Most businesses are looking for ways to cut costs to increase their competitiveness and improve their overall bottom line. To assist you, we’re sharing our expertise with 5 ways to reduce payroll tax.
Payroll tax is payable throughout Australia by businesses whose wages exceed the threshold in the State or Territory in which they operate. As it’s a state-based tax, each State and Territory has its own rate of tax and threshold, which you can check in our article.
Here are 5 ways to reduce your payroll tax:
- Directors’ fees: The definition of wages is very wide and includes directors’ fees. Instead of paying directors’ fees you should consider paying dividends instead. Dividends are not subject to payroll tax. This is especially effective for SMEs.
- Consider alternative labour sources: Payroll tax applies only to wages payable in Australia. While we strongly support jobs growth in Australia, it is a reality of business globally, that many enterprises are seeking the most cost-effective labour sources and often that means overseas workers. Some Australian businesses already employ workers overseas such as in the Philippines, India and China. No payroll tax is payable where you pay wages for workers engaged and residing outside Australia. Engaging workers overseas is outside the jurisdiction of the Payroll Tax and this move can reduce your payroll tax.
- Engaging apprentices and trainees: Wages for apprentices and trainees are exempt or receive special treatment from payroll tax in some States such as Queensland. A number of other States have concessions for payroll tax on wages paid to apprentices and trainees but these can change from time to time. Depending on the number of workers you employ, hiring apprentices and trainees could be a great way to reduce your payroll tax.
- Identify the most favourable State or Territory: If you are setting up a business and have multiple options for the location, identify the State or Territory with the highest threshold and lowest rate of tax. For example, the place with the highest threshold is the ACT, currently $2m. But it has one of the highest rates of tax, 6.85%. However, if your wages are below $2m then you don’t pay any payroll tax in the ACT. Some of the States such as Queensland and Victoria have a special discounted rate of tax if your business is set up in a regional area. As with real estate, payroll tax can be all about location, location, location.
- Engage contractors instead of employees: Before jumping into this action, note that it is possible for contractor payments to be subject to payroll tax as we’ve highlighted in a number of our case study articles. However, if the contractor meets one of the exemptions under the Payroll Tax Act then no payroll tax is payable. But we emphasise that you must be very careful that one of the exemptions actually applies. Just because the worker has an ABN or operates through a company is no guarantee that he/she will be regarded as a contractor under the Payroll Tax Act.
To discuss any of the ways to legitimately reduce your payroll tax, contact us at Tobin Partners, Lawyers by email or call Peter Tobin 0438 001 809 directly for a confidential discussion.
Disclaimer
This article contains general information only. It should not be relied upon as legal advice. Formal legal advice should be sought on particular matters canvassed.
