Payroll tax is a general purpose tax assessed on the wages paid by an employer in Western Australia. The tax is self-assessed with the employer calculating the liability and remitting the appropriate amount to the Office of State Revenue (OSR) by way of a monthly, quarterly or annual return. Payroll tax is paid into the Consolidated Fund of the State to meet the costs of public services such as education, health, public safety and law and order.
In the mid-year financial projections statement handed down by the State Treasurer in December 2014 proposed changes to states taxes, including a delay to the increase in the payroll tax threshold and changes to how the payroll tax threshold is calculated were announced.
From 1st July 2015, a gradual diminishing of the payroll tax exemption threshold will be introduced for payrolls between the current exemption threshold of $800,000 up to $7.5 million.
For payrolls of $7.5 million and above, payroll tax will be payable (at the current rate of 5.5%) on an employer’s entire payroll, with no exemption threshold being granted. This is a change from the current approach, where all employers are exempt from payroll tax on the first $800,000 of payroll, regardless of their size.
The scheduled increase in the payroll tax exemption threshold to $850,000 from 1st July 2016 will also be deferred until 1st July 2017.
Planning for Payroll Tax
Under the payroll tax scheme, grouping provisions apply in certain instances, having the effect of combining the wages of all businesses within a group to determine:
- if a liability to register exists; and
- the applicable threshold amount.
One element that has an effect on the impact of these grouping provisions is the establishment of the status of a worker as an employee as opposed to a contractor.
Employee vs Contractor
Payments to contract workers will be taxable only if an employee/employer relationship exists between the employer and the worker. Obviously, only wages paid to employees will be included in determining the liability for registration and similarly the applicable threshold amount.
In some circumstances ascertaining the status of a worker is not a straight forward exercise, in which case legal advice should be sought to ensure your payroll tax obligations (should they apply) as well as many other legislative requirements and obligations (such as superannuation, Fringe Benefits Tax, annual/sick leave and PAYG withholding tax – just to name a few) in respect to your employees are met.
If you have any queries about this issue, please don’t hesitate to contact us.
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