Liability of Payroll Tax
Payroll Tax liability within the on-hire environment has always been surrounded by some sort of uncertainty… does the responsibility lie with the recruitment agency, the end client or the contractor?
Australian Payroll Tax Laws vary from state-to-state. All states and territories the ‘Employment Agent’ provision of the various Acts requires that the company that on-hires the contractor to the end-user client is responsible for payroll tax. In ACT Payroll Tax legislation allows employment agents to exclude from payroll tax any payments made to persons supplying the services where it can be established that the contractor is truly independent, also any GST included in the employment contract is not subject to payroll tax. However the ACT government have scrapped this exemption in its budget, and from the 1st July payroll tax will now be applicable to contractors.
Below is a table of payroll tax rates and annual threshold limits for the tax year 2014/15, please note the other states/territory have not yet delivered their budgets.
| State/Territory | Payroll Tax Rate | Threshold |
|---|---|---|
| VIC | 4.85% | $500 000 |
| WA | 5.5% | $800 000 |
| NT | 5.5% | $1 500 000 |
| ACT | 6.85% | $1 850 000 |
| QLD | 4.75%* | $1 100 000* |
| SA | 4.95%* | $600 000* |
| NSW | 5.45%* | $750 000* |
| TAS | 6.1%* | $1 250 000* |
In cases where multiple employment contracts arise, such as a ‘chain of on-hire’ when an employment agent on-hires a service provider to another employment agent who in turn on-hires the service provider to its client. The employment agency provisions on a ‘chain of on-hire’ would mean that both employment agents are liable for payroll tax on essentially the same employment agency arrangement.
However under the Revenue Ruling PTA 027
- The employment agent (Agent 2) closest to the client is liable for payroll tax on the payments made to Agent 1.
- Agent 1 should require Agent 2 to complete The Chain of on-hire Declaration.
- The completion of the form will overcome the situation where both Agent 1 and Agent 2 pay payroll tax.
- If Agent 2 indicates on the form that it is not liable for payroll tax (because its total wages is below the taxable threshold), Agent 1 would be liable for payroll tax on the amount paid to the Service Provider.
The chain of on-hire payroll tax revenue rulings only apply to NSW, VIC, SA and TAS, however each state has its own Chain of on-hire Declaration Form. QLD, WA, ACT and NT are yet to adopt this ruling.
