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NSW Payroll Tax Audits

 

Introduction

A businesses liability for payroll tax is outlined in the Payroll Tax Act 2007 (NSW). As it is a state tax it is regulated and collected by the NSW Office of State Revenue (OSR) and not the Australian Tax Office (ATO).

Payroll tax, unlike income tax is imposed on an employer not an employee. The extent of an employer’s liability for payroll tax will depend on how much wages they pay to their employees.

As of 2016 financial year, only companies who pay over $750,000 in gross wages are obligated to pay payroll tax. The current payroll tax rate is 5.45% for NSW.

To prevent companies from avoiding payroll tax by subdividing their businesses into a number of subsidiary companies, detailed grouping provisions apply to ensure that corporate groups will be considered as one collective employer.

Guide on Compliance

If a business pays wages above the monthly threshold, it will be required to register for payroll tax with the OSR. These monthly thresholds are:

  • 29 days – $59,426
  • 30 days – $61,475
  • 31 days – $63,525

An employer must register within 7 days with the OSR after the first month their wages exceed the monthly threshold. When registering they will be advised whether they need to pay the tax on a monthly or annual basis.

In addition to making monthly payments, businesses must also complete an annual payroll tax reconciliation. For the financial year ending 30 June 2016, all annual payroll tax reconciliations have to be sent to the OSR by 21 July 2016.

Depending on which industry a company operates and how much tax they have paid in the past, the OSR will retain a discretion to audit a tax payer to ensure that they are accurately and truthfully declaring their paid wages and other associated wages. The OSR will also often audit a business if it uses a number of subcontractors, as the OSR can see this as a great opportunity to gain some extra revenue.

The OSR can audit a tax payer for all wages paid in the last 5 years and a business is therefore required to keep detailed employment records for all payments made to employees and contractors.

In general if a business is subject to an audit they will have to produce copies of their:

  • Profit and loss statements
  • Balance Sheets
  • Tax Returns
  • Group Certificates
  • Any contractor invoices
  • Anything else the auditor requests

Auditors retain a large amount of power to seize documents, enter premises and generally make life difficult for a taxpayer that does not cooperate with an audit.

The following sections deal with the payments an auditor will be looking for if they choose to audit your company:

What payments are assessable for payroll tax?

Liable wages include:

  • Allowances
  • Apprentice and trainee wages
  • Bonuses and commissions
  • Contractor and consultant payments
  • Directors fees and other payments
  • Employment agency contracts
  • Fringe benefits
  • Salary sacrifice
  • Shares and options
  • Superannuation
  • Termination payments (including ‘golden handshakes’)
  • Unused leave

Which payments are exempt from payroll tax?

Wages paid by certain bodies are exempt from payroll tax. There are two types of exemptions when it comes to payroll tax:

Type 1 exemptions – some or all of the wages paid by an organisation are exempt due to the nature of the organisation

  • Non-profit organisations
  • Continuation of existing exemptions
  • Education
  • Health care service providers
  • Local government
  • Other government and international agencies

 

Type 2 exemptions – some wages are exempt when paid for a specific purpose, eg maternity leave.

  • Aboriginal persons
  • Maternity, paternity and adoption leave
  • Volunteer fire fighters and emergency service volunteers
  • Defence force personnel
  • Approved group apprenticeships and trainee schemes

Contractors

Many contractors payments are liable for Payroll Tax. An independent contractor is an entity that agrees to produce a designated result for an agreed price. Contractors can include sub-contractors, consultants, sole traders, companies, partnerships and trusts. A relevant contract is a contract under which a business is supplied with services, or where goods are supplied to natural persons for the re-supply of those goods to the business in a modified form.

Under a relevant contract:

  • All the payments under the contract (except GST and materials) are deemed to be wages
  • The person in receipt of deemed wages is taken to be an employee
  • The persons (usually a corporation) paying those wages are taken to be an employer, thus making them eligible for Payroll Tax.

Payments made under these contracts are not considered liable wages for payroll tax.

  • Labour ancillary to supply of goods
  • Services not ordinarily required
  • Services do not exceed 90 days in a year
  • Chief Commissioner satisfied that contractor services the general public
  • Contractor engages labour
  • Owner drivers
  • Insurance agents (removed from 1 January 2016)
  • Direct selling agents (removed from 1 January 2016)

Our dedicated team can assist you with all your auditing needs. Complete and submit the Express Enquiry form on the top right hand side of this page and we will contact you to discuss your enquiry or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to arrange an appointment.