll tax unless the payment falls under an exemption category. The contractor rules for payroll tax are very broad and it is the business’ responsibility to demonstrate that particular contractors are exempt from payroll tax in the event of an audit.
Some of the documentation that the payroll tax auditors have been requesting in regards to contractors includes:
A detailed listing of all contractor payments including the following contractor details;
- Business name & Australian Business Number
- Description of service provided
- Type of entity eg. company, sole trader
- Which payroll tax exemption category they fall into
- Total amount paid in a financial year
In some instances evidence to show the contractor is exempt such as a business card or copies of advertisements showing that the contractor provides services to the general public.
RELATED PARTY PAYMENTS
We have found that the payroll tax auditors are closely examining payments to related parties such payments to a related trust or company for:
- Management fees ore services.
- Hiring of equipment
- Interest payments on related party loans
Depending on the circumstances and documentation available all or part of the above payments could be subject to payroll tax. For example if a trust is receiving management fees from a trading business, for helping to manage that business and that trust distributes all the income to family members, then potentially the full amount of the management fee could be subject to payroll tax.
If arrangements such as the above are in place it is important to have appropriate documentation and supporting evidence, such as signed agreements, in place.
Although your business may not be currently subject to a payroll tax audit having all the appropriate records in place, particularly for contactor and related party payments can really provide your business a benefit in the event of a payroll tax audit.
