Payroll tax is often completely overlooked by business. One reason is that payroll tax creeps up on businesses and without realising it their wages exceed that State’s* threshold. Unfortunately, the thresholds are different in each jurisdiction.
Someone I know recently received a payroll tax assessment for over $100,000. He didn’t even know that he had a payroll tax obligation.
This article will inform you of how the Office of State Revenue identifies businesses for audit. I hope the information will assist you to stay out of their sights.
The current tax rates and thresholds for payroll tax in Australia are set out in the following table. In Queensland and the Northern Territory thresholds no longer apply above $5.5m and $5.75m respectively. In Western Australia no threshold applies above $7.5m.
| State/Territory | Annual Threshold | Tax Rate |
|---|---|---|
| ACT | $2,000,000 | 6.85% |
| NSW | $750,000 | 5.45% |
| NT | $1,500,000 | 5.50%* |
| QLD | $1,100,000 | 4.75%* |
| SA | $600,000 | 4.95% |
| TAS | $1,250,000 | 6.10% |
| VIC | $575,000 | 4.85% |
| WA | $850,000 | 5.50% |
*Threshold reduces by $1 for every $4 that the threshold is exceeded.
**Diminishing threshold. Over $7.5m no threshold applies.
Each State has had its own payroll tax legislation for over 40 years but more recently their various Acts have been harmonised resulting in greater sharing of information among them.
Payroll tax is calculated on the total Australian wages paid by an employer. Because payroll tax is calculated on the total Australian wages consideration must be given to which State the employee/s worked in and for how long. It is possible that the employer may have to pay payroll tax in more than one State even though the employer’s business is located in only one State.
There are several avenues that the Office of State Revenue uses as part of its investigation and audit activity.
1. Workcover Data Match
The Office of State Revenue has access to all wage information provided by employers to Workcover. They obtain reports from Workcover that identifies those businesses paying wages more than the threshold amount (see above table for threshold amounts). This information is then matched with the Office of State Revenue’s own information to identify any businesses that are not registered for payroll tax. The reports can also highlight any inconsistencies in the data held by Office of State Revenue and Workcover. If your business is filing returns with Workcover showing wages more than the threshold amount you will be checked and identified by Office of State Revenue if you have not already registered for payroll tax.
2. Sharing Data among the States and Territories
Since the harmonisation of the payroll tax legislation in Australia there is greater co-operation among the States. This co-operation includes sharing data lodged by employers. Any inconsistencies are identified and an investigation made of the employer.
3. ATO Data Match
The ATO provides information to the States of PAYGW data from Business Activity Statements lodged with the ATO. This information is used by the Office of State Revenue to identify and investigate any businesses which might be making understatements of wages. Interestingly, the Office of State Revenue is also gleaning information from FBT returns lodged with the ATO. Many businesses forget to declare fringe benefits to the Office of State Revenue even though they are quite accustomed to providing the information to the ATO. Any inconsistencies in the information an employer provides to the ATO and Office of State Revenue will be investigated by the Office of State Revenue and the employer audited.
4. ASIC Searches
Grouping of businesses results in a substantial revenue stream for the Office of State Revenue. Common groups include related companies or common directors and/or shareholders. The Office of State Revenue has access to all that information held by ASIC. Any companies that are identified by the Office of State Revenue as “related” can be targeted for investigation and audited.
5. Failure to Lodge Returns
One sure way of becoming a target of the Office of State Revenue for investigation is having a history of failing to lodge returns.
6. Sector Audits
Not unlike the ATO the Office of State Revenue sometimes targets certain industries for special attention. These sectors understandably include labour intensive businesses such as transport, construction and retail.
7. Audit Period, Procedure and Powers
If you are the subject of an audit you will be asked for wage information for the current and previous four financial years.
The first sign of an audit will generally begin with a “Please explain” letter from the Office of State Revenue asking for wage records, financial statements, statements of earnings, contractor and sub-contractor details such as invoices and agreements. You will also be asked for your fringe benefit returns, income tax returns, trust deeds and company constitutions.
The Taxation Administration Act in each State contains powers for authorised officers to search business premises and obtain copies of company records.
It is fair to say that the Office of State Revenue matches every available piece of information from other government departments. Often it’s not the amount of any understatement that matters it is your failure in giving conflicting information to the Office of State Revenue that will result in an automatic “Please explain” letter.
*States include the ACT and NT.
If you would like to know more about payroll tax or how Peter Tobin can help you minimise payroll tax give Peter a call on 07 3260 5189 or email peter@tobin.net.au.
