As an employer in the hire car industry, you must meet your payroll tax obligations.
Some businesses in the chauffeur-driven hire car industry do not declare payments made to drivers engaged through bailment arrangements as taxable wages. This results in significant payroll tax liabilities.
A bailment arrangement is when someone pays for the right to use or exploit property rather than provide services.
Payments made to certain contractors can be wages. The first step is to determine whether the worker is performing their services as an employee or a contractor. Revenue Ruling PTA 038 can help you decide if a worker is an employee.
If the worker is an employee, wages paid are liable for payroll tax. Payments to contractors working under a relevant contract are liable for payroll tax, unless the contract meets one of the seven exemptions.
Under a bailment arrangement an employer/employee relationship does not exist. A bailment arrangement is a contract, and payments made to them are liable for payroll tax, unless one of the contractor exemptions apply.
Not applicable, as the primary object of the contract is to obtain driving services.
Not applicable, as these services are ordinarily required.
Not applicable, as the services of the drivers are required for the full financial year.
Potentially applicable, if you can provide sufficient supporting evidence.
Potentially applicable, if you can provide sufficient supporting evidence to show the contractor conducts a genuine independent business.
Potentially applicable, if you provide sufficient supporting evidence.
Not applicable, as the principal matter of the contract is the transport of passengers.
Exemptions do not apply when the Chief Commissioner determines that any part of the arrangement was created to avoid payment of tax.
The payroll tax anti-avoidance provisions apply where an arrangement reduces or avoids liability for payroll tax. There does not need to be proof the arrangement was intentional. What matters is the effect the arrangement has on the payroll tax liability.
We examine the facts and circumstances of your business to work out whether to apply the provisions.
We disregard any arrangements, including contracts, when the payroll tax anti-avoidance provisions apply. Your business is then considered an employer and all payments are taxable wages. You’ll be given a notice outlining the details.
You should conduct an internal review to establish the correct payroll tax treatment of payments made to all drivers.
If your taxable wages exceed the monthly payroll tax threshold in the current financial year, or the last four financial years, you must register for payroll tax.
If you have not declared all liable amounts in your monthly payroll tax return for the current financial year, include these additional amounts in your annual reconciliation return. This is due on 21 July each year.
If you did not declare all liable amounts in previous financial years, contact us to make a voluntary disclosure. Voluntary disclosures attract a reduced level of penalty tax compared to cases where we identify the understatement.
If you have a question about the hire car industry and cannot find the answer on this website, contact us.