Queensland payroll tax review: What it means and what to do next

If you’ve received correspondence from the Queensland Revenue Office (QRO) about payroll tax, it usually means they hold data-matching information suggesting your business (or related entities) may have exceeded the payroll tax threshold or misreported taxable wages.

Below is a practical overview of why reviews occur, what information the QRO typically requests, and the key inclusions and exemptions that often determine the outcome.

Why the QRO is contacting you

When the QRO obtains data-matching information that suggests you and related entities may have breached the payroll tax threshold (the tax‑free threshold is $1.3 million per annum or $25,000 per week), they may ask you to complete a self-review. In other cases, they may proceed directly to an investigation.

This typically occurs when the QRO believes you:

• have met or are about to meet the criteria for payroll tax registration in Queensland and are not registered
• have declared incorrect taxable wages
• are related to 1 or more businesses that exceed the payroll tax threshold and may be grouped
• have incorrectly classified the relationship with your workers (e.g. taxable payments to contractors or if your workers are part of an employment agency relationship).

What the QRO will usually request

The QRO will generally ask you to complete one or more of the following schedules:

• Payroll Tax Reconciliation Schedule: reconciles wages and payroll tax calculations for the relevant period.
• Grouping Reconciliation Schedule: confirms the designated group employer, group members and each member’s taxable wages.
• Contractor Reconciliation Schedule: identifies contractor payments, including which payments are taxable and which are exempt. The QRO may also request evidence to support any contractor exemptions claimed.

Taxable wages: what’s included and what’s excluded

What’s included (what goes in)

Payroll tax is calculated on taxable wages. The taxable wages figure has a number of inclusions and exclusions. Common inclusions include:

• Gross salary and wages before deductions (for example, PAYG withholding or child support).
• Directors’ fees.
• Annual leave, sick leave and long service leave.
• Superannuation contributions and the Superannuation Guarantee Charge (SGC).
• Bonuses.
• Fringe benefits (except car parking and tax-exempt body entertainment fringe benefits).
• Employee share benefits.
• Most allowances.
• Some termination payments.

Taxable wages can also include relevant contractor payments. This can arise under arrangements where you:

• supply services
• receive services
• re-supply goods.

What may be excluded (what falls out)

There are specific exemptions and carve-outs from the relevant contractor rules. Commonly relied on carve-outs include services that are:

1. Provided to you for 90 days or less in a financial year
2. Required by your business for less than 180 days in a financial year
3. Performed by 2 or more people
4. Ancillary to the supply of goods
5. Not ordinarily required by your business
6. Approved by the Commissioner as exempt
7. Provided by an owner-driver
8. Relating to door-to-door sales
9. Relating to selling insurance.

In addition to exemptions from relevant contractor payments, other key payroll tax exemptions commonly include:

• Apprentice Wages;
• Trainee Wages (in certain circumstances);
• Worker’s Compensation
• Genuine Redundancy;
• Parental (including Adoption) Leave.

In recent years, the QRO (like other State Revenue Offices) has taken an increasingly aggressive approach to the application of these carve-outs and is pursuing a number of matters through the courts (including Uber) to test the limits of arrangements that taxpayers may consider to be exempt.

Grouping rules

If your business (with an Australian business number (ABN)) is related or connected to another business in one or more ways, you may be treated as a single unit (a “group”) for payroll tax purposes. Where grouping applies, the group has only one payroll tax‑free threshold.

Businesses can be grouped if they fall into one or more of the categories below:

• Related bodies corporate: corporations are “related” where (for example):
  • one corporation controls the composition of the board of another corporation; and/or
  • one corporation can control more than 50% of votes in a general meeting of another corporation; and/or
  • one corporation holds more than 50% of the share capital of another corporation.
• Shared employees: employees are shared between two or more businesses.
• Common controlling interest: the same person (or set of persons) has a controlling interest in two or more businesses. The tests differ depending on the legal structure, but a common misunderstanding is that a beneficiary of a trust is deemed to control that trust; if that person is also a shareholder or director in a company, the entities may be grouped.
• Tracing interests: an entity has a tracing interest in corporations (for example, by adding up percentage interests through chains of companies).
• Merged groups: a person is part of two or more groups, in which case that common person can operate to join both groups into one larger group.

Except for related-bodies-corporate grouping, it may be possible to apply for the entities to be “de‑grouped” on the basis that the businesses are carried on independently of each other. The QRO commonly looks for evidence of separation for example, different bank accounts, accountants, lawyers, suppliers and customers.

How Exant Advisory can help

Our advisors are often engaged to assist with completing the payroll tax wages, grouping and contractor schedules, and to help with substantiating exemptions and positions taken. We can also review payroll tax positions to identify practical opportunities to improve compliance and group efficiency before lodgement or during a QRO review.

If you require assistance with payroll tax advice, or audit assistance, please contact your usual Exant advisor or alternately contact our specialists, Jamie Towers and Dean Rallison, via the form below or on 07 3218 3900.

If your business’s payroll is growing and becoming more complex, you may wish to consider our outsourced Payroll Solutions. Find out more here: Australian payroll services – Exant Advisory | Experience. New Thinking.