Following are Payroll tax issues most commonly overlooked by employers. The Employers Guide to Payroll tax is also a useful reference.
Failing to register
Employers who pay wages in Tasmania are required to register for payroll tax if their total Australia-wide (including Group members’) wages exceeds:
- the threshold of $1 250 000 during any financial year; or
- $24 038 per week during a month.
Failing to include all components of wages
Taxable wages for payroll tax purposes includes not only wages/salaries, but also employer superannuation contributions, commissions, bonuses, allowances, directors’ fees, fringe benefits, the taxable component of termination payments and payments to relevant contractors.
Under the former Act, trust distributions made in lieu of wages and contributions made to a central fund by an employer were also taxable.
From 1 July 2008 under the new Act, grants of shares or options to employees are taxable.
Please refer to the checklist at the end of this document for further information.
Failing to claim exemptions and exclusions
The most common errors are:
Workers’ Compensation payments claimed from and approved by the insurer may be deducted for payroll tax purposes, including the related first 5 days excess payment.
- failing to deduct Workers’ Compensation (excluding any “make up” payments made by the employer – which are taxable); and
- including the income tax exempt component of Eligible Termination payments (the ‘lump sum D’ payments have been included in error).
All allowances are taxable in full unless they represent a direct reimbursement of employment related expenditure. The only exceptions to this rule are accommodation and per kilometre travel allowances which are exempt up to a prescribed amount.
Accommodation allowances provided for temporary work-related accommodation costs under the former Act are exempt up to the first $100 per night. Under the new Act the first $248.25 is exempt.
Under the former Act the first 55.56 cents per kilometre of a motor vehicle allowance may be excluded from wages as exempt where the allowance is paid on a per kilometre basis. From 1 July 2012 the first 75 cents per kilometre of the allowance is exempt.
Failing to include contractor payments
In ascertaining if the contractor provisions apply, an employer must first determine if the payment is to an employee or contractor.
If the person performing the work is an employee then the payments must be included in full. However, if the payments were made to a contractor then it is a question of whether the payments include a labour component and finally if one of the seven exclusions apply.
The Commissioner has issued a number of payroll tax rulings that explain the interpretation and application of the contractor provisions. For information about these rulings contact us on (03) 6166 4400 or by e-mail or view the Rulings Index
Employment agency provisions were introduced that deem the employment agency to be the employer of its on-hired workers. Therefore, no payroll tax is payable on on-hired employees as this is the responsibility of the employment agency.
Failing to register as a group
Another error made by employers is failing to include all group members’ wages. This can be a particular problem for subsidiaries of overseas holding companies that are often not aware of other group members operating in Australia. A group for payroll tax purposes exists where:
Members may be excluded from a group in the following circumstances:
- Companies are related under section 50 of the Corporations Act 2001 (Commonwealth).
- Businesses are commonly controlled – where a person or persons have control of two or more businesses; or
- Common Employees – where an employee of one business is used in another business.
- Under the new Act, tracing provisions have been introduced to aggregate direct and indirect interests of entities and associated persons when determining who has a controlling interest in a corporation for payroll tax grouping persons.
- Common control – where the business seeking exclusion is carried on substantially independently of the other group members; and
- Common employees – where the employee works in the other business at arms-length; eg. payment made for employee at commercial rates.
- The power to exclude is not available where the group member is related under the Corporations Act 2001 (Commonwealth).
- The requirement under the former Act for businesses seeking exclusion to be classified in a separate ANZSIC division code does not apply under the new Act.
Failing to include directors’/board members’ superannuation
Employers sometimes fail to include directors’/board members’ superannuation payments as wages for payroll tax purposes. In some circumstances, this omission arises because the payroll records for the directors are completely separate from the general payroll records. Another common reason for failing to include these payments is where directors receive a lump sum payment that was paid directly to their superannuation fund.
Failing to include wages sacrificed for superannuation
Any remuneration foregone by an employee under a salary sacrifice arrangement is taxable wages “payable in cash or in kind”.
Specifically, salary that has been sacrificed and paid to an employee’s superannuation fund is a payment “in kind” and must be included in taxable wages as wages or as employer superannuation contributions.
Where salary has been sacrificed to a superannuation fund on a contribution holiday and no employer contributions were made to that fund, the salary-sacrificed wages must be included as taxable wages.
In any other circumstances, the total value of salary that is sacrificed to obtain a benefit that is exempt or excluded under FBT legislation must be declared in full as taxable wages. From 1 July 2008, under the new Act, amounts salary sacrificed to obtain exempt or excluded benefits will no longer be included as taxable wages.
Failing to declare the grossed-up taxable value of fringe benefits
Employers have been found to declare variously the grossed-up value, the pre-grossed-up taxable value or the tax paid on fringe benefits. The correct amount to include is the grossed-up taxable amount of the fringe benefits provided to Tasmanian employees. This should be the same amount that appears on the ATO Fringe Benefits Tax return if all benefits are paid to Tasmanian employees. From 1 July 2008, under the new Act all fringe benefits are grossed up by the lower Type 2 Factor for payroll tax purposes.
Making payroll tax payments to another state or territory
There are two tests to determine where payroll tax will be paid on wages where the services are provided in one jurisdiction and the wages are paid by an employer in another jurisdiction.
The first test relates to where the services are performed. For example, if services are performed by an employee in Tasmania for the whole calendar month, payroll tax is payable in Tasmania on these wages for that period.
