Some businesses are being caught off guard about their payroll tax liabilities, an audit and tax consulting firm has said, particularly in instances where wage underpayment has been identified.
The problem is that payroll tax is essentially based on an annual threshold of a company’s total wages bill. And according to RSM Australia associate director Jane Wood, wage underpayments — even accidental ones — can leave businesses exposed to an unexpected tax bill over and above the repayment of wages to employees.
“Payroll tax obligations depend on factors such as the amount of remuneration the business pays, whether the business is part of a group for payroll tax purposes, and whether the business shares employees with other businesses,” Ms Wood said.
“The answers to these questions can mean that a business that considers itself to fall under the threshold in their state may actually be subject to payroll tax that it wasn’t aware of. It’s important for businesses to be aware of all their tax obligations to avoid having to pay back taxes, interest and penalties.”
Adding to the complexity is the fact that rates and thresholds at which payroll tax kicks are not standardised Australia-wide, with each state and territory having very distinct rules in effect.
“Businesses that employ workers in different states need to combine the total amount of remuneration paid across the country to see whether they need to pay payroll tax,” Ms Wood explained.
“For example, if the business pays more than $1.1 million across the country, then it will need to register for payroll tax in each of the states it operates in. However, if the company employs staff in Queensland and Victoria alone, and its payroll bill is $800,000 per year, then it will need to register for payroll tax in Victoria but not in Queensland.”
There have also been changes made by some states this year, leaving Victoria as the state with the lowest payroll tax threshold — the point at which the unpopular tax kicks in — meaning more businesses are forced to pay it. It also has one of the lowest rates at which payroll tax is calculated.
Ms Wood concluded: “Business owners and managers shouldn’t ignore this potentially significant tax burden. It’s important to get clear advice to ensure the company is meeting all of its tax obligations to avoid a tax liability together with any associated interest and penalties.”
The warning heralds back to a similar one made in June by Peter Bembrick of HLB Mann Judd, who said that the number of businesses being audited by state revenue bodies had increased markedly.
Payroll tax is one of the most despised of all taxes and levies imposed by governments of any level, and is seen by the business community as a tax on job creation.
My Business readers have previously offered suggestions for how payroll tax could be overhauled or replaced so as not to deplete government revenues but being more efficient for those it impacts.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.