How businesses can avoid being caught off-guard by payroll tax

Following high-profile cases of businesses failing to adequately pay their workers, some of those same businesses are being investigated for failing to pay their state payroll tax.

Specifically, 7-Eleven has been accused of failing to pay payroll tax in New South Wales; an allegation the franchise denies. It’s possible this alleged failure to pay could stem from confusion over how the franchisees are assessed regarding payroll tax, what obligations the franchisor holds, and whether the franchisees have a payroll bill that subjects them to payroll tax. 

Payroll tax is complex and many-layered, and some businesses could find themselves subject to payroll tax even if they fall under their state’s threshold. It’s therefore important to seek expert, independent advice regarding payroll tax, according to RSM Australia.

Jane Wood, associate director, RSM Australia, said,

“Payroll tax obligations depend on factors such as the amount of remuneration the business pays, whether the business is part of a group for payroll tax purposes and whether the business shares employees with other businesses."

"The answers to these questions can mean that a business that considers itself to fall under the threshold in their state may actually be subject to payroll tax that it wasn’t aware of. It’s important for businesses to be aware of all their tax obligations to avoid having to pay back taxes, interest, and penalties.”

Employers only have to pay payroll tax if the total amount of remuneration (this includes not only cash remuneration but extends to fringe benefits, employer superannuation, and employee shares or options) it pays is above a certain threshold. Each state has a different threshold. 

For example, in New South Wales, the annual threshold is $850,000, while the Queensland threshold is $1.1 million. In Victoria, the annual threshold is much lower at $650,000. However, the thresholds are measured against the business’s Australian-wide payroll. 

Jane Wood said,

“Businesses that employ workers in different states need to combine the total amount of remuneration paid across the country to see whether they need to pay payroll tax. For example, if the business pays more than $1.1 million across the country, then it will need to register for payroll tax in each of the states it operates in.

However, if the company employs staff in Queensland and Victoria alone, and its payroll bill is $800,000 per year, then it will need to register for payroll tax in Victoria but not in Queensland.”

For many businesses, the thresholds may be high enough to mean that they don’t need to pay payroll tax at all. However, some businesses are considered part of a group for payroll tax purposes and, when groups are assessed, the threshold is only available to one business in that group. That means all other businesses in the group must pay payroll tax regardless of the group’s or the individual business’s total payroll bill.

A group is considered to exist where there’s a corporation and related corporate bodies, where there are common employees used in the businesses, or where the same person or entity has a controlling interest in at least two of the businesses. This means that some types of businesses, such as franchises, can be considered groups for payroll tax purposes.

However, to determine whether a company is part of a group, it’s also relevant to consider how independent the company is with carrying on its own business. Recent Victorian caselaw noted that businesses within major franchises were considered as independent and separate businesses for payroll tax purposes because of the level of independence each business had from each other and from the franchisor.

If companies are considered to be grouped for payroll tax purposes, it’s important to note that the other companies in the group are potentially liable for the payroll tax liabilities of the other companies. This means that if all other companies in the group pay their payroll tax correctly and one company doesn’t, the other companies become liable for the outstanding company’s payroll tax.

 

Jane Wood said,

“Business owners and managers shouldn’t ignore this potentially-significant tax burden. It’s important to get clear advice to ensure the company is meeting all of its tax obligations to avoid a tax liability together with any associated interest and penalties.” 

For more information

For more information on payroll tax contact your local RSM office today.