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In this section
  1. Common errors
  2. Your rights and obligations
  3. Voluntary disclosure
  4. Case studies
  5. Payroll tax audits
  6. Computer assisted verification

Common errors

Registration

Payroll tax is a tax on the wages paid by employers. You must register for payroll tax if your monthly wages exceed the threshold.

Not registering for payroll tax

If you pay wages in NSW and they exceed the monthly threshold, you must register for payroll tax. If you’re a member of a group, the total Australian wages paid or payable by all members of the group will determine whether you should register for payroll tax.

Register for payroll tax now

Rates and thresholds

The threshold you claim depends on your wages and links to other businesses.

Claiming multiple thresholds for group members

Only one member of the group can claim the threshold.

Claiming the threshold incorrectly

If any of these apply to your business, it will affect the threshold:

  • wages are only paid for part of the year
  • you pay wages in another state or territory that are subject to payroll tax
  • you are part of a group.

Grouping

The threshold you claim depends on your links with other businesses.

Incorrectly declaring groups

For payroll tax purposes, you may be grouped with other businesses if there’s a link between the companies. Grouping can occur through:

  • related companies
  • common employees
  • common control
  • tracing of interest
  • subsuming.

Claiming multiple thresholds for groups

Only one member of the group can claim the threshold.

The threshold can be claimed either by the Designated Group Employer (DGE) or the Group Single Lodger (SL).

If you are the DGE, the other group members become non-threshold claimers (NTC) and pay the flat rate of payroll tax on their wages.

Lodging as a DGE or SL does not affect the total group liability.

Wages

Wages are subject to payroll tax.

Allowances

Some allowances are exempt from payroll tax.

Incorrectly calculating the exempt component of the motor vehicle allowance

A motor vehicle allowance is paid to an employee to compensate them if they use their private vehicle for business purposes.

To calculate the exempt component, multiply the number of business kilometres travelled in the financial year by the exempt rate.

For people working in the real estate industry, refer to Revenue Ruling PTA 025.

Incorrect treatment of the living away from home allowance

A living away from home allowance (LAFHA) is a fringe benefit. Its value for payroll tax purposes is outlined in the Fringe Benefits Tax Assessment Act.

If the allowance does not qualify as a LAFHA allowance benefit under the Act, it will be treated in the same way as an overnight accommodation allowance.

Apprentices and trainees

Not all apprentices and trainees are eligible for a rebate.

Claiming the rebate for an apprentice or trainee not registered with Training Services NSW

You can only claim a payroll tax rebate on wages paid to apprentices and new entrant trainees who are recognised by Training Services NSW.

Claiming the rebate on existing worker trainees

You can claim the rebate on wages paid to trainees classified by Training Services NSW as ‘new entrant trainees’, but you can't claim on wages paid to ‘existing worker trainees’.

Ask Training Services NSW if you're unsure about the status of your trainees.

Claiming the rebate for a period the employee isn't undertaking an apprenticeship or a traineeship

You can only claim the rebate on wages paid during the time the employee is an eligible apprentice or trainee – from the date of commencement until the date of completion or cessation.

A common mistake is continuing to claim the rebate after the employee has completed or ceased their apprenticeship/traineeship.

Continuing to apply old rules by excluding apprenticeship and trainee wages from wages declared to us

Apprentice and trainee wages aren't exempt from payroll tax. They need to be separately declared in the appropriate field in your payroll tax return. From this, the rebate will be calculated.

If you're part of a group, the total group wages should include wages paid to all apprentices and trainees, as apprentice and trainees wages still form part of taxable wages.

Claiming the rebate on the apprentice and trainee hourly wage  instead of their total remuneration

All wages paid to an eligible apprentice and trainee should be included in the rebate, including all forms of remuneration that are captured for payroll tax, such as superannuation, allowances and bonuses.

Double claiming the same wages paid to the same employee under different payroll tax registrations

This situation may occur when a group member employs the apprentice or trainee, however the apprenticeship or traineeship is registered with Training Services NSW under another group member.

