DEPARTMENT OF TREASURY AND FINANCE Territory Revenue Office Payroll Tax Overview 3 rd Floor, 38 Cavenagh Street, Darwin Tuesday, 30 July 2013

2 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Who we are Commissioner of Territory Revenue –Dr Grant Parsons Director Revenue Collections/Deputy Commissioner of Territory Revenue –Jim Richards –Jayne Balding

3 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au What’s on the agenda An overview of payroll tax What are ‘wages’? –Inclusions and exclusions Common issues found on audit Contractor provisions Grouping provisions FBT & payroll tax Voluntary disclosures

4 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au What’s not Taxation policy matters –Tax rates –Exemptions –Thresholds –Tax base Individual circumstances –Maintain confidentiality

5 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Overview State and Territory tax Harmonised legislation from 1 July 2009 –Minor differences contained in schedules Rates and thresholds for NT = 5.5%>$ WA = 5.5%>$ ACT = 6.85%>$ NSW = 5.45%>$ Tas = 6.1%>$ SA = 4.95%>$ Qld = 4.75%>$ Vic = 4.9%>$

6 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Annual deductible amount Deduction starts at $1.5 million Reduces by $1 for every $4 in wages paid above $1.5 million Employers (or groups) paying Australia wide wages of ≤ $1.5million = No tax Employers (or groups) paying Australia wide wages of ≥ $7.5M = No deduction  Adjust for ‘part year’ employers

7 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au ADA example Employer with NT wages of $ and interstate wages of $ Annual Deduction = Threshold amount – (AWW above threshold amount ÷ 4) Annual Deduction = $1.5M – (($3.9M - $1.5M) ÷ 4) = $1.5M – ($2.4M ÷ 4) = $1.5M – $ = $ Need to: Adjust to reflect portion of NT wages to AWW (about 33%) Annual Deduction = 33% of $ = $ Payroll Tax payable = (Taxable wages – Annual Deduction) x Rate Payroll Tax payable = ($ $ ) x 5.5% Payroll Tax payable = $55 000

8 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Monthly deductible amount The monthly deductible amount will generally be calculated based on previous years wages If not registered for the whole financial year or had a change in status: –no monthly deduction will be calculated initially –employer will need to enter an estimate of wages for current year into TRMeR

9 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au What are wages?

10 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Exempt wages Workers compensation payments (not including ‘make up pay’) Apprentices & Approved Graduates Defence force payments Overseas employees (over six months) Maternity/paternity/adoption leave Volunteer/emergency/CDEP workers

11 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Common issues Overlook requirement to register Omitting wage components –Contractors –FBT –Termination payments –Directors remuneration and superannuation Incorrectly claiming exempt wages Non-declaration of grouping/group wages

12 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Common issues cont. Non-declaration of interstate wages Failure to comply with obligations as they fall due

13 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Employee or contractor? Prior to 1 July 2009 – relied on common law only Control Formation/ terms of Contract Integration Delegation Tools, materials, equipment Super Leave entitlements Risk Totality of the relationship

14 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Employee or contractor? From 1 July 2009 – common law and “relevant contracts” Myth or fact? “Relevant contract” provisions have replaced concept of common law employee… –MYTH!! Common law principles continue to apply. Where a worker is not an employee, they then need to be assessed against “relevant contract” provisions

15 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au What is a contractor? Generic term which includes –Sub-contractors –Consultants –Outworkers Can include company, trust, partnership, sole trader. Independent contractor is generally an entity that agrees to produce a designated result for an agreed price.

16 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au What is a contractor? In most cases, an independent contractor: –Is paid for results achieved –Provides all or most of the necessary materials and equipment to complete the job –Is free to delegate work to others –Has freedom in the way work is done –Provides services to others –Is free to accept or refuse work

17 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au What is a contractor? –Is in a position to make a profit or loss –Is responsible for the cost of remedying defective work –Operates a bona fide separate and independent business

18 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Employee or contractor? Common misconceptions – My workers are independent contractors because… –They have an ABN –They use their own tools/vehicle –They are responsible for their own super –They call themselves contractors –They work through a family company/trust etc –They only work on a casual basis –My industry only uses contractors

19 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Employee or contractor? Common misconceptions cont… –They invoice me each week based on their hours worked –Only unskilled labourers are employees – qualified tradespersons are contractors –They signed an agreement waiving any employment relationship

20 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au What is a “relevant contract?” A contract under which a person (the designated person), in the course of a business carried on by them: supplies to another person services for or in relation to the performance of work; or has supplied to them the services of persons for or in relation to the performance of work; or gives out goods to individuals for work to be performed by those persons in respect of those goods and for re-supply of the goods to the designated person or, where the designated person is a member of a group, to another member of that group.

