Payroll Tax Series - Part 4 - The payroll tax nexus provisions

In this is Part 4 in a series of articles by our State Tax Team we examine the payroll tax nexus provisions, which ascertain which jurisdiction a payroll tax liability will arise. Payroll tax is a state-based tax imposed on a business where taxable wages exceed relevant state or territory thresholds. Despite a harmonisation process across Australia the provisions remain a complicated area of state taxes.

Where services are performed wholly in one Australian jurisdiction

Where services are performed wholly in one Australian jurisdiction, payroll tax will be payable in that jurisdiction. For example Aaron is a receptionist and fully performs his job at an office in regional Victoria. His employer qualifies for payroll tax being charged at the regional rate, Aaron’s wages will be payable in Victoria at regional rates.

Where services are performed in two or more Australian jurisdictions

Where services are performed in two or more Australian jurisdictions a ‘Four tier test’ must be considered. The test is as follows:

1.     Employee’s Australian principal place of residence (PPR) in that month

  • Where an employee has a main Australian PPR in that month, payroll tax on the employee’s wages should apply in that jurisdiction.

  • Where the employee is a corporation that is a deemed employee through the payroll tax agency provisions, the corporation’s PPR is taken to be its ABN address location in the first instance or its Australian principal place of business (PPB) address in that month.

  • Nuances in the rules apply where there has been a change of locations in the month.

For example, if Campbell as a mining engineer flies to different mining sites across Australia to perform in job in January  2020, and has his PPR in Tasmania throughout the time, all payments to Campbell in April January will be subject to payroll tax in Tasmania.

2.     Employer’s ABN address or Australian PPB

  • Firstly, one must look at whether the employer has a registered ABN in one Australian jurisdiction in that month. If this exist, the employer’s Australian ABN location is the taxable jurisdiction.

  • Where the above does not exist or there are two or more ABN addresses, one must look at where the employer’s PPB is to determine the taxable jurisdiction.

  • Nuances in the rules apply where there has been a change of locations in the month.

3.     Where wages are paid or payable

  • If the above two tiered test fails to identify a relevant jurisdiction, we will then look at the 3rd test.

  • If wages are paid or payable in a few Australian jurisdiction, is there one jurisdiction where most of the wages were paid in that month?

  • If this exists, payroll tax on all wages paid in that month will be subject to payroll tax in the majority jurisdiction.

For example, Alexa is paid wages in four Australian jurisdictions in April 2020 and is remunerated with $1,600 in Northern Territory, $500 in New South Wales, $400 in Victoria and $800 in Queensland. All payments totalling $3,300 are subject to payroll tax in the Northern Territory.

4.     Services performed mainly in one Australian jurisdiction

  • If the above three tiered tests do not identify a relevant jurisdiction, payroll tax is payable in a particular Australian jurisdiction if the services were mainly performed in that jurisdiction during the month (more than 50% of the time).

For example Brenda is a pharmaceutical marketing consultant for a global company. She works across New South Wales, Victoria, Western Australia and South Australia, with more than 50% of her time being spent in South Australia in January 2020. All payments to Brenda in January 2020 are subject to payroll tax in South Australia.

Where services are performed in at least one Australian jurisdiction and overseas

Was the assignment overseas for a continuous period of more than 6 months?

  • Where the assignment overseas was for a continuous period of more than 6 months, all wages paid to the employee assigned overseas is exempt from payroll tax in an Australian jurisdiction for the duration of the assignment.

    • E.g. If Bob works as a management consultant for a New South Wales company and typically resided in New South Wales, however is seconded to a roll in Singapore for 8 months, wages paid to Bob for the duration of the 8 month secondment will not be subject to payroll tax in any Australian jurisdiction.

  • Where the assignment overseas was for a continuous period of less than 6 months, all wages paid to the employee are still subject to payroll tax in an Australian jurisdiction.

Are the services performed offshore?

  • Where the services are performed offshore and where wages are paid or payable in an Australian jurisdiction, it will need to be ascertained if most wages paid or payable are in an Australian jurisdiction in that month. If this is satisfied, all wages are subject to payroll tax in that Australian jurisdiction.

    • E.g. Cynthia as an oil rig worker who works offshore of New South Wales and Victoria and is paid by a Victorian company in June 2020, all wages paid to Cynthia is June 2020 will be taxable in Victoria.

If you have any questions, please contact one of our State Tax specialists:

Denise Tan
Senior Associate
T +61 3 9611 0160  | M +61 438 714 965
E: dtan@sladen.com.au

Laura Spencer
Senior Associate
T +61 3 9611 0110
lspencer@sladen.com.au

Phil Broderick
Principal
T +61 3 9611 0163  l M +61 419 512 801   
E: pbroderick@sladen.com.au         

Phil Broderick