The rebate can only be claimed by one employer.

Claiming the rebate for an apprentice or trainee registered with an external training provider or engaged through an employment agency

If the external training provider or employment agency is the employer of the apprentice or  trainee (they're responsible for paying any wages and providing other employment benefits) then only they can claim the apprentice or trainee rebate.

As a ‘host’ employer, you don't include the wages paid to these apprentices or trainees in your annual returns. Furthermore, you're not entitled to claim the rebate on these wages

Incorrectly claiming the apprentice and trainee rebate and the Jobs Action Plan rebate for the same employee

If an employer is eligible for the apprentice or trainee rebate, they're not eligible to apply for a JAP rebate in relation to the apprentice or trainee. If that employer has already been paid the JAP rebate, they must repay that rebate and apply for the apprentice or trainee rebate.

Directors’ fees

Include wages paid to a director, including non-working directors, for services performed in your returns.

Directors’ wages include:

  • directors’ fees
  • consultancy fees
  • wages
  • superannuation contributions
  • shares or options
  • employment termination payments.

Employment agencies

If you’re an employment agent, you’re liable for payroll tax on wages you pay workers for services they provide to your clients.

For more information, read the employment agencies page.

Fringe benefits

Some fringe benefits are liable for payroll tax.

Using the wrong gross-up rate

The value of fringe benefits used for payroll tax is the NSW portion of the total of type 1 and type 2 aggregate amounts (less any tax exempt entertainment fringe benefits) multiplied by the type 2 gross-up rate.

You can find out more about gross up rates on the rates and thresholds page.

Incorrectly determining NSW fringe benefits

If you pay fringe benefits in NSW and interstate but cannot accurately determine your NSW fringe benefits value, you can pro-rata your FBT value based on the ratio of NSW wages to total Australian wages.

Interstate wages

Your interstate wages affect the threshold you claim.

Claiming the full threshold despite have interstate wages

If your business pays interstate wages, you cannot claim the full payroll tax threshold in NSW. The threshold is reduced based on your interstate wages.

Not including the wages of interstate-only businesses

Include all wages paid in Australia, even if it’s from businesses that do not pay wages in NSW.

If you’re grouped with a business that only pays wages interstate, it’s important to include their wages in the ‘interstate wages’ section of your returns.

Interstate wages will affect the threshold entitlement of your business.

Nexus provisions

Where your employees work affects the threshold you claim.

Incorrectly applying the nexus provisions

If an employee works in more than one jurisdiction in a calendar month, the place where the wages for that month are taxable depends on:

  • the employee’s principal place of residence
  • the employer’s registered ABN address or principal place of business
  • the place where the wages are paid to the employee
  • the place where the services were mainly performed.

Incorrectly omitting wages paid to employees temporarily working overseas

If you send a worker overseas to perform a job for your business, that person’s wages continue to be NSW wages and subject to payroll tax for the first six months.

For more information, refer to the nexus provisions decision guide.

Salary sacrifice

Often businesses fail to include all salary sacrifice amounts that are liable for payroll tax. Payroll tax is applicable to salary sacrifice arrangements. Note the following:

  • the reduced wage that the employee pays income tax on is treated as taxable wages
  • the pre-tax superannuation contribution is classified as the employer contribution and is taxable
  • the taxable value of the benefit under the Fringe Benefits Tax Assessment Act 1986 should be declared as a fringe benefit.

Shares and options

Shares and options are wages that are liable for payroll tax. If you grant shares or options to your employees, you must declare the value of the shares or options provided as wages. Common errors include:

  • not being aware of any employee share schemes in your company or your parent company
  • not declaring the value of shares and options as taxable wages
  • incorrectly calculating the taxable value arising from the grant of the share or option
  • using the incorrect share price, vesting date or exchange rate when valuing the market value of the shares or options
  • not recognising that the shares or options are deemed to have vested and become taxable seven years after the grant date (whether or not they have actually vested)
  • dividend equivalents are paid but not declared as liable wages for payroll tax purposes
  • not claiming a refund when the taxable value of shares or options that have rescinded or cancelled before vesting, where taxable wages were reported at grant date (the chosen relevant day).

