With the start of the financial year we see the payroll tax threshold increase to $1.85m for the 2014/2015 financial year (up from $1.75m) in the ACT. Payroll tax is payable by an employer if its total taxable wages, or the total taxable wages of the group that it belongs to, exceed the threshold. This tax is levied at 6.85% in the ACT and varies state to state. Taxable wages include the following but not limited to:
* Service contracts
* Director’s fee
Monthly payroll tax returns must be lodged and paid promptly on time (7 days after the end of the month in the ACT) or penalties from 25% to 90% of the payable amount can be applied depending on the level of culpability.
It’s important to note that the payroll tax threshold and percentage varies state to state eg NSW ($750,000, 5.45%) and VIC ($550,000, 4.85%). States are announcing in their budgets that either the thresholds are increasing or the percentages of payroll tax payable are decreasing.
If you have your main business in the ACT and an arm in another state you may have a payroll tax liability in one or both states. You may also be part of a group of employers which includes using the same employees or have an agreement for the shared use of employees. It is important to note that the state thresholds are apportioned based on your total taxable Australian wages.
Changes to payroll tax for contractors in the ACT
The Payroll Tax Act 2011 has been amended to abolish the ‘genuine employer’ exemption and will bring the ACT more into line with other jurisdictions. The implementation date has been set as the 1 st of October to give industry time to accommodate the change.
The amended paragraph was in schedule 2, part 2.3 of the Act and said that “wages paid or payable by an employment agent to a subcontractor will be exempt wages in the hands of an employment agent, provided the subcontractor can demonstrate that it is a bona fide employer in its own right”.
The removal of this exemption means that the subcontractor payments will now be assessable as wages for payroll tax purposes. Subcontractors may see a drop off in their income as employment agents pass on the 6.85% tax to them.
Anyone who is a subcontractor should review their contracts and supplier agreements and if possible and/or necessary make amendments to those contracts and agreements prior to 30 September 2014.