Payroll Tax – The Submerged Risk for a Growing Business

Payroll Tax – The Submerged Risk for a Growing BusinessAs a business grows it could find itself liable for payroll tax. You can become liable for payroll tax when you payroll reaches $750,000 per annum (2014 – 2015 financial year). However the threshold is also calculated monthly. So you can become liable as soon as you payroll reaches $61,644 in a 30 day month.

If you pay wages and salaries to employees in another state, then the threshold is calculated based on wages and salaries paid in NSW as a proportion of the total wages and salaries paid in Australia. For example if 75% of your total wages are paid in NSW then you are entitled to 75% of the threshold.

The threshold is also calculated on a group basis. If two or more entities are obliged to be grouped, then the total of the wages and salaries paid by the group is used to calculate the payroll tax but only with one threshold. The grouping provisions extend beyond just holding company and subsidiaries. Grouping can apply where there are common employees or common control. Common shareholders can also result in a group. There are numerous combinations of circumstances that can make up a group. You should have your accountant identify the risks you may be exposed to for your particular business.

When you do reach the threshold, the payroll tax rate is 5.45% of the total wages and salaries.

In addition to wages and salaries, payroll for payroll tax purposes can include:

  • Allowances
  • Apprentice and trainee wages
  • Bonuses and commissions
  • Contractor and consultant wages
  • Director’s fees and other payments
  • Fringe benefits
  • Salary sacrifice
  • Shares and options
  • Superannuation
  • Termination payments
  • Third party payments
  • Employment agency contracts

Especially when dealing with contractors, you should obtain professional advice because of the various specific circumstances which are covered by Revenue Rulings from the Chief Commissioner.

As with most NSW State taxes, a director can be made personally liable if served with a compliance notice for an unpaid state tax due by a company of which they are, or were, a director when the company became liable. A director has 21 days after service to pay the outstanding tax, reach an agreement with the Commissioner, or put the company in liquidation or in voluntary administration.

The message is; if your business is growing, put some red flags in place that will alert you and your accountant if a potential payroll tax liability may be looming over the horizon.