Incorrectly valued unlisted options under the Commonwealth Income Tax Provisions

This includes:

  • incorrectly determined value of the option (as the value of the share to which the option relates less the option exercise price. This is only one of two potential values, the greater of which must be used)
  • incorrectly determined nil value, where the exercise price is equal to the market value of the share at the grant date. The options retain a positive value under the Commonwealth Income Tax Provisions.

Not including the taxable value of shares under the Commonwealth ‘taxed-upfront - $1,000 reduction’ scheme

Although these shares are exempt for income tax purposes, they are not exempt for payroll tax purposes.

Using a pro-rata method when calculating the taxable value for employees providing services in Australia and overseas throughout the vesting period

The pro-rata method is not accepted when calculating liable taxable shares and options for payroll tax. While employees may spend part of their employment in Australia, you must work out whether shares or options are liable for payroll tax.

Disclosing the ESS values as part of the normal taxable wages category rather than in the ESS wage category

Often when customers submit their annual reconciliation they do not clearly declare the ESS values as part of the return. These need to be reported in the shares and options category.

Not applying the nexus provisions correctly

This includes:

  • incorrectly declaring shares and options at vesting date when the employee was working overseas at the time of the grant
  • incorrectly declaring shares and options at vesting date when the employee was working overseas at the time of vesting for six or more months
  • incorrectly excluding shares and options at vesting date when the employee was working overseas at the time of vesting for less than six months.

Superannuation

All contributions to superannuation made on behalf of an employee or director are liable for payroll tax. Common errors involve not including:

  • superannuation payments made to employees
  • additional payments that exceed the superannuation guarantee
  • superannuation payments made outside the payroll system to directors of the business
  • payments made to an employee’s superannuation fund under salary sacrifice arrangements
  • payments made to a relevant contractor’s superannuation
  • top-up payments made to defined benefit superannuation funds
  • directors’ superannuation.

For more information, read the superannuation page.

Termination payments

Employment termination payments (ETPs) are liable for payroll tax. The amount of ETP that is liable is the amount paid by you, minus the income tax exempt component.

Third party payments

If an employee or director provides services to a business, all payments for that service are liable for payroll tax, no matter who makes or receives the payments.

Wages you pay an employee or a director for services they provide to your business as known as third party payments and must be included in your returns even if they are paid:

  • to a person other than the employee or director
  • by a person other than the employer
  • by a person other than the employer to a person other than the employee or director.

These payments for services can include consultancy fees paid to or received by a third party.

Contractors

Payments made to contractors are included for payroll tax unless an exemption applies.

For more information, read the contractors page.

Not realising that a contractor may be an employee

You need to consider the full relationship when deciding if your contractor is really an employee. Even if the contract says they are an independent contractor, they may still be an employee.

For more information, read Revenue Ruling PTA 038.

Misinterpreting the 180 day rule as an extension of the 90 day rule

The 180 day exemption focuses on the type of services the business uses. The 90 day exemption focuses on the contractor and the number of days they provide their services. The 180 day exemption does not extend the 90 day exemption.

Revenue Ruling PTA 020 explains the 180 day exemption in more detail and outlines how it is different from the 90 day exemption. Revenue Ruling PTA 035v2 explains the 90 day exemption.

Misunderstanding the meaning of ‘services not ordinarily required by your business’

A contract is exempt from payroll tax if:

  • your business does not normally need those services, and
  • the contractor provides the same type of services to the general public and gets less than 40 per cent of gross trading income from your business in that financial year.

For more information, read Revenue Ruling PTA 022.

Incorrectly applying the ‘contractors engaging labour’ exemption

Payments made to a contractor are exempt if they engage two or more workers to provide the contracted services. For the exemption to apply, the services performed must be for that contract only.

For more information on the conditions necessary for the exemption to apply, read Revenue Ruling PTA 023.

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