21 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Contractor payments Labour component only GST excluded (unless not registered for GST) Exemptions: – Three specific and six general exemptions – Employer must be able to substantiate any exemption they claim – Exemptions are only available for contractors. If a worker is an employee their payments are fully taxable

22 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Three specific exemptions Owner – drivers: contract for conveyance of goods where driver provides the vehicle Independent insurance agents Contractors who solely sell insurance on a commission basis for insurance companies Does not apply to commissions from the sale of ‘non-insurance’ products Door to door selling agents: sale of domestic goods to end-user - does not apply to commercial or industrial sales

23 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Six general exemptions 1.Labour ancillary to goods provided 2.Services not ordinarily required and supplied by a person who services the public generally 3.Services ordinarily required by the business for a period less than 180 days 4.Services provided for 90 days or less

24 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Six general exemptions… 5.Commissioner satisfied the contractor provides services of that type to the general public in that financial year 6.Contractor engages labour (i.e. their own employees) to carry out the contract

25 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Grouping Grouping has two primary effects: –Only one threshold for the group –Each member is liable for the tax of the others There are three major group types: –Related corporations –Common employees –Common control Provisions operate independently

26 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Related corporations Holding/subsidiary relationship under Section 50 of the Corporations Act 2001 One Pty Ltd Two Pty Ltd Three Pty Ltd Controls composition of board of Directors Controls >50% of votes at a general meeting Holds >50% of issued share capital No exclusion possible

27 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Purple Pty Ltd Related corporations 80% 100% 51% 40% Green Pty Ltd Yellow Pty Ltd Red Pty Ltd Blue Pty Ltd

28 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Common employees Grouping where one or more employees of an employer: –perform duties for or in connection with one or more businesses carried on by the employer and one or more other persons; –are employed solely or mainly to perform duties for or in connection with one or more businesses carried on by one or more other persons; or

29 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Common employees –perform duties for or in connection with one or more businesses carried on by one or more other persons, in connection with or in fulfilment of the employer’s obligation under an agreement, arrangement or undertaking for the provision of services Grouped entities will comprise the employer and the business(es) receiving the employee’s services

30 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Common employees Example - An employee of one employer performs duties for another business Just one “common employee” is sufficient Employees providing admin duties Widget Manufacturing Pty Ltd Widget Administration Pty Ltd Employees manufacturing widgets

31 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Common control Business typePerson(s) with control Control established by Sole traderOne personSole owner Joint ownershipAll personsExclusive owners together Body CorporateBoard of Management>50% Board of Management CorporationDirector(s) Shareholder(s) >50% Directors voting power >50% Shareholder voting rights PartnershipPartner(s)>50% capital or profits TrustBeneficiaries>50% beneficial interest

32 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Exclusions Grouping provisions are broad and may result in unintended groupings. Commissioner may exclude on application. Trade between businesses? Shared resources? Nature of businesses? Owners of businesses? Joint loans? Shared premises? Bulk buying? Goods/services? Financial dependence? Common management?

33 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au FBT & payroll tax Fringe Benefits are included as wages Exempt and nil value fringe benefits are not liable for payroll tax Taxable value for payroll tax: = (Type 1 + Type 2 benefits) x Declaring fringe benefits – Actual or Estimated?

34 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au FBT & payroll tax Actual method –Calculate and declare the grossed up fringe benefits each calendar month Estimated method –Declare 1/12 of previous year’s FBT taxable value in each monthly return July–May –Declare taxable value of fringe benefits in most recent FBT return in annual adjustment return

35 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au FBT & payroll tax Motor vehicles (private use/home garage) Use of business property for private purpose Free or subsidised accommodation Costs incurred by spouse accompanying employee on business trip Payment of personal expenses from pre-tax income – school fees, credit card debts. Waiving a personal debt due to the employer by the employee

36 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au FBT & payroll tax Paying non-work related expenses – concert tickets, club membership Loans to employees with interest rate lower than market rate Gifts/vouchers Property transfer to employee at less that market value A fringe benefit provided to an associate (eg family member) of an employee is taxable

37 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Example - FBT ABC Pty Ltd is a developer Sells unit to Jim, an employee, at $100K less than market value Discount is a property fringe benefit Value of benefit = $100K * Value of benefit = $ Must be declared in payroll tax returns

38 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au FBT & payroll tax Not registered to lodge FBT returns with ATO? –Still required to declare for payroll tax purposes –Data is shared between the ATO and Revenue Offices so if wage components declared to one, declare to the other

39 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Voluntary disclosures Full and immediate disclosure of a tax liability prior to commencement of an investigation Must be in writing Must be sufficient to negate the need for an investigation Requests for further information must be complied with in a timely manner

40 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Voluntary disclosure Benefits include –Significant reductions in penalty tax (up to 80%) –Reduces the need for a full investigation –Generally more flexible payment arrangements for past liabilities Disclosure forms included in information pack

41 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Compliance program Data matching between ATO and Revenue Offices Primary focus –Contractors –FBT –Unregistered employers What can I expect if selected? –I-GEN-002: Investigation process

42 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au National payroll tax website

43 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Feedback/Information Information packs available Feedback forms –Contact details –Usefulness –Further information sessions Future contact –

44 DEPARTMENT OF TREASURY AND FINANCEwww.revenue.nt.gov.au Questions??? The end