Thinking | 23 March 2020

Talking Tax – Issue 182

By Tamara Charlwood and Bradley White

Nothing to sneeze at - Payroll tax deferrals announced in Queensland

COVID-19, or coronavirus as it is colloquially known, is receiving worldwide attention.  A number of countries are containing outbreaks of the virus - and facing the economic impacts that are unfolding globally.

In light of this, the Queensland government has announced the deferral of payroll tax obligations for small and medium businesses until 3 August 2020.  The Minister for Employment and Small Business, Shannon Fentiman, said that the ‘most immediate impact of coronavirus [in Queensland] has been on the tourism, export and education sectors’.

If your business has been affected by COVID-19, you may eligible for relief to defer lodging and paying payroll tax returns until 31 July 2020.  The Queensland Office of State Revenue (OSR) will also work with affected businesses to create repayment plans for deferred tax liabilities.

You may be eligible if:

  • you are an employer (or part of a group of employers) who pays $6.5 million or less in Australian taxable wages; and
  • when compared with normal operating conditions your current turnover, profit, customers, bookings, retail sales, supply contracts or other factors have been directly or indirectly affected by COVID-19.

You can apply at any time whilst the payroll tax relief package is available.  Relief can apply from your next payroll tax return due date or can be backdated to 1 February 2020 if approved.

The deferred due dates for relief are available until 3 August 2020.  The OSR will allow lodgement of payroll tax returns without payment during the relevant period, which may be helpful for your own recordkeeping of liabilities.  You can resume lodging and paying payroll tax returns at any time if your business is no longer affected by COVID-19.

Please contact Jim Koutsokostas if you would like to discuss your potential eligibility or application for payroll tax relief.

No rosy glasses - special leave denied for Optical Superstore appeal

During the past two years, medical and healthcare providers  have felt some uncertainty about their payroll tax obligations due to the continuing legal battle between the Commissioner of State Revenue (Victoria) and The Optical Superstore Pty Ltd (Optical Superstore).

Recently, the High Court of Australia denied Optical Superstore’s request for special leave to appeal.  The decision to deny special leave was due to there not being sufficient doubt to warrant an appeal of the decision made by the Supreme Court of Appeal in Commissioner of State Revenue v The Optical Superstore Pty Ltd [2019] VSCA 197 (Optical Superstore case).

In light of this, we recommend careful consideration and review of the structuring of service entity arrangements, particularly in the medical and healthcare industry.   With confidence gained from the Commissioner’s ‘win’, the Victorian State Revenue Office (SRO) has been reviewing similar arrangements and may extend its investigations to other industries and professions that use service entity arrangements like the medical profession.

Optical Superstore was held liable for payroll tax under the Payroll Tax Act 2007 (Vic) regarding its distributions to optometrists from its trust account under an occupancy agreement.  The distributions related to fees collected directly from customers of both the optometrists and Optical Superstore in exchange for services provided by the optometrists to the customers.  The balance of the fees were remitted to the optometrists by Optical Superstore after certain deductions were made (such as occupancy fees).  Optical Superstore was found to have ‘relevant contracts’ with the optometrists, and the remittances made to the optometrists were treated as taxable wages.  Therefore, payroll tax was payable.

In future cases regarding similar arrangements, the outcome will depend on weighing up various factors regarding:

  • the terms of any service agreement (such as between the medical centre or clinic and the medical professional). For example, is the arrangement a trust arrangement under which the owner of the clinic is merely collecting income on behalf of the medical professional or is the practitioner actually working for the clinic?
  • the day-to-day management of the practice. For example, in a typical case where the clinic is entitled to a ‘service fee’ of, say, 35% for operating and managing the practice, the SRO may take issue with a medical centre recognising 100% of the consultation fees paid by patients as its own income in its financial records (with a separate expense item for the amounts returnable to the medical professional), even though the service agreement makes clear that the fees are to be held on trust for the medical professional.

Some of the facts in the Optical Superstore case that were particularly detrimental for Optical Superstore were that the optometrists worked specified hours and their payments directly related to the number of hours worked, their consultation fees were paid into the store owner’s trading account, and separate ‘sub-accounts’ were not held for each optometrist.  As the High Court appeal has now been dismissed, Croft J’s conclusion that relevant payments to the optometrists were ‘for or in relation to the performance of work’ stands.  Together with the Court of Appeal’s decision that these amounts were ‘paid or payable’ to the optometrists (despite being purported to be a return of trust funds that Optical Superstore had received on behalf of the respective optometrist), the end result was that the payments to the optometrists were held to be taxable wages.

