As a tax advisor, payroll tax is difficult because we are never really taught payroll tax.
Most of the general undergraduate courses, and specialist postgraduate courses, focus on federal taxes. Therefore, most people working in tax learn income tax and GST, and then after they have been around for a while, perhaps FBT and perhaps they also start to dabble in superannuation. Most tax advisors deal regularly with the ATO, and so become conditioned to dealing with federal taxes. And the volume of text books, commentaries and ATO materials that explain the federal taxes is also significant.
Conversely, not many people are specifically trained in State and Territory taxes – those are taxes you learn when you start working as a tax advisor, and the issues start coming your way. The only way you learn these is by picking up the legislation – the State and Territory revenue offices publish very little in the way of assistance, and often I wonder when dealing with them, if they themselves have actually read the law in question. There are also no textbooks of note. And just as the accounting profession is conditioned to working with federal taxes, the public generally has a better understanding of federal taxes.
But payroll tax is not something you can afford to get wrong, and certainly not something you can delegate to your administrative staff and forget about. ACT Revenue – and indeed the other State revenue authorities – is generally more aggressive than the ATO, and its penalties are more onerous. And the work involved in rectifying your affairs back five years, across multiple jurisdictions, is fiddly, time-consuming, frustrating and costly.
I have found that there are four main issues that people have difficulty with.
Firstly, I find that clients are challenged by the issue of working across State and Territory borders. What happens if you have workers in more than one jurisdiction? Do you need to lodge more than one return each month? What if your ACT wages are less than the ACT payroll tax threshold but you also pay NSW wages, or vice versa? What about different ways of defining the same concepts?
The second trouble spot is in relation to employment agent arrangements. You might not think of your business as a labour hire firm, but what does the payroll tax law say about this? Do you have contracts with clients and contracts with suppliers? If so, you need to consider the payroll tax consequences of these arrangements.
Thirdly, and this is related to the second point, people find the law in dealing with contractors difficult. What is the difference between an arrangement subject to the contractor rules and an arrangement subject to the employment agent rules? If you have contractors in the generic sense, do any of the carve-outs in the payroll tax law law apply so that you do not need to pay payroll tax on those contractors’ fees? What about companies – can you have a payroll tax liability for fees paid to a company? The payroll tax law on the last question have changed.
Importantly, if you make a mistake on either the employment agent or contractor law, there is a chance that payroll tax is levied twice (by the contractor/supplier, which they have built into their fee to you and by you separately) – if that is so, then you are at a significant competitive disadvantage.
A fourth problem that people encounter with payroll tax is the reporting requirements. You have to report monthly, and you need to have the relevant accounts in order within seven days of the end of the month in order to report. There is no wriggle room.
The good news is that I have developed an excellent understanding of the payroll tax law – including dealing with multiple jurisdictions – and I can help you find your way around the payroll tax law.
Michael Bannon, Partner