Along with other issues in the wages space being investigated by authorities, the Queensland’s OSR is looking closely at the payment of management fees between companies. No doubt, this crackdown will spread to other states and territories so wherever you operate, you should be addressing this issue asap. To assist, I’m providing guidelines on how to avoid being caught in this crackdown and how you can avoid paying payroll tax on management fees – within the law.
The OSR has been cracking down on management fees between companies and where they can, charging payroll tax on management fees. This is an important issue because it is not uncommon for directors of companies to pass resolutions close to the end of a financial year to charge one company with a management fee and credit another company with the management fee.
However, these types of transactions could have the significant though unintended result of creating a substantial payroll tax liability.
How the OSR catches management fees
Management fees are charged for one company providing management services to another company.
The Contractor provisions of the Payroll Tax legislation provide a definition of a ‘relevant contract’ as including where one person supplies services to another. Unless the management fee falls within one of the exemptions under the Payroll Tax legislation the OSR is entitled to regard the payments as ‘wages’ and charge payroll tax to the person making the payments.
Depending on which State applies the tax, this could be as high as 6.85% of the management fee.
How to avoid payroll tax on management fees
The best advice I can give is to seek expert payroll tax advice before deciding on payment of any management fees. It is important that the fees are structured in such a way to take advantage of one or more of the exemptions under the Payroll Tax legislation.
A carefully drawn management agreement is the first step but a management agreement is not enough. You still have to make sure that the payment of management fees falls outside the definition of ‘relevant contract’ under the Payroll Tax legislation.
Fortunately, Tobin Partners has plenty of experience in this area of law. One such example can be found at https://www.tobinpartners.com.au/case-studies/case-studies-payroll-tax-contractor-payments/
To discuss the imposition of payroll tax on payment of management fees please contact us at Tobin Partners Lawyers by email or call Peter Tobin 0438 001 809 directly for a confidential discussion.