August 2, 2024
No Comments
Under the Payroll Tax Act, the payroll tax is payable on wages including directors’ fees, superannuation and most other employee benefits such as bonuses and commissions.
However, if you engage contractors, you might still have to pay payroll tax. Payments to contractors must meet one of the exemptions under the Payroll Tax Act for the payments to be free of payroll tax. As the business owner, the law says it is your obligation to firstly, make the distinction between a contractor and an employee and secondly, to work out whether any of the exemptions under the Act apply to the payments to contractors.
The Payroll Tax Office can go back five years and claim penalties and interest. The effect of having to pay payroll tax on payments to contractors can be devastating for businesses.
Fortunately, Peter Tobin has years of experience in helping determine whether any exemptions apply to contractors or whether they might be regarded as employees.
Get in touch with Peter to discuss your payroll tax needs and specific situation.
Some of the States and Territories deal with contractor payments quite differently in regard to payroll tax. For example, in Queensland, New South Wales, Victoria and South Australia the starting point is that all payments to contractors are subject to payroll tax.
To obtain relief from payroll tax you must show that the contractor payments fall into one or more of the exemptions.
However, in Western Australia it is far easier. You simply distinguish between employees and contractors on common law principles and if you can show that the payments are to genuine contractors then no payroll tax is payable.
According to the Queensland Revenue Office, these are the 9 contractor exemptions:
A number of payments were investigated by the Office of State Revenue with the intention of their being made subject to payroll tax. Demonstrated to the OSR that all such payments came within one of the exemptions of the contractor provisions of the Payroll Tax Act.
Result: Tens of thousands of dollars saved by the taxpayer in avoiding an adverse assessment.
Substantial management fees were made to an associated company over a number of years. The OSR sought to treat those payments as being caught under the contractor provisions of the Payroll Tax Act. Payments of this kind could have unintended but far reaching effects on businesses.
Result: A saving to the client of over $20,000 per annum over the previous 5 years plus future years.
Client investigated by OSR for payments to contractors. Including carpenters and other trades and sales-people who had contracted with our client over many years. If the payments had been assessed as liable for payroll tax the client would have faced severe financial difficulties.
Result: Substantial savings to the client which would otherwise have had significant adverse effect on the client’s business.
Division 1A Contractor Provisions are included in the Payroll Tax legislation.
Like other parts of the Payroll Tax Act 1971 (Qld) the contractor provisions can be difficult to understand and without knowing more about the law you might think that if you engage someone as a contractor you will not have to pay payroll tax on those payments. But that is not true.
The Contractor provisions are concerned with arrangements under which people who would ordinarily be treated as employees set themselves up as contractors. The Contractor provisions deem employees of certain contractors to be employees of the contractor’s principal. In other words, it treats certain persons who set themselves up as contractors as though they were employees of the person with whom they contract.
One of the reasons why it is difficult to understand Division 1A is that although the word “contractor” is used in the Division heading, the Division doesn’t define “contractor”, but rather, employs the concept of a “relevant contract”.
Whilst most arrangements between a business and its contractors come within section 13B(1) of the Payroll Tax Act, section 13B(2) includes:
“(2) However, a relevant contract does not include a contract of service or a contract under which a person (the designated person), in the course of a business carried on by the designated person—…
(b) is supplied with services in relation to the performance of work, if— (iv) the services are supplied under a contract to which subparagraphs (i) to (iii) do not apply and the commissioner is satisfied the services are performed or rendered by a person who ordinarily performs or renders services of that kind to the public generally in the relevant financial year; …”
So as long as you can satisfy the Commissioner that the contractor is a genuine contractor who offers his/her services to the public then no payroll tax should be payable on those contractor payments.
Unfortunately, yes, in the cases where the payments are for the contractor’s labour. However, where the payments fall within one of the exemptions under the Payroll Tax Act, then no payroll tax is payable.
About