To group or not to group: the payroll tax discretion

By Ali Suleyman - November 11, 2016

The payroll tax common control provisions, as they apply to discretionary trusts, are extremely broad and can create problems and expense for employers.

Under the payroll tax grouping provisions, any beneficiary (including any general beneficiary) is deemed to control a discretionary trust. This is a very expansive provision which often creates a technical grouping of two or more family discretionary trusts and the other entities they control. The strict application of these provisions can result in unexpected and adverse payroll tax outcomes.

Whilst the Commissioner has the ability to exercise his discretion to exclude a member from a technical group, the discretion is not automatic and the employer needs to present their case for de-grouping in the most effective manner.

We note that there has been a lot of State Revenue Office activity centred around payroll tax grouping in recent months, but we have been able to work with employers to successfully exclude entities from payroll tax grouping, or minimise the adverse outcomes arising from grouping.

Grouping can also arise outside of the discretionary trust context discussed above.

Broadly, entities may be grouped for payroll tax purposes if they exhibit any of the following features:

  • they are related bodies corporate
  • they are commonly controlled
  • they use “common employees”
  • one entity has a “controlling interest” in another corporation determined by tracing interests

Grouped entities are treated as a single employer and the payroll tax-free threshold is applied to the designated group employer (DGE) entity rather than to each individual employing member. The annual threshold in Victoria from 1 July 2016 is $575,000.

The other significant effect of grouping is that each group member is jointly and severally liable for every other member in respect of their payroll tax liability.

Our team has extensive experience in preparing de-grouping applications and dealing with the revenue authorities in various jurisdictions. We would be delighted to assist employers in seeking the Commissioner’s discretion to de-group payroll tax groups.

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