Case Study: Payroll Tax – Degrouping Applications

Application for exclusion from a group

Background

The payroll tax legislation applies throughout Australia but each State and Territory has its own Payroll Tax Act. Payroll tax is collected by the individual States and Territories, not by the Federal Government.

Not every employer pays payroll tax. Each State’s Payroll Tax Act provides a threshold under which wages are not liable to payroll tax. o For more information about payroll tax thresholds and payroll tax rates see: https://tobinpartners.com.au/how-payroll-tax-is-calculated-in-australia/

If it were not for the grouping provisions of the Payroll Tax Act the easy answer would be to simply have multiple companies employing staff in the same business.

But the Payroll Tax Act contains a number of provisions designed to stymie such a solution. Some of the provisions deem a worker to be employed by someone who isn’t in fact the worker’s employer. Others provide for the grouping of entities that are connected in one or more of the ways specified in the Payroll Tax Act, and if two or more entities are grouped by the Payroll Tax Act, the group gets only one such threshold exemption, rather than one for each separate entity.

Because the grouping provisions of the Payroll Tax Act are so artificially wide, they can catch businesses with the most remote connection. Some people think if the businesses are diverse then the grouping provisions don’t apply. But unfortunately, that is not the case. We have seen very diverse businesses grouped such as where one business is a child care centre and the other is a hotel, some 300 kilometres away from each other.

Application for degrouping also known as an exclusion order

Because the Office of State Revenue (in some States called the State Revenue Office) recognises that the grouping provisions are so artificially wide, the Payroll Tax Act provides for the Commissioner to make an exclusion order for an entity from a group. But the Commissioner of State Revenue must be satisfied that the business is carried on independently and is in no way connected with the business of any other member of the group. This does not only mean that they are different types of businesses.

The Commissioner will consider:

  • the nature and degree of ownership and control of the businesses; and
  • the nature of the businesses; and
  • anything else the Commissioner considers relevant.

Make no mistake, it is not easy to persuade the Commissioner to issue an exclusion order.

However, we have found that as long as you dot your i’s and cross your t’s, applications can be successful.


Case Study One – Industrial refrigeration business and electrical contractor

Client came to us direct.

Facts:
One company’s business provided commercial and industrial refrigeration solutions.

The other company’s business was an electrical contractor.

One company was owned and operated by two individuals and the other company was owned by those two individuals plus one other person who managed the business.

The companies were grouped because the two individuals controlled both companies through their shareholdings and directorships.

Challenge:
We were asked to apply to the Commissioner for an exclusion order even though the Commissioner was entitled to group the companies because the companies were controlled by the majority of owners.

Outcome:
We were successful in persuading the Commissioner to issue an exclusion order and for the grouping provisions to no longer apply. We were able to demonstrate to the Commissioner that the companies were financially independent of each other and under separate management.

Benefits:
Each company enjoyed their own tax free threshold, saving many thousands of dollars in payroll tax every year.

 


Case Study Two – Service stations

Client referred to us by his accountant.

Facts:
Five companies, involved in running service stations in Victoria, Queensland and Northern Territory, were grouped for payroll tax so only one of the companies enjoyed the tax free threshold.

The companies were owned by four different people to varying degrees of ownership.

Challenge:
We were given a brief to apply for an exclusion order for the grouping provisions to no longer apply.

Outcome:
We were able to convince the Commissioner that at least some of the companies should be degrouped from the others because of the way in which the companies were run independently and no financial dependencies existed. Each company held their own separate trade creditors and they ordered their own goods independently.

Benefits:
A substantial saving in payroll tax which was made retrospective for a number of years.

 


Case Study Three – Manufacturing businesses

Client came to us direct

Facts:
Two businesses involved in manufacturing but each manufacturing vastly different products.

Both businesses were majority owned by two people but the second business was managed by a minority shareholder.

Challenge:
The businesses engaged us to apply for an exclusion order.

Outcome:
Because we could demonstrate that the two businesses were run independently and even though there was a majority ownership of the two businesses, the Commissioner agreed to issue an exclusion order for the grouping provisions to no longer apply.

Benefits:
Substantial savings in payroll tax of many thousands of dollars every year.

 


Case Study Four – Transport companies, breeding business and manufacturing/repair business

Client came to us direct

Facts:
Four companies assessed for payroll tax under the Grouping provisions. Two of the companies were transport companies, one a substantial breeding business and the last a manufacturing/repair business.

The companies were ultimately owned by one person.

Challenge:
The companies could clearly be grouped because they were effectively owned by one person.

The manufacturing/repair business asked us to apply for an exclusion order under the Tasmanian Payroll Tax Act 2008.

Outcome:
We were able to convince the State Revenue Office of Tasmania to grant the exclusion order and degroup the companies under the Tasmanian Payroll Tax Act 2008. We could demonstrate that the managing director had effective control of the business. The business was run completely independently from the other companies.

Benefits:
A substantial saving in payroll tax made retrospective to 1 July 2018 and that saving applies to future years ad infinitum.

 


Case Study Five – Child Care Centre and Hotel

Client referred to us by his accountant

Facts:
Two companies controlled by family trusts operated by mother and children.

Challenge:
The companies could clearly be grouped because they were effectively controlled by the one family.

The companies asked us to apply for an exclusion order under the Qld Payroll Tax Act 1971.

Outcome:
With changes we made to various legal documents particularly, the family trusts of the siblings we were successful in obtaining an exclusion order for the companies to be degrouped.

Benefits:
A substantial saving in payroll tax made retrospective to July 2018 and that saving applies to future years ad infinitum.