Payroll Tax – De-grouping (NSW)

In Conrad Linings Pty Limited v Chief Commissioner of State Revenue [2014] NSWSC 1020, the NSW Supreme Court (the NSWSC) considered whether discretion should have been exercised by the Chief Commissioner under s79 of the Payroll Tax Act 2007 (NSW) (the Act) to exclude the plaintiff (Conrad) from being grouped with another entity, Salex Interiors Pty Ltd (Interiors).

The NSWSC noted that the onus of proof in respect of the de-grouping application rested with Conrad. In rejecting Conrad’s de-grouping application, the NSWSC paid particular attention to the following factors:

  • Commonality of shareholders in both businesses.
  • Evidence of debt owed by Interiors to Conrad.
  • The use of the same business premises by both companies.
  • The existence of common employees to both businesses.
  • Whether the operations carried on by each business were completely unrelated.

Ultimately, the NSWSC found that Conrad had not discharged its onus of establishing independence in the carrying on of its business and the lack of connection between its business and Interiors’ business.

This serves as an important reminder for taxpayers that the onus of proof rests with the taxpayer in respect of de-grouping and that they should ensure sufficient evidence is maintained to support their tax position.

Payroll Tax – Amendment Bill (ACT)

The Payroll Tax Amendment Bill 2014 has been passed by the ACT Legislative Assembly without amendment and now awaits notification. This Bill will amend the Payroll Tax Act 2011 to remove the previously available exemption for wages paid under an employment agency contract to a subcontractor who is considered to be a ‘genuine employer’. This change is expected to take effect from 1 October 2014.

Employers operating in the ACT need to be aware that this change may affect your payroll tax obligations where you procure the services of a service provider for your client. Where employment agency contracts are used to provide services to your clients, consideration should still be given to whether any of the remaining employment agency contract exemptions under Schedule 2, Part 2.3, section 2.14(1) are relevant as there are a number of exemptions that continue to be available from 1 October 2014.