Problems with Payroll Tax
Despite wide spread business dislike of payroll tax (PRT), the current fiscal and tax landscape suggests it is with us for a good while yet.
With that in mind, business should at least have some certainty as to how key aspects of the law, such as the PRT grouping rules, work and will be administered.
The effect of two or more businesses being grouped is to deny the PRT threshold to each business and, instead, for wages of the grouped businesses to be aggregated and the group entitled to one threshold. As grouping issues often arise in the course of a PRT investigation quite often grouping is applied retrospectively meaning the financial impact can be severe.
Recent decisions (refer Tasty Chicks, Lombard Farms, Liquid Rocks and Bank of Queensland) suggest the operation and application of certain key aspects of the grouping rules is not well settled at all.
Key concerns include:
- groupings based on ‘inter-use of employee’ being more regularly imposed, despite recent decisions confirming the need for a person to be ‘employee-like’ (i.e. subject to direction and control as if an employee of another business) and not merely performing duties for their employer that relate to the employer’s obligations to provide services to another business;
- the Commissioner’s refusal to exercise discretion to exclude a business from a group, with the exercise of the discretion relying unduly on the factors that cause a grouping to arise in the first place (i.e. common directors or shareholders) and assertions that ‘capacity to control’ outweighs an assessment of ‘independence’ based on actual interactions between businesses; and
- ongoing uncertainty when applying the rules to businesses run through trust structures.
This forum does not enable a more expansive technical analysis to be made of the issues at play. However, practitioners and small business would be well warned to be aware of the possible traps when considering the application of the grouping rules to existing structures or new business activities/restructurings.
It would be hoped better clarification of Revenue Office attitudes can be provided through a review and re-issue of Revenue Rulings dealing with the grouping rules.
In the meantime, the days of viewing the grouping provisions as having an anti-avoidance purpose and hence requiring (and historically having been afforded) a reasonable interpretation, appear gone. PRT investigations now appear to result routinely in application of the grouping rules in favour of the Revenue office.
This article was submitted by Michael Doran. Michael is a Director of Webb Martin Consulting Pty Ltd and TaxBanter Pty Ltd. Michael regularly assists businesses across Australia deal with PRT grouping matters. Michael may be contacted at firstname.lastname@example.org
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