Hello and welcome to this On Demand presentation: Payroll tax grouping provisions.
Before we get into the content today, I’d like to introduce myself.
My name is Catherine Clarisse and I work with the Customer Education Branch at the State Revenue Office.
I’m joined today by my colleague Corey. Hi Corey. Hi everybody.
Let’s get started.
On your screen, you can see the agenda for our content today.
We will start by defining a payroll tax group and discussing some factors that affect a group’s payroll tax returns.
We will then go through the different ways that a group can be formed.
We will talk about the Commissioner’s discretion to de-group.
And finally, how group members complete an annual reconciliation.
When two or more businesses are related, they will be grouped together for payroll tax purposes. This means they will be treated as a single entity. We will talk about related businesses later in the presentation.
Once a group is formed, the wages of all group members are added together and only one member of the group is entitled to claim the threshold amount. This member is referred to as the designated group employer, or DGE.
The payroll tax liability for each group member is calculated based on the group’s total Australian wages.
All members of the group (whether they are employers or not) become jointly and severally liable for the liabilities of all group members. This means that if one member defaults on the payment of tax, the amount may be recovered from any of the other group members.
Businesses can be grouped regardless of where they operate.
This means that two businesses may be grouped even though one is located in Victoria and the other is in another state, or even overseas.
This is relevant for the purposes of determining a group’s total Australian wages, as all group member’s wages are added together to calculate the payroll tax.
The total Australian wages will have an impact on the amount of the approved deduction the group is entitled to claim in Victoria.
Let’s look at the different ways a groups can be formed.
The first way that a group can be formed for payroll tax is related bodies corporate.
This is basically companies owning companies. If one company has a controlling interest in one or more other companies, they will all be grouped for payroll tax purposes.
So what constitutes a controlling interest? If the company holds greater than 50% of the issued share capital in another company, controls greater than 50% of the votes at a general meeting or controls the composition of the board of directors, they have a controlling interest.
This is the only method of grouping where there is no Commissioner’s discretion to de-group. It is very important for all businesses to be aware of the overarching structure of their parent company and any other related businesses.
Let’s look at an example of related bodies corporate.
Here, we have Red Corporation as the parent or holding company. Red may be an overseas company or a non-employing shelf company.
Red has an 80% interest in Purple, 70% in Mint and 100% in Orange. Purple also controls 51% of Blue and Orange controls 60% of Gold.
As all of the businesses involved are ultimately controlled by Red, they would be grouped for payroll tax purposes.
Remember, they have to have a greater than 50% interest. If Purple only had a 50% interest in Blue, they would not be related corporations and Blue would not be included in the group. It has to be greater than 50% to constitute a related corporation.
We have seen situations where Blue and Gold may be the only group members operating in Australia, they might not even know about one another but they would still be grouped for payroll tax purposes.
The second way that a group can be formed is by the inter-use of employees.
If there is an agreement between the businesses for employees of one to perform duties for another, these businesses will be related and will be grouped for payroll tax.
On the screen, we have a very basic example of two companies:
CDE Manufacturing, which has employees who produce widgets, and XYZ Administration, which has a number of employees who provide administration services
The businesses have an agreement that the employees of XYZ will also provide admin services for CDE.
This means that these two businesses are related and would be grouped for payroll tax purposes.
The next method of forming a group is common control.
If a person, or set of people together, have a controlling interest in two or more businesses, these businesses would be grouped.
This is different from related bodies corporate because any type of entity can be grouped, including companies with trusts, sole traders with partnerships or incorporated bodies.
So, in these situations, we’re looking at the people who control the business and what else they control.
Let’s have a look at the different types of entities and what constitutes a controlling interest.
To have control of a company, you must have one or more shareholders holding greater than 50% of shares with voting rights attached. Common control could also be established if the majority of directors on the board of each company are the same.
For a trust, if one or more people hold greater than 50% of the units held, they will have control of the trust. Any possible beneficiary of a discretionary trust is considered to have a controlling interest.
And for a partnership, if a member or members have the right to greater than 50% of the capital of the partnership or profits made, they will control the partnership.
Let’s have a look at an example of common control.
First, we have Blue Unit Trust with three unit holders; Fred with a 40% share, Mary with a 40% share and Tony with a 20% share.
If we look at each of the individuals, none of them holds a controlling interest in Blue Trust. Fred and Mary together hold an 80% share, which is a controlling interest.
We can also see that Fred and Mary each have a 50% interest in Red Partnership. Once again, neither of these are a controlling interest in the partnership (remember, it needs to be greater than 50%) together, they control 100% of the partnership.
If we look at Fred and Mary’s ownership together, they commonly control 80% of Blue and 100% of Red. This means that these two entities would be grouped for payroll tax.
Let’s move on to our next topic, Commissioner’s discretion to de-group
As you may have noticed, the grouping provisions are very broad.
Because of this, the Commissioner is able to exclude a member from a group under certain circumstances.
When deciding whether to exclude a member from a group, the Commissioner will consider a number of factors to determine whether the businesses are truly related.
This includes looking at whether there is any financial dependence between the businesses, and what kind of business is being conducted. Who owns or manages the businesses? And are there any shared resources, loans, bulk buying or premises between the businesses?
A good way to look at it is if one of the businesses closed down, would its absence be felt by the other business? Are the businesses related, dependent and reliant on each other?
The businesses may be de-grouped if the relationship between them is not continuous, active and significant, and the connections between them are merely casual.
Grouping is one of the most complex elements of payroll tax and the implications of getting it wrong are often significant. If you have concerns, please contact us for advice or to request a private ruling.
That brings us to our final topic: Group annual reconciliation.
A group’s annual reconciliation has two stages.
The first stage is for each ordinary member of the group to complete their individual annual reconciliation. The DGE then completes the annual reconciliation for the whole group, including their individual details and a summary of each ordinary members’ details.
To make the process easier, the DGE should wait until all of the ordinary members have completed their annual reconciliation so that their data can be included in the DGE group return. The ordinary members’ annual wages, tax paid and wage estimates will flow through the payroll tax express system overnight and pre-populate in the DGE’s annual reconciliation. The DGE then adds their individual details and completes the AR on behalf of the group.
Timing is a factor for groups to complete the annual reconciliation. Make sure all of the ordinary group members complete their returns nice and early so that the DGE can complete the group return by the due date of the 21st of July.
An alternative method for completing a group annual reconciliation, involves the DGE obtaining each ordinary member’s total annual wages, total Victorian tax payments and 2016/2017 financial year wage estimates.
The DGE can then manually enter the ordinary member’s information into payroll tax express, as well as their own information, and lodge the group annual reconciliation.
For detailed information on how group members complete an annual reconciliation, access our videos at: www.sro.vic.gov.au/videos
That brings us to the end of our On Demand presentation: Payroll tax grouping provisions.
If you are interested in accessing any of our other On Demand presentations or videos related to completing your payroll tax returns, visit our website at www.sro.vic.gov.au.
If you have specific questions about payroll tax or about any other taxes, duties or levies that we administer, call us on 13 21 61.
Thanks for listening.