Understanding payroll tax

Non-cash benefits

State/territory legislation expressly provides for payroll tax to be levied on non-cash fringe benefits provided by employers to employees.

The value of such benefits is calculated in accordance with the rules contained in the Commonwealth’s FBT legislation. Some additional points to note are:

NSW and Victoria exclude benefits that are exempt benefits under FBT legislation, and Queensland expressly excludes car-parking benefits.

Treatment of allowances

Allowances are cash amounts paid to employees to cover the cost of meals, tools, etc and are generally fully taxable subject to the following provisos:

* genuine reimbursements of work-related expenses are not allowances and not subject to PRT

* motor vehicle, accommodation and living away from home allowances may be fully or partially exempt in some circumstances.

The exempt rates for motor vehicle allowances (per kilometre) and accommodation allowances (per night) in Victoria for 2007/08 are 70 cents and $201.25 respectively. These rates vary between the different jurisdictions.

A living away from home (LAFH) allowance is a fringe benefit and thus the value of this allowance for PRT purposes is the value specified in the FBT legislation.

Employment agents

In the various jurisdictions, the employment agency is liable for payroll tax for their on-hired workers, with concessions generally available where the end user of the services is tax exempt.

Payments to contractors

While a contractor is not ordinarily considered to be an employee, most states deem contractors to be employees where a ‘service’ contract exists between the person supplying the services (contractor) and the end-user (employer).

Such a contract is usually identified as one relating to the performance of work by a person in the course of carrying on a business. However, only the amount of the payment that relates to labour is liable to PRT, not the cost of equipment and materials that may be incurred by the contractor.

Each state also provides for specific exclusions from its contractor provisions such that contracts will be exempted in certain circumstances:

* the labour component of the contract is ancillary to the supply of materials or equipment (e.g., where the cost of the latter exceeds 65 percent of the contract amount)

* the services provided are not normally required by the business receiving the services and/or the person supplying those services provides them to the general public

* services under the contract are provided by two or more persons supplied by the contractor

* payment of consideration under the contract is greater than $800,000 (NSW) or $500,000 (Tas) - the exemption no longer applies in Vic, and

* the services are those of an owner/driver (NSW, Vic, SA), insurance agent (NSW, Vic and SA) or a direct selling agent (NSW, Vic and SA).

There are no contractor provisions in WA, Qld or NT so that liability for PRT in these jurisdictions will generally only arise on the deeming of the employer/employee relationship where the intention of the relevant contract is to reduce or avoid liability to payroll tax.