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Payroll tax: What to know before lodging your annual reconciliation
Technical article

Payroll tax: What to know before lodging your annual reconciliation

It’s the beginning of the new financial year and the lodgement deadlines for 2020 annual payroll tax reconciliations are fast approaching.

Annual reconciliations are usually due on either 21 or 28 July 2020 for most states and territories. However, due to disruption from COVID-19, extensions to lodgement deadlines and payment deferrals have been provided to eligible businesses in some jurisdictions.

As always, employers must consider whether the grouping provisions or contractor exemptions apply and ensure that various allowances and the fringe benefits taxable values are declared correctly in completing their annual reconciliation. Groups with employing entities that engage contractors should also be aware of interaction of payroll tax employment agency provisions and relevant contractor exemptions.

Below are key issues for employers to consider in preparing and lodging their 2020 annual reconciliation, accounting for the effects of the Australian bushfires and the ongoing impact of COVID-19.

Lodgement and payment deadlines

While payroll tax relief is available to some Australian employers for the 2020 financial year, all employers are still required to lodge their annual reconciliations. Relief may include lodgement extensions in some jurisdictions or payment deferrals for eligible employers. However, given there are significant differences between the jurisdictions, it is important to check specific requirements. A high-level summary of lodgement and payment due dates is set out below:

State or territory Lodgement due date Payment due date
Victoria 21 July 2020 21 July 20201
New South Wales 30 October 2020 30 October 2020
Queensland 21 July 2020 14 January 20212
Western Australia 21 July 2020 21 July 20203
South Australia 14 August 2020 14 August 20204
Tasmania 21 July 2020 21 July 2020
Australian Capital Territory 21 July 2020 21 July 2020
Northern Territory 28 July 2020 28 July 20205

Legend

  1. Payment deferral is available for eligible businesses
  2. Application for payment deferral is required to be lodged by 31 December 2020
  3. Businesses impacted by COVID-19 may apply for an interest-free payment arrangement
  4. Further payment deferral until October 2020 is available upon application for eligible businesses
  5. Payroll tax deferral until 21 September 2020 is available for certain eligible businesses

Possible shift of payroll tax liability to another jurisdiction due to COVID-19 workplace changes.

Many businesses have been disrupted by the COVID-19 pandemic and as a result, the jurisdiction where employees have been providing services may have changed. This affects employees who were required to travel for work to a different jurisdiction(s) but as a result of the COVID-19 pandemic were directed to work from their home or from a single location.

Broadly, where services are performed wholly in one Australian jurisdiction, payroll tax is payable in that jurisdiction. Therefore, situations may arise where the business is located in one jurisdiction, but an employee was directed to work from home, which is located in another jurisdiction. Accordingly, as the services were provided in a different jurisdiction, the payroll tax liability would shift to that jurisdiction.

Where applicable, employers must consider the payroll tax nexus provisions in order to determine in which  jurisdiction payroll tax is payable on the relevant wages. Furthermore, employers in regional Victoria should monitor the locations where employees have been providing services to confirm their continued eligibility for a regional payroll tax rate.

Pitcher Partners is pleased to assist employers in applying the nexus provisions to determine in which Australian jurisdiction their employees’ wages are taxable.

Concessions for regional employers

Employers who pay at least 85% of their Victorian taxable wages to regional employees will be considered a ‘regional employer’ for payroll tax purposes in Victoria. For employers satisfying this condition, payroll tax for the 2020 financial year will apply at a reduced rate of 2.425%.

In response to the impact of the Victorian bushfires, additional payroll tax relief applies to regional employers with a registered address within the local government areas of East Gippsland, Mansfield, Wellington, Wangaratta, Towong and Alpine. For these employers, a further reduced payroll tax rate of 1.2125% is available for the 2020, 2021, and 2022 financial years.

From 1 July 2022, the payroll tax rate in Victoria will be 1.2125% for all regional employers.

