Employers are often caught out when revenue offices comes knocking and informs them that they are part of a payroll tax group.
But rather than simply accepting the position, employers (and their advisors) should consider applying to the revenue office to have the members ‘de-grouped’ to reduce the tax burden.
Payroll tax is a State and Territory based tax payable by employers on ‘taxable wages’ paid to employees above a certain threshold.
To prevent employers from trying to multiply the benefit of the tax-free threshold by separating what is in reality, one business, into several, the payroll tax rules in all States and Territories contains payroll tax grouping provisions.
Under the grouping provisions, businesses are grouped for payroll tax purposes where, broadly:
- the businesses are commonly owned;
- the businesses are commonly controlled;
- there is common use of employees between the businesses; or
- the businesses are ‘related bodies corporate’ (e.g. a holding company and a subsidiary).
The payroll tax grouping provisions are wide and, quite often, businesses can be caught by the rules even when they are genuine independent businesses.
Consequences of grouping
Where businesses are grouped, they are effectively treated as a single entity for payroll tax purposes.
One of the businesses will be the ‘designated group employer’ (‘DGE’) that will be responsible for lodging and paying payroll tax on behalf of all members of the group, and it is this entity that will be entitled to claim the payroll tax deduction for the group (i.e. the deduction can only be claimed once).
Significantly, if the DGE fails to meet its payroll tax liability, all members of the group will be jointly and severally liable for the payroll tax liabilities of the group.
Commissioner’s discretion to de-group
While the payroll tax grouping provisions cast the net wide, the Commissioner of State Revenue has the discretion to exclude a member from a group in certain circumstances.
Broadly, the Commissioner can exclude a business that would otherwise be a member of the payroll tax group by virtue of common ownership, control or employees if a business carried on by the person is carried on independently of, and is not connected with the carrying on of, a business carried on by any other member of the group.
In making this assessment, the Commissioner must have regard to:
- the nature and degree of ownership and control of the businesses;
- the nature of the businesses; and
- any other matter the Commissioner considers relevant.
These factors include such things as: the nature and extent of any commercial transactions between the members; whether the members share resources, facilities or services; whether there is any commonality of management structures; and whether there are financial interdependencies (e.g. intra-group loans, common banking facilities, cross guarantees).
These factors operate as a guide in determining whether, on balance, the member that is sought to be excluded carries on a business that is genuinely independent of the other members of the group.
De-grouping should be explored when there is more than one business involved. This can be when:
- establishing multiple businesses or entering into arrangements that could potentially result in grouping (e.g. through the common use of employees);
- an employer is advised by the revenue office (e.g. upon completion of an investigation) that they are part of a payroll tax group;
- an entity with outstanding payroll tax debts is sought to be wound up and the owners own/operate other businesses carried on by other entities; and
- the revenue office seeks recovery from members other than the DGE for outstanding payroll tax liabilities of the group (e.g. if the DGE is in administration or liquidation).