The second test applies where services are performed in more that one jurisdiction in a month. In these circumstances, payroll tax is payable in the jurisdiction where the employee receives their wages. For example, if an employee spends one week in Victoria and three in Tasmania and their wages are paid to a Victorian bank account, payroll tax is payable in Victoria.
Being unaware of legislative changes
The changes in payroll tax treatment of specific items from 1 July 2008 under the new Act are as follows:
- Wages no longer include trust distributions made in lieu of wages (taxable under the former Act between 1 July 2005 and 30 June 2008);
- Wages no longer include contributions made to a central fund by an employer (taxable under the former Act between 1 July 2005 and 30 June 2008);
- Wages includes the value of shares or options granted to employees;
- Wages paid by a non-profit organisation having a sole or dominant charitable, benevolent, philanthropic or patriotic purpose to employees engaged exclusively in the work ordinarily performed in connection with those charitable, benevolent, philanthropic or patriotic purposes are exempt from payroll tax;
- The taxable value of fringe benefits is determined by grossing-up the fringe benefits using the lower (type 2) gross-up rate;
- Tracing provisions have been introduced to group corporate employers where an entity has a direct, indirect or aggregate interest in a corporation that exceeds 50 per cent.
- The requirement under the former Act that employers have a separate ANZSIC Division Code when applying to be excluded from a group no longer applies;
- Exempt motor vehicle allowance is 75 cents per kilometre and the exempt accommodation allowance is $248.25 per night;
- All wages paid to an employee who works wholly in another country for a continuous period of 6 months or more are exempt;
- Wages to a maximum of 14 weeks paid to employees on maternity leave or adoption leave are exempt from payroll tax;
- Wages paid by an employment agency to an employee or service provider who performs work for a payroll tax exempt client are exempt from payroll tax;
- Wages paid to volunteer members of a fire brigade under the Fire Services Act 1979 while taking part in bushfire fighting activities or to an employee engaged in emergency operations or rescue and retrieval operations as a volunteer member of an emergency services organisation are exempt from payroll tax;
- The value of non-monetary contributions to a superannuation fund on behalf of an employee, a contractor deemed to be an employee or a director have been included as taxable wages;
- Termination payments made to retiring directors or contractors deemed to be employees under the relevant contractor provisions have been included for payroll tax purposes.
CHECKLIST OF TAXABLE ITEMS
LIABLE FOR PAYROLL TAX
|Accident pay||Refer to Workers Compensation |
| -general ||Yes|
|Board member fees||Yes|
|Board member superannuation||Yes|
|Defence Force make-up pay||No|
|Directors’ superannuation payments||Yes|
|Discounts on staff purchases||*Fringe Benefit |
|Eligible Termination Payment Statement||Income taxable component included|
|Eligible Termination Roll-Over Statement||Income taxable component included|
|Employee share options||Yes from 1 July 2008|
|Fringe benefits||* Taxable value grossed-up by Type 2 Factor included|
|Gifts as a business expense||*Fringe Benefit|
|Holiday pay|| |
| -continuing service||Yes|
| -on termination||Yes - as a lump sum payment|
|Holidays for employees ||*Fringe Benefit|
|Indirect payments||*Fringe Benefit|
|Long service leave|| |
| -continuing service||Yes|
| -on termination||Yes - as a lump sum payment|
|Lump Sum Payments|| |
| -accrued, sick, annual & LS leave on termination||Yes – ATO taxable lump sum amount included|
| -all others ||Yes|
|Meals and sustenance||*Fringe Benefit / Taxable as a general allowance if not a fringe benefit|
|Motor vehicle||*Fringe Benefit|
|Payments to employment agents||No - employment agent liable to payroll tax|
|Payments and benefits for employees||*Fringe Benefit|
|Payments to central funds - i.e. portable Long Service Leave funds||Yes if paid from 1 July 2005 to 30 June 2008 – otherwise not taxable.|
|Relevant contractor payments|
- owner drivers
|Yes - labour component included if contractor does not qualify for an exclusion |
No – Providing that they meet the conditions for exclusion, refer to the Contractor section in this guide.
|Pensions||No - payments not wages|
|Piece work arrangements||Yes - labour component included|
|Reimbursements of work expenses||No|
|Salary sacrifice||No - If for superannuation and included as superannuation payments|
No - If for fringe benefit and included in the fringe benefit taxable value
#Yes – If salary is sacrificed for an exempt or excluded fringe benefit prior to 1 July 2008 otherwise not taxable.
|Share Scheme payments||No if granted prior to 1 July 2008, otherwise taxable.|
|Study expenses||*Fringe Benefit|
|Superannuation||Yes - includes any payment made by employer i.e. superannuation guarantee, employer voluntary payments and employee salary sacrificed amounts|
|Trust distributions made in lieu of wages||Yes if paid from 1 July 2005 to 30 June 2008 – otherwise not taxable|
|Workers Compensation|| |
-Excess met by the employer (usually first 5 days)
|No – on approved claims only|
-Wages reimbursed by insurer
-Payments in excess of insurers accepted liability and step down rates
*The grossed-up taxable value of fringe benefits provided to an employee as calculated under the Fringe Benefits Tax Assessment Act 1986 are included as taxable wages.
#Exempt and excluded benefits are not subject to fringe benefits tax. As a result, any wages sacrificed to acquire exempt or excluded benefits are required to be declared as wages prior to 1 July 2008 when the harmonised legislation was introduced.