1. Payroll tax grouping is an important issue for businesses operating through multiple companies, trusts or partnerships.
2. A business may appear to be below the payroll tax threshold when considered on its own, but if it is grouped with another business, the wages of the group may need to be considered together.
3. Although payroll tax is imposed separately by each State and Territory, the grouping rules are broadly similar across Australia.

What is payroll tax grouping?

4. Payroll tax grouping rules allow revenue authorities to treat two or more connected businesses as one group for payroll tax purposes.
5. A key consequence is that grouped businesses generally do not each receive their own payroll tax-free threshold.
6. Instead, the group generally shares one threshold or deduction.

Example

7. Company A pays annual wages of $800,000 and Company B pays annual wages of $800,000.
8. Each company may appear to be below the payroll tax threshold when considered separately. However, if they are grouped, the combined wages may result in payroll tax becoming payable.

When can businesses be grouped?

9. Businesses may be grouped because of:

• related companies;
• common ownership or control;
• common employees;
• interests traced through companies or other entities; or
• links between smaller payroll tax groups.

Related companies

10. Companies are generally grouped where they are related bodies corporate under the Corporations Act 2001 (Cth).
11. This may include:

• a parent company and subsidiary;
• subsidiaries of the same holding company; and
• companies with a common ultimate holding company.

12. The rules can also apply where the ultimate holding company is overseas.

Common employees

13. Businesses may be grouped where employees of one business perform work for another business.
14. This commonly arises where a separate services company employs administration, management, payroll or bookkeeping staff who work for other entities in the group.
15. Businesses should therefore review arrangements involving shared employees, staff secondments and centralised service companies.

Common ownership or control

16. Businesses may also be grouped where the same person, or the same group of persons, has a controlling interest in more than one business.
17. These rules can apply to companies, trusts, partnerships and other business structures.
18. For example, if one person owns 80% of Company A and 70% of Company B, the companies may form a payroll tax group even if they conduct different businesses.

Trusts

19. Trust structures require particular care.
20. Payroll tax legislation contains specific rules for determining who controls a trust. Family trusts, discretionary trusts and unit trusts can therefore create grouping connections that may not be obvious from the entity names or ABNs.

Can businesses in different States be grouped?

21. Yes.
22. Payroll tax grouping is not confined to one State.
23. A NSW employer, for example, may be grouped with a related business operating in Victoria, Queensland or another jurisdiction.
24. A business operating across Australia should therefore consider its national ownership and employment structure when reviewing payroll tax.

What happens if businesses are grouped?

25. Grouping can result in:

• one payroll tax threshold being shared across the group;
• interstate wages affecting the available threshold;
• additional registration and reporting obligations; and
• possible joint and several liability for unpaid payroll tax of other group members.

26. This means grouping can create exposure not only for a business’s own payroll tax, but potentially for liabilities of another entity in the group.

Can a business be excluded from a group?

27. In some circumstances, a revenue authority may exclude a business from a payroll tax group where the businesses are genuinely independent.
28. Factors may include:

• separate ownership and management;
• separate employees;
• separate premises;
• financial independence;
• different customers and suppliers; and
• the extent of dealings between the businesses.

29. However, exclusions are generally not available where companies are grouped because they are related bodies corporate.

Does there have to be tax avoidance?

30. No.
31. Payroll tax grouping can apply even where a business structure was established for legitimate commercial, asset protection, succession or operational reasons.
32. The relevant question is generally whether the statutory grouping tests are satisfied.

Common payroll tax grouping risks

33. Grouping issues commonly arise where:

• one owner operates several companies;
• family members control related businesses;
• businesses operate through trusts;
• employees work across several entities;
• one company employs staff for an entire group;
• a business expands interstate; or
• a restructure or acquisition changes ownership or control.

Payroll tax grouping checklist

34. Business owners should ask:

• Do the businesses have common owners or shareholders?
• Are any companies related?
• Do the same people control more than one business?
• Do employees work across different entities?
• Are trusts or partnerships involved?
• Does the group operate in more than one State?
• Has the business recently restructured or acquired another business?

35. A “yes” answer does not automatically mean the businesses are grouped, but it is a reason to review the payroll tax position carefully.

Why grouping should be reviewed early

36. Payroll tax grouping should ideally be considered before a restructure, acquisition or expansion.
37. Establishing a new company, introducing a service entity or transferring employees can alter the payroll tax position.
38. If a business discovers that it may previously have been incorrectly treated as a stand-alone employer, it should consider the historical exposure, including payroll tax, interest and penalties.

Need help with payroll tax grouping?

39. Payroll tax grouping can become complex where businesses operate through multiple entities or across several Australian jurisdictions.
40. Waterhouse Tax Lawyers can assist with payroll tax grouping reviews, interstate payroll tax issues, exclusion applications, audits, assessments and objections.
41. If you are unsure whether your business may be grouped with another entity, early advice can help identify the issue before it develops into a larger payroll tax dispute.