The Western Australian budget handed down to the state parliament on 8 May 2014 has left the payroll tax rates and thresholds unchanged. Existing measures from the previous year’s budget include an increase in the payroll tax exemption threshold from $750,000 to $800,000 from 1 July 2014 and then to $850,000 from 1 July 2016. The payroll tax rate remains at 5.5%.
More Budget 2014 info – see WA Budget highlights
Deadlines – Dec 2013
Source: OSR eNews December 2013/January 2014: download PDF
The payroll tax exemption threshold is being increased from $750,000 to $800,000
from 1 July 2014 and then to $850,000 from 1 July 2016.
More info – see Revenue Measures
The 2012-2013 State Budget, handed down in May 2012, provided for a one-off
pay-roll tax rebate, a pay-roll tax rebate for wages paid in relation to eligible
indigenous employees and a pay-roll tax exemption for wages paid to new
employees with a disability. Download Circular PT 7 (November 2012)
Pay-roll Tax In Western Australia
Payroll tax in Australia is a tax on salaries and wages and is administered by the individual States and Territories. Each State, including Western Australia, has laws intended to clarify the process of allocating the tax between the states. The harmonisation of the laws has produced State laws which are very similar, but there remain important differences.
To work out your payroll tax obligations in Western Australia, you will need to be aware of the various features of the payroll tax law
“Payroll Tax 101″
For more information: see Payroll Tax Australia (official government website)
The Definition of Wages
To determine your payroll tax liability you need to look carefully at all forms of remuneration and benefits paid to employees and contractors.
Although basically a tax on wages and salaries, the payroll tax net specifically includes payments which the average person might not automatically think of as wages.
The payroll tax definition of wages includes salaries and wages, director’s remuneration, most superannuation contributions, certain payments to contractors and agents, Fringe Benefits and salary sacrifice benefits as defined, and a number of other payments or calculated benefits.
Recommended information source: Department of Finance Fact Sheet (as at 1 july 2012) dealing with the definition of wages including information about exemptions and rebates.
There are payroll tax exemptions for certain non-profit enterprises, and for specific kinds of payments, such as to apprentices, parental leave and workers compensation, and for reasonable motor vehicle allowances which are within Australian Tax Office limits. They are also listed in the
As a general rule, the GST component of any payments is not included in the taxable value.
Payments to Contractors or Subcontractors
Unlike other States, Western Australia has not explicitly extended its definition of wages to contractors as such, unless the payments are made to contractors (often called sub-contractors) who are in substance employees.
This can be a difficult area for employers, because although the law is reasonably well-settled, the facts of each circumstance have a crucial bearing.
Much turns on whether an employer/employee relationship is in evidence, and whether the services provided are substantially for labour. The W.A. Department of Finance has issued rulings and other guidance on this subject which can be obtained here
Professional advice is highly recommended! If you draw your own conclusions, only to find several years later that the Department has a different opinion, there’s a potential for hefty back-assessments and penalties.
Jurisdiction: Where the payroll tax is paid
In the simplest circumstance, if the employee’s services are all performed within WA in a calendar month, then WA Payroll Tax will apply (subject to the minimum taxable threshold).
However, when services are performed in more than one state or territory during the month, the States have all passed laws which intend to ensure that payrolls are not taxed twice, and the taxing is shared. The laws provide tests to determine a taxing priority, known as the “payroll tax nexus” rules.
In summary, the rules work like this:
- Payroll tax is paid to the State in which the employee has his Principle Place of Residence.
- If the employee doesn’t have an Australian Principle Place of Residence, then the taxing State is determined by
- the employer’s ABN address, or
- if no ABN address, the employer’s Principle Place of Business
- If the employee has no Australian Principle Place of Residence, and the employer doesn’t have either an Australian ABN or Business address, then the taxing Sate is determined by where the wages are paid (or the largest proportion of wages).
- If neither the employee or the employer have Australian addresses (as above) and the wages are not paid in Australia, then the taxing State is determined by where the services are mainly performed (i.e. more than 50%).
For more information see: Nexus Provisions.
Caution: This is a general summary only. The Rules are complex and specific, and should be read in full to gain a proper understanding of how they apply to your situation.
Employees Working Overseas
Wages of an employee working for less than 6 months overseas, will be taxed only on the wages paid in Australia. The taxing State will be determined by where the largest proportion of Australian wage payments are made.
Wages paid in WA for an employee working for at least 6 continuous months in another country (allowing for minor interruptions for holidays or work of less than 1 month) are exempt from payroll tax.
This does not include off-shore workers, e.g. oil rig workers, because they are simply off-shore, not within another country. Wages for off-shore workers paid in Australia are subject to payroll tax, with the taxing State determined by where the largest proportion of wages is paid.
Grouping of Employers
The payroll tax nexus rules passed by the States effectively mean that the starting point for determining assessable wages is the total Australian payroll, with the nexus rules dealing with how the payroll tax is shared.
The calculation of total payroll is subject to the Grouping Provisions. The Grouping Provisions are necessary because there is a threshold value below which payroll tax is not payable. The Provisions are intended to ensure that employers can’t avoid payroll tax by simply breaking their businesses into smaller units whose payrolls individually might be below the minimum taxing threshold, or attract a lower rate.
The Grouping Provisions operate by adding group-member payrolls together, with a single threshold deduction applied to one designated employer. The other group members are subject to tax without any deduction.
The simplest starting point for grouping businesses together is to group entities which are “related” according to the Corporations Law. However the Grouping provisions are complicated and extend far beyond what an average person might intuitively believe is a “group” relationship.
Briefly, the criteria for determining a payroll tax group (and therefore for deciding whether the group members’ payrolls must be added together for taxing) are as follows:
- Related bodies under the Corporations Act
- Sharing common employees
- Common controlling interests (more than 50%) in the businesses. Note that there are special “tracing” provisions which apply to business chains.
- An entity with direct or indirect controlling interest
Caution: This is a general summary only. The Grouping Provision Rules are complex and specific, and should be read in full to gain a proper understanding of how they apply to your situation.
Thresholds and Rates
Stated simplistically, in Western Australia payroll tax is not payable until gross taxable wages reach $62,500 per calendar month.
Over $62,500 per month a rate of 5.5% tax applies with an annual adjustment available based on the annualised threshold of $750,000. Specific circumstances significantly impact how the payroll tax rate is applied in practice.
The annual threshold has been doubled for small businesses for the 2012-2013 year: See State Budget Summary Here.
Registering and Lodging Returns
The requirement to register for payroll tax in WA and to commence submitting returns arises when the monthly taxable wages reaches $62,500.
Once registered, a monthly return must be lodged and the tax paid within 7 days of the end of each month, except for the June return which is due by 21 July.
An annual return is also required, which reconciles the entire year, and takes account of the annual threshold of $750,000. In some cases this means the tax has been over-collected on a monthly basis, and a refund or credit is then applied.