Introduction
A businesses liability for payroll tax is outlined in the
Payroll Tax Act 2007 (NSW). As it is a state tax it is regulated
and collected by the NSW Office of State Revenue (OSR) and not
the Australian Tax Office (ATO).
Payroll tax, unlike income tax is imposed on an employer not
an employee. The extent of an employer's liability for payroll
tax will depend on how much wages they pay to their employees.
As of 2011, only companies who pay over $658,000 in gross
wages are obligated to pay payroll tax. This financial year (1
July 2011 - 30 June 2012) the threshold will change to $678,000.
The current payroll tax rate is 5.4%.
To prevent companies from avoiding payroll tax by subdividing
their businesses into a number of subsidiary companies, detailed
grouping provisions apply to ensure that corporate groups will
be considered as one collective employer.
Guide on Compliance
If a business pays wages above the monthly threshold, it will
be required to register for payroll tax with the OSR. These
monthly thresholds are:
- 29 days - $53,721
- 30 days - $55,574
- 31 days - $57,426
An employer must register within 7 days with the OSR after
the first month their wages exceed the monthly threshold. When
registering they will be advised whether they need to pay the
tax on a monthly or annual basis.
In addition to making monthly payments, businesses must also
complete an annual payroll tax reconciliation. For the financial
year ending 30 June 2012, all annual payroll tax reconciliations
have to be sent to the OSR by 21 July 2012.
Depending on which industry a company operates and how much
tax they have paid in the past, the OSR will retain a discretion
to audit a tax payer to ensure that they are accurately and
truthfully declaring their paid wages and other associated
wages. The OSR will also often audit a business if it uses a
number of subcontractors, as the OSR can see this as a great
opportunity to gain some extra revenue.
The OSR can audit a tax payer for all wages paid in the last
5 years and a business is therefore required to keep detailed
employment records for all payments made to employees and
contractors.
In general if a business is subject to an audit they will
have to produce copies of their:
- Profit and loss statements
- Balance Sheets
- Tax Returns
- Group Certificates
- Any contractor invoices
- Anything else the auditor requests
Auditors retain a large amount of power to seize documents,
enter premises and generally make life difficult for a taxpayer
that does not cooperate with an audit.
The following sections deal with the payments an auditor
will be looking for if they choose to audit your company:
What payments are assessable for payroll tax?
Liable wages include:
- Allowances
- Apprentice and trainee wages
- Bonuses and commissions
- Contractor and consultant payments
- Directors fees and other payments
- Employment agency contracts
- Fringe benefits
- Salary sacrifice
- Shares and options
- Superannuation
- Termination payments (including 'golden handshakes')
- Unused leave
Which payments are exempt from payroll tax?
Wages paid by certain bodies are exempt from payroll tax.
There are two types of exemptions when it comes to payroll tax:
Type 1 exemptions - some or all of the wages paid by an
organisation are exempt due to the nature of the
organisation
- Non-profit organisations
- Continuation of existing exemptions
- Education
- Health care service providers
- Local government
- Other government and international agencies
Type 2 exemptions - some wages are exempt when paid for a
specific purpose, eg maternity leave.
- Aboriginal persons
- Maternity, paternity and adoption leave
- Volunteer fire fighters and emergency service
volunteers
- Defence force personnel
- Approved group apprenticeships and trainee schemes
Contractors
Many contractors are liable for Payroll Tax. An independent
contractor is an entity that agrees to produce a designated
result for an agreed price. Contractors can include
sub-contractors, consultants, sole traders, companies,
partnerships and trusts. A relevant contract is a contract under
which a business is supplied with services, or where goods are
supplied to natural persons for the re-supply of those goods to
the business in a modified form.
Under a relevant contract:
- All the payments under the contract (except GST and
materials) are deemed to be wages
- The person in receipt of deemed wages is taken to be an
employee
- The persons (usually a corporation) paying those wages
are taken to be an employer, thus making them eligible for
Payroll Tax.
Payments made under these contracts are not considered liable
wages for payroll tax.
- Labour ancillary to supply of goods
- Services not ordinarily required
- Services do not exceed 90 days in a year
- Chief Commissioner satisfied that contractor services
the general public
- Contractor engages labour
- Owner drivers
- Insurance agents
- Direct selling agents
Our dedicated team can assist you with all your auditing
needs.
Complete
and submit the Express Enquiry form on the top right hand side
of this page and we will contact you to discuss your enquiry
or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223
9166 to arrange an
appointment.
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