Food Paradise Pty Ltd is a catering business. Three of its employees decide to start their own business providing the same type of service to a niche market segment. Healthy Eats Pty Ltd is incorporated with each of them as a director and shareholder.
Food Paradise secures additional work, and the employees agree to stay as its employees on the condition that part of their remuneration is paid to Healthy Eats. No written agreement exists between these businesses for the services. Food Paradise does not declare the payments made to Healthy Eats as liable wages in its 2014 to 2018 payroll tax annual return lodgements.
Healthy Eats does not promote or advertise its services to the public and its operating revenues are largely earned from Food Paradise. The directors of Healthy Eats were employees of Food Paradise at that time. They continue to perform the work from the premises of Food Paradise using its equipment and material. The work performed by them was the same irrespective of whether they performed it as employees of Food Paradise or as directors of Healthy Eats.
The 2014 to 2018 payments to Healthy Eats Pty Ltd are taxable wages of Food Paradise Pty Ltd as they were for services provided by employees of Food Paradise Pty Ltd to their employer. Instead of being paid directly for their services, their wages were redirected to their own company, Healthy Eats Pty Ltd.
In this instance, the payments made to the employees are liable as third party payments.
Jarrah is the sole director and shareholder of Aussie Hardwood Furniture Pty Ltd. She is also one of two directors and shareholders of Wood Pty Ltd, a manufacturer and retailer of furniture.
Jarrah is paid $10,000 per month for her services to Aussie Hardwood Furniture and there is an agreement to make these payments to Wood Pty Ltd. The total amount paid to Wood Pty Ltd is $120,000 in the 2017-18 financial year. The $120,000 is expensed as consulting fees on Aussie Hardwood Furniture’s profit and loss statement.
The $120,000 payment was not declared as liable wages in the 2018 payroll tax annual return lodgement.
In this instance, the payments made to Jarrah would be liable as third party payments.
Jarrah provided services to Aussie Hardwood Furniture. Instead of Jarrah being paid directly for her services, her wages were redirected to Wood Pty Ltd. As a result, the $120,000 paid to Wood Pty Ltd for Jarrah’s services are liable wages of Aussie Hardwood Furniture.