Grouping

Related corporations

Tough Steel Pty Ltd operates a successful family-owned steel supply business. In September, all of its shares were sold to Big Investment Group Inc. Big Investment Group Inc. also purchased all the shares in a software development business that specialises in artificial intelligence software.

As both companies are wholly owned by the same parent company, they form a related corporations group for payroll tax purposes. This grouping applies even though both companies operate completely separate businesses.

The monthly and annual payroll tax returns for both companies would need to be lodged on a group basis as a consolidated single lodger, or as a designated group employer and individual group members. Only one tax-free threshold can be claimed for the group.

Common employee

North Pole Pty Ltd a heavy haulage transportation business uses its own staff, trucks, trailers, equipment as well as engaging contractors to do work. The contractors include other transportation businesses that supply their own drivers, trucks, trailers and equipment such as Over the Top Transportation Pty Ltd.

North Pole engaged the services of Over the Top Transportation at a cost of $8 million. Over the Top Transportation earned all its operating revenues from North Pole in that financial year.

The director of Over the Top Transportation manages its’ employees when they’re in the office but they’re often on the road for extended periods of time. When they are on the road, the operations staff from North Pole schedule, allocate, and provide job specific instructions to the contractors’ drivers. No written agreement exists between the parties for the provision of transportation services and they operate from the same business premises.

An informal agreement exists between North Pole and Over the Top Transportation for the provision of transportation services where the employees of Over the Top Transportation perform duties for North Pole when transporting cargo. As such, these two businesses are grouped from the use of common employees.

Common control (director/shareholder)

A real estate business carried on by a company with a sole director and shareholder, is looking to expand the business by purchasing an existing rent roll.

After an extensive search, an agreement is reached with another local real estate business to purchase their existing rent roll portfolio. The deal will involve the director/shareholder of the purchaser becoming the sole director and shareholder of a company which owns the rent roll.

As both companies have the same director and shareholder they form a commonly controlled group of businesses for payroll tax purposes. The monthly and annual payroll tax returns for both companies need to be lodged on a group basis as a consolidated single lodger, or as a designated group employer and individual group members. Only one tax-free threshold can be claimed for the group.

Common control (discretionary trust)

The Kumar family own and operate a logistics business. The business is carried out under the Kumar Family Trust, a discretionary trust. Nick and Rachael Kumar are specified beneficiaries of the trust, and their children and immediate families are included as general beneficiaries. The trustee of the trust has only ever made distributions to Nick and Rachael.

Nick and Rachael have two children who are heavily involved in the main logistics business, but have also decided to start a small courier business of their own. The children set up a company where both are directors and equal shareholders, and start trading as a courier business specialising in time critical parcel deliveries.

To help their children, Nick and Rachael provide the new courier business with a loan from the Kumar Family Trust. The loan is interest free with no repayment schedule as the loan amount exceeds the courier business’ net assets. The logistics business also allows the new business access to its office, warehousing and loading space for no charge. Apart from this, the new business is managed separately from the main logistics business and also directly employs four staff.

The Payroll Tax Act 2007 has a special provision that deems any beneficiary of a discretionary trust as having a controlling interest (greater than 50 per cent of the value) in that trust, whether specified or not. In this case both children have a controlling interest in the Kumar Family Trust. Together, they also have a controlling interest (as directors and shareholders) in the new business

As they have controlling interests in the Kumar Family Trust and the new business, these businesses form a commonly controlled group for payroll tax purposes. Although the businesses are managed separately and employ their own staff, the connections and dependencies (interest-free loan and access to premises at no charge) would likely result in an application for exclusion to the grouping being disallowed.

The new courier business would need to be registered for payroll tax and grouped with the Kumar Family Trust. The monthly and annual payroll tax returns for both would need to be lodged on a group basis as a consolidated single lodger, or as a designated group employer and individual group members and only one tax-free threshold can be claimed for the group.

Controlling interest

Jen, Alice, Ken and Mary run a number of businesses.

Music and Lyrics Pty Ltd and Bassoon Pty Ltd are grouped because Jen and Alice have controlling interest through their shareholding of Music and Lyrics (100 per cent) and directorship of Bassoon (67 per cent).

Music and Lyrics Pty Ltd and Creative Music Pty Ltd ATF JAM Trust are grouped because Jen and Alice have controlling interest through directorship of Music and Lyrics (100 per cent) and as beneficiaries of Creative Music Pty Ltd ATF JAM Trust (67 per cent).

Music and Lyrics Pty Ltd and JAK Partnership are grouped because Jen and Alice have a controlling interest through shareholding of Music and Lyrics (100 per cent) and they are entitled to greater than 50 per cent of the profits in the JAK Partnership (70 per cent).

The three groups above will be subsumed because Music and Lyrics Pty Ltd is a member of all three groups.

When registering for payroll tax:

• Music and Lyrics Pty Ltd must register and pay NSW payroll tax
• Bassoon Pty Ltd must register and pay NSW payroll tax
• Creative Music Pty Ltd ATF JAM Family Trust does not need to register or pay NSW payroll tax, but will need to declare their interstate wages under the DGE’s returns.
• JAK Partnership does not need to register or pay NSW payroll tax, but will need to declare their interstate wages under the DGE’s returns.