Understanding payroll tax

Do you know your payroll tax rights and obligations? We take a look at crucial clauses.

Payroll tax is a state and territory tax levied on wages paid by employers to their employees unless a relevant exemption or exclusion is applicable, although these and other features of the tax can vary across the different jurisdictions.

While payroll tax legislation in NSW and Victoria has been recently harmonised (from July 1, 2007) and Queensland and Tasmania have foreshadowed that they also propose to adopt this model, it should be noted that payroll tax rates and general deduction and exemption thresholds are not part of this exercise.

The current payroll tax rate in Victoria is 5.05 percent with rates in other jurisdictions varying from 4.75 percent (Queensland) to 6.85 percent (ACT).

When is an employer liable for payroll tax? An employer who employs staff in Victoria must register and pay payroll tax when its total Australian wages exceed the general deduction threshold of $45,833 a month or $550,000 over a full financial year; or, when grouped with other businesses, the combined Australian wages of the group exceed the general deduction threshold.

Similar but not identical thresholds apply in other jurisdictions and so further clarification should be sought on the precise position in these jurisdictions.

When is payroll tax paid? The tax is payable monthly, by the seventh day of the month following the month in which an employer’s wage bill has exceeded the general deduction threshold. However, if the estimated tax payable by an employer is relatively low, the employer may apply to the State Revenue Office (SRO) for approval to pay annually.

Employers must lodge an Annual Adjustment Return by July 21 each year. This return reconciles the tax payable for the financial year and incorporates wages paid for the month of June as there is no separate payroll tax return for June in Victoria.

Interest is charged for underpayment, late payment or failure to pay tax at the market rate (currently 6.37 percent) plus a premium of 8 percent per annum. Penalty tax may also be imposed ranging from 25 to 75 percent of the tax payable, with the precise penalty varying according to the circumstances of the case, such as intentional disregard of the law as opposed to exercise of reasonable care, etc.

What payments are included as wages? The definition of wages under state/territory PRT legislation is very broad and includes:

* wages/salaries

* allowances

* commissions

* bonuses

* employer contributions to superannuation funds on behalf of employees

* fringe benefits (as per Federal FBT legislation)

* from 1/7/07, the value of shares and options granted to employees, directors, former directors and some contractors

* payments to some contractors

* payments by employment agencies arising from employment agency contracts

* remuneration paid by a company to or in relation to company directors, and

* employment termination payments and accrued leave

* trust distributions made in lieu of wages in certain circumstances.

The precise position in some jurisdictions may vary from the above and should be clarified further.

What is not subject to PRT? Not all wages are subject to payroll tax as amounts paid by the following are generally excluded:

* religious institutions

* public benevolent institutions

* public or non-profit hospitals

* primary and secondary schools or colleges

* municipal councils

* charitable organisations

* payments to employees while on leave with the defence forces.

Some states have additional exemptions that may need to be clarified further. Examples include teachers’ training colleges, childcare centres, group apprentice or traineeship schemes, ambulance services and employees on maternity or adoption leave.