The SRO has released a decision impact statement regarding this case.

For further insight, view our previous discussion in Talking Tax Issues 171, 136 and 113, alongside our article Payroll tax obligations of medical and healthcare providers.

Please contact Jim Koutsokostas if you would like to discuss whether you may be exposed to payroll tax obligations following on from the consequences of the Optical Superstore case. 

The Superannuation Guarantee Amnesty - coming soon to an employer near you

The superannuation guarantee amnesty bill - Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 (Bill) - passed through Parliament and received Royal Assent on 6 March 2020.

The Bill provides employers with a 6-month long amnesty to disclose historical superannuation guarantee shortfalls, after which a new (harsher) penalty regime will come into effect.

We strongly recommend that employers review their past superannuation guarantee position to ascertain whether they have any potential exposure that should be disclosed before the amnesty ends on 4 September 2020.

For full details of the amnesty and issues that the ATO is currently focusing on, refer to our recent article Super guarantee amnesty - act now before it is too late!

Progress made on foreign duty surcharge changes in NSW

If passed, the State Revenue Legislation Further Amendment Bill 2020 (NSW) (Bill) will deem a trustee of a discretionary trust with interests in NSW residential land to be a ‘foreign trustee’ for NSW surcharge purchaser duty and NSW surcharge land tax purposes, unless the terms of the trust expressly exclude all foreign persons from being beneficiaries (or potential beneficiaries).  These changes will apply retrospectively.  The Bill is now up to the second reading speech in the New South Wales Legislative Council, and is likely to be passed in sittings slated for June or July this year.

These foreign duty and land tax surcharge changes in New South Wales have been urgent for the past few months due to the limited timeframe to vary trust deeds in order to comply with the Bill’s requirements.  This fear has now temporarily abated due to amendments to the Bill by the New South Wales Legislative Assembly, which extend the grace period for trust deed amendments until 31 December 2020.

The Bill provides that a trustee of a discretionary trust that holds NSW residential property will be deemed a foreign trustee if the terms of the trust do not explicitly prevent a foreign person from ever being or becoming a beneficiary (any exclusionary terms must be irrevocable).  Effectively, it is proposed that a discretionary trust that does not exclude foreign persons as beneficiaries will be liable to foreign person surcharge purchaser duty and surcharge land tax even if the trust has never distributed to a foreign person and intends to never distribute to a foreign person.

As most standard discretionary trust deeds include a broad class of discretionary beneficiaries and that class may include a foreign person, this is likely to be an issue for many trustees.

Discretionary trusts that fall foul of these provisions and hold an indirect interest in land, such as through a unit trust or a company, could also (depending on the proportionate interest the discretionary trust holds) ‘taint’ the landholding unit trust or company such that it, in turn, is treated as a foreign trustee or foreign person.

Taxpayers are strongly encouraged to review their discretionary trust deeds and, if necessary, seek advice about varying the terms to comply with the requirements under the Bill.  Amendments made in order to comply with the requirements under the Bill can occur until 31 December 2020.

Trustees should also consider the characterisation and treatment of their trusts for duty and land tax surcharge purposes in other jurisdictions in which they hold, or propose to acquire, an interest in land (directly or through a company or trust).

For more information, including a technical discussion of the Bill, see our previous Talking Tax Issues 180 and 177.

Please contact Jim Koutsokostas if you would like to discuss the terms of your discretionary trust deed or if you have queries relating to the foreign purchaser surcharge duty and land tax surcharge regimes.

Contact

Oliver Jankowsky

Partner & Head of International Practice

Ed Paton

Partner & Head of SE Asia Practice

Eugene Chen

Partner & Head of China Practice

Melanie Smith

Director - Business Development, Marketing and Communications

Natalie Bannister

Partner & Commercial National Practice Leader

Rhett Slocombe

Partner & Insurance National Practice Leader

Katie McKenzie

DIRECTOR - PEOPLE & CULTURE

James Bull

Special Counsel and Head of Frank

Melanie James

People & Culture Manager

Jacqui Barrett

Partner & Head of US Practice

Paul O’Donnell

Consultant & Head of Energy

Christopher Brown

Partner & Head of UK Practice

Lauren Parrant

Senior People & Culture Advisor, as at 1 July 2022

Melinda Woledge

Marketing & Communications Manager

Jasmine Koh

Senior Associate and Head of Frank

Alison Choy Flannigan

Partner & Leader, Health & Community

Billie Kerkez

Manager – Smarter Recovery Solutions

Peter Jones

Senior Commercial Counsel

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