One of the more overlooked areas of taxation is payroll tax. This has caused some very extensive rules to be not properly understood.
The main reason for payroll tax being overlooked is because it is run by the state revenue authorities, not by the ATO. Most people are focussed on the ATO, which sends endless letters and makes endless phone calls and makes itself known and heard.
State revenue authorities are more of a silent assassin. When they hit, they hit big. Think stamp duty when you buy a house. Think land tax on an investment property which eats up your entire net profit. Think payroll tax.
Most people think payroll tax is just for people who have a lot of employees. The threshold at the time of writing is $1.2m. It seems like a lot but consider this:
- Contractors are included as employees, subject to limited exceptions. That means anyone that you pay on an ABN. It can also include others as well. It is extremely broad, and to give you a sense of how broad, it basically covers everyone unless an exception applies. So you have to go through the list of exceptions to find out who to take off – otherwise they are in.
- Wages (including payments to contractors) paid by other members of the group are also included, as a group gets only one threshold. Now you might think, that’s fine, I am not in a group with anyone. That would be wrong. You are probably in a group with someone else and you just don’t know it. Two companies can be in a group if they have a common employee. You are probably breathing a sigh of relief and saying thats not the case for you. You would be wrong again. A common employee is someone who does work in your business as well as a different business, even if they are not your employee (or theirs). For example, theoretically if a business sends someone over to yours to do something, and you can direct them and tell them what to do, they become a common employee. Unless the exception for contractors applies, which is a limited list. By the way you are in a group unless you apply to the state revenue office and they agree that you aren’t in a group with someone.
If you are in a group, joint and several liability applies, which means you could be responsible for someone else’s payroll tax.
This is all unbelievable to most people, and you would be thinking if so many people were liable, then when haven’t you heard about it? Thats a good question. The answer is not in the rules – more people are liable than they realise – but in the enforcement. The fact is, the state revenue office doesn’t necessarily have the ability to check this in detail for each person. How would they know if another business sent some over to yours to help out with something?
If you get audited, then all these issues and questions come out. Not to mention some people will desire to reduce their payroll tax bill by trying to push it onto others. The employment agency rules, for example, would allow just that. If someone is the employment agent, then they are responsible for the payroll tax. If they are not an employment agent, then you are. You can see how this could easily go bad. Classic case of game theory.