Payroll tax treatment of JobKeeper payments

In light of the introduction of the Commonwealth Government’s JobKeeper payments, the Victorian and NSW governments announced payroll tax relief in relation to additional payments employers make to bridge the gap between an employee’s normal wage and the $1,500 per fortnight required to qualify for the JobKeeper program. Accordingly, the following JobKeeper payments are exempt:

  • the full $1,500 per fortnight paid to employees who have been stood down; or
  • a top-up amount paid to employees who actually earn less than $1,500 per fortnight (for example, to qualify for a JobKeeper payment, an employer must pay an additional $500 to an employee who earns $1,000 in a fortnight. The additional payment of $500 is exempt from payroll tax).

In all other circumstances, the JobKeeper payments are subject to payroll tax in Victoria and NSW.

In all other Australian jurisdictions, the full $1,500 JobKeeper payments made to employees are fully exempt.

Contractor exemptions

Recently, we have been observing increased compliance activity from the various jurisdictions in respect of contractor payments.

The payroll tax provisions provide certain exemptions for payments made to contractors. Where a payment to contractor does not fall within one of the available exemptions, that payment is subject to payroll tax. Employers are encouraged to keep detailed records, as the burden of proof to substantiate any exemption claimed always rests with them.

Interaction of contractor provisions and employment agency provisions

Payroll tax legislation in each state contains far-reaching employment agency provisions. Broadly, these provisions apply to employment agents who procure the services of workers for their clients. Generally, payments to contractors that fall within the employment agency provisions are not eligible for the usual contractor exemptions.

For business structures with multiple entities (e.g. an employing entity and an operating entity), there is a risk that the employing entity may fall within the definition of employment agent under the payroll tax legislation. In these situations, where the employing entity procures the services of contractors for the operating entity, the relevant contractor exemptions may not be available and all payments to those contractors would be subject to payroll tax.

Businesses are encouraged to carefully review the application of the employment agency provisions to their business arrangements and, in particular, the availability of contractor exemptions. Misunderstandings relating to reach of the employment agency provisions and their interaction with the contractor provisions may lead to a significant payroll tax liability for some businesses.

We would be pleased to consider your specific arrangement and provide further guidance.

Fringe benefits taxable value

A common mistake in an employer’s annual payroll tax reconciliation is the calculation and reporting of the fringe benefits taxable value. Sometimes employers incorrectly report the amount of fringe benefits tax payable for the given year or only include the value of reportable fringe benefits. However, the correct value to be declared for payroll tax purposes is the taxable value of all fringe benefits grossed up by the Type 2 rate of 1.8868.

Payroll tax grouping

Entities may be grouped for payroll tax purposes if any of the following applies:

  • they are related bodies corporate;
  • they are commonly controlled;
  • they share “common employees”; or
  • an entity has a “controlling interest” in a corporation through the tracing of ownership interests.

Grouped entities are treated as a single employer with the payroll tax-free threshold applied to only the designated group employer (DGE) entity rather than to each individual employing member. The annual threshold in Victoria for the 2020 financial year is $650,000 (i.e. $54,166 monthly).

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

There has been increased State Revenue Office activity centred around payroll tax grouping in recent months.  Where applicable, we can assist employers in considering how the payroll tax grouping provisions may apply to their circumstances including the application of the Commissioner’s discretion to exclude a member from the group.

Exempt amounts for motor vehicle and accommodation allowances

While allowances paid to employees are generally subject to payroll tax, certain types of allowances may be partially or fully exempt – in particular, motor vehicles and accommodation allowances are exempt if paid at a rate no greater than the specified exempt rates (i.e. for the 2020 financial year, the exempt rates are 68 cents per kilometre and $283.45 per night, respectively). Amounts paid in excess of these rates are subject to payroll tax as taxable wages.

What are the next steps?

It is critical that businesses properly consider their position and how the payroll tax rules apply to their circumstances. Contact a Pitcher Partners representative to review your situation and determine what, if any, action is required.

This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional advisor. To the maximum extent permitted by law, neither Pitcher Partners or its affiliated entities, nor any of our employees will be liable for any loss, damage, liability or claim whatsoever suffered or incurred arising directly or indirectly out of the use or reliance on the material contained in this content. Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Liability limited by a scheme approved under professional standards legislation.

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