Payroll tax compliance a concern for growing businesses: HLB Mann Judd

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June 18, 2018
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MEDIA RELEASE

A common mistake for growing businesses is forgetting to register for payroll tax when their total wages reach a certain level, with more businesses being investigated, says Peter Bembrick, tax partner at HLB Mann Judd Sydney.

 “When total wages reach the threshold in any states or territories where they have employees, businesses must register for payroll tax, but it’s something that many businesses, who are focussed on maintaining their growth, forget to do,” Mr Bembrick says.

 “However, just like the Australian Tax Office, the various State Revenue Offices are increasingly using data-matching from a variety of sources to test compliance with the rules.

Peter Bembrick

 “As a result, we are seeing an increase in payroll tax investigations, which can be very time-consuming and expensive for businesses to sort out.

 “On top of this, every State and Territory has a different threshold and charges payroll tax at different rates, so it can be a complex area,” he says.

 “One recent piece of good news is the announcement in the NSW State Budget that the payroll tax threshold will be progressively increased to $1 million over the next four years, starting with an increase to $850,000 for the year ending 30 June 2019.

 “For several year, NSW employers have had to deal with the lowest threshold while at the same time being charged payroll tax at a higher rate than in most other States, so this is a very welcome step that goes some way towards helping them become more competitive.”

 Below is a summary for the year ending 30 June 2018.

 

State or Territory

Rates (%)

Annual wages threshold ($)

Monthly wages thresholds ($)

ACT

6.85

2,000,000

166,666.66

New South Wales

5.45

750,000

57,534; 61,644 or 63,699

Northern Territory

5.5

1,500,000

125,000

Queensland

4.75

1,100,000

91,666

South Australia

2.5 to 4.95

600,000

50,000

Western Australia

5.5

850,000

$70,833

Tasmania

6.10

1,250,000

95,890, 102,740 or 106,164

Victoria

3.65 or 4.85

625,000

52,083

Western Australia

5.5

850,000

$70,833

 

Wages generally include any amounts of wages, salary, remuneration, commission, bonuses or allowances paid to employees, as well as taxable fringe benefits, employer superannuation contributions, benefits provided under an employee share scheme, and finally, payments to certain individuals and entities who might otherwise be regarded as contractors (which itself is often a major focus in any payroll tax investigation).

 Mr Bembrick says another potential pitfall for growing businesses is when they are registered for payroll tax in their ‘home’ State, but have one or two interstate employees.

 “These businesses must then report their ‘taxable Australian wages’ in each State, applying the relevant tax-free threshold and then apportioning the excess over the threshold to each State (the method used to do this calculation varies for each State and Territory). 

 “Therefore they need to register and start paying tax on wages relating to the second State, and in addition will face a higher payroll tax bill in their ‘home’ State,” he says.

 

Example

Alpha Pty Limited has 15 employees in NSW and total annual wages of $1.2 million.  It therefore has a NSW payroll tax liability for 2018 of $24,525. 

 On 1 July 2017 Alpha’s directors decided to build on their fledging customer base in Queensland by employing two sales representatives and a support staff member based in Brisbane for total additional salary costs (including commission) of $300,000.

Total Australian wages will now be $1.5 million, of which 80 percent relates to NSW wages and 20 percent to Queensland wages. 

 For NSW the payroll tax will now be $32,700 (i.e. ($1,500,000 – $750,000) x 5.45% x 80%), while in Queensland the payroll tax will be $4,750 (calculated on the Queensland OSR website), i.e. Alpha will pay total payroll tax of $37,450.

 

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