We have had a number of instances recently where Western Australian based businesses have been assessed for payroll tax in other states. This comes as a result of workers carrying out “services” in those other states.
In every case, the business had simply included those wages in their WA payroll tax returns and paid payroll tax in WA.
Central to this problem is that payroll tax is a state-based tax. Every jurisdiction, while having similar legislation, has its own rates and thresholds. Payroll tax raised in that jurisdiction stays in that jurisdiction. So if a business remits payroll tax in the wrong jurisdiction, it is a win for that state or territory and a loss for the other.
Perhaps spurred on by tightening budgets, we have notice an increase in states querying businesses on where their payroll tax is payable. Note that wages paid to workers performing services overseas can also be subject to payroll tax. Another topic for another time.
The rules on where payroll tax is payable can be complex. In every state and territory, however, it starts with the premise that payroll tax is payable in that jurisdiction on “wages … paid or payable by an employer for or in relation to services performed by a person wholly in this jurisdiction”. Because payroll tax is a monthly tax, the test is a monthly test.
This begs the question, of course, as to where the services are performed. A business based in WA without any branches or other presence in other states may send workers to carry out work in another state. The workers still live in WA and the business has no presence in the other state, so are the services for which the business charges performed in WA or the other jurisdiction? There is some case law on this but the answer is still uncertain and depends largely on the individual facts.
If the services are not performed “wholly” in one jurisdiction, there are a number of tests to determine where the payroll tax is payable. It is not my intention to go through all of these, merely to alert you to the potential problems.
It is also possible that the payroll tax is apportioned. Imagine the issues with this an a monthly basis!!
What is the problem?
So a WA business inadvertently remits payroll tax in WA on wages paid to workers in another jurisdiction. The other jurisdiction becomes aware of the issue and issues an assessment to the WA business. If it is an honest mistake (which almost invariably it is), it is likely that no penalties will be applied. This is usually the case even though the thresholds and rates in the other jurisdiction will be different, meaning that the WA business will have invariably over paid or under paid payroll tax.
The business simply pays the assessment and claims a refund in WA.
This is where the problem arises. The other jurisdiction will issue an assessment for up to six years retrospectively. Because of the sneaky way the WA laws are structured, refunds are usually only available for one year.
So the WA business could find itself significantly out of pocket for a simple misunderstanding of the payroll tax laws throughout Australia.
Note also that every jurisdiction levies payroll tax based on Australia-wide wages. So even though the wages paid in one jurisdiction may be below the threshold, when combined with other wages paid in other jurisdictions, a payroll tax liability may arise.
The concept of where wages are paid in Australia or even offshore can be a tricky area in determining payroll tax liability. It is important to get it right from the start. Once set up correctly, the monthly calculation should be relatively straightforward.