Payroll tax: what are your obligations?
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Payroll tax is generally seen as an unfair tax. It's a tax on employing people.
And whether we like it or not, it's a tax that's here to stay, particularly given that Treasuries across Australia are needing to replenish their coffers after the economic crisis brought about by COVID. And it's important that businesses understand their payroll tax obligations, because the revenue authorities are stepping up their audit activity.
Payroll tax can extend much further than what we see as a traditional employment arrangement. It can include payments to independent contractors. So, under these arrangements, a principal is deemed to be 'an employer' and the contractor is deemed to be 'an employee' and payments under that contract are deemed to be 'wages, subject to payroll tax'. And what's the importance of this? Well, the revenue authorities are currently focusing on medical and allied healthcare practices that use contractors. This affects GPs, optometrists and dentists, just to name a few. As a result of recent developments in this space, fees paid to doctors are being made subject to payroll tax in many circumstances where historically they may not have been.
So, the state revenue authorities have indicated that they intend to review all medical practices in Victoria and New South Wales over the coming years and we're seeing this play out in practice. Review activity has certainly increased in the last 12 to 18 months. Although the revenue authorities are becoming aggressive, there's still a lack of clear guidance in most instances. So, our clients are seeking assistance and guidance as to how to best navigate this uncertainty; to comply with their obligations.
[Todd Bromwich:] Our clients are engaging us to review service entity arrangements and the terms on which contractors are hired and whether these impact their payroll tax obligations. The wording of service agreements is really important, but even more so are the day-to-day operations of the business. We're also assisting clients in responding to revenue authority inquiries and navigating them through the review and dispute processes, making sure that the law is being applied correctly to their circumstances and confirming whether any exemptions apply.
[Jim Koutsokostas:] We continue to see medical practices under payroll tax review. However, we are awaiting guidance from revenue authorities, particularly Revenue NSW and the Victorian State Revenue Office. Clear guidance means clients can make clear decisions. The Queensland Revenue Office has recently issued guidance on the payroll tax treatment of medical practices and they've even offered an amnesty to GP clinics up to 30 June 2025. We hope to see something similar across the other states and territories.
The question is whether the treatment being applied to medical practices will be extended to other industries, particularly those with operating models that rely heavily on engaging contractors to provide services. We're seeing a lot of compliance activity in New South Wales in relation to mortgage aggregators, and expect the revenue authorities may cast the net even wider. Some other issues that we see playing out quite often is payroll tax grouping of associated businesses, the ability to rely on exemptions under the payroll tax contractor provisions and underpayments of wages and superannuation. These underpayment issues need to be reported even if they haven't a few years ago, and payments made to compensate workers for underpayments may still be subject to payroll tax.
And the last word, make sure you understand your payroll tax obligations. The revenue authorities are stepping it up. Make sure to review your service entity arrangements and the time to do this is now. It's easier to deal with the problem before it becomes a review instigated by the revenue authority.
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