Payroll Tax: Be ready for your Annual Reconciliations
When is Payroll tax lodgement and payment due? 21 July 2014
Payroll Tax is a substantial cost for many organisations. With a payroll tax rate of 5.45% in NSW (4.75% to 6.85% in other States & Territories) charged on wages and benefits in excess of thresholds, the amount of payroll tax paid in a financial year can be substantial.
Each financial year, liable employers are required to lodge an annual reconciliation which provides an opportunity to rectify any underpayments or overpayments during the year.
Given the potential cost of payroll tax to an organisation it is worthwhile spending some time to get the numbers correct. To assist you in doing this we have provided some helpful hints and reminders below.
Make the reconciliation process simpler, don't recreate
Many taxpayers use different reports and systems to complete wages information for PAYG, payroll tax and workers compensation declarations. Do not recreate reports which you already have, it is time consuming and can lead to mistakes. You may need to manipulate the information but the information source should be the same and ensure figures reconcile where possible.
Readily available information sources include PAYG annual statements, salary & wages expensed in the accounts, workers compensation wage declarations, the FBT return and superannuation contributions expensed in the accounts or paid from a liability account during the year.
Capture all wage components subject to payroll tax
Employers need to ensure that all wages subject to payroll tax are included in the payroll tax calculations. All States & Territories have a wide definition of wages so start with a basic premise that where payments or benefits are provided these should be listed and then the payroll tax treatment reviewed.
On top of standard wage components routinely recorded in a payroll system don't forget contractor & consultant payments, additional Directors remuneration (all payments to a Director including payments directed to third parties) and shares or options granted under company share schemes.
Contractor & consultant payments
In all States & Territories, except WA, contractor & consultant payments are subject to payroll tax. Each State & Territory then has a number of exemptions to exclude certain contract payments from being liable to payroll tax.
Review payments to contractors & consultants on a contract by contract basis to determine whether one of the exemptions can be applied to those payments.
Check whether there are some exemptions or rebates
The various States & Territories have different schemes for rebates from payroll tax for specific employees. For example, in NSW there is a maximum $5,000 rebate paid over two years where an employer increases the number of full time equivalent NSW employees over a two year period. Check whether there may be a scheme in a State or Territory where you may be entitled to claim a rebate.
You should also confirm the entitlement to a concession available for adoption and maternity leave and concessionally treated portions of termination payments.
Grouping, interstate wages & liability
The deduction entitlement in each State & Territory may be reduced where an employer is a member of a group or pays interstate wages. Employers are grouped where they are related corporations per the corporations law, commonly controlled or an employee of a business performs duties for another business. Where the employers are not related corporations, the State Revenue authority has a discretion to "degroup" the employers where requested.
For specialist advice or to arrange a Payroll Tax review for your business contact Ian Matthews in Sydney on (02) 8346 6000 or Darren Shone in Newcastle on (02) 4962 2688.