Getting Payroll Tax and Workcover Declarations Right!

30-Jul-2013

With the year end compliance obligations in full swing, your attention will no doubt turn to a number of employment related taxes and obligations such as Payroll Tax and WorkCover. Unfortunately, in our experience, employment taxes and obligations often take a back seat to other issues and errors or omissions can result. These can perpetuate year on year and result in significant exposures over time.


The focus of this article is to provide insight into what are the more common problem areas encountered by our clients in relation to both Payroll Tax (‘PRT’) and WorkCover (‘WC’). It also includes an overview of the main ways in which the relevant authorities select targets for audits.

Do you need to register for PRT and in what States?

The liability to register for payroll tax in any State is based on the aggregate Australia-wide wages. As such, if an employer’s total Australian wages exceed the threshold in a particular State, and any wages are paid in that State, they are required to register in that State.
The tax rates and thresholds vary considerably from State to State (the lowest annual threshold is $550,000 in Victoria) so be careful to ensure that you have considered each State correctly.
A common mistake is for employers to assume that if they are registered in one State they can include their entire payroll in that State’s declaration even though some of the wages relate to interstate employees.
Another common mistake is to assume that the requirement to register in each State is based solely on that States’ wages. However, in determining if registration is required in a particular State, you must take account of the total Australia-wide wages.

WorkCover Policies

An employer must have a current WC policy in each State in which they employ. If they do not have a policy in a particular State, they will be uninsured and exposed for claims costs if an employee is injured.

It is important to consider employees who work in more than one State (e.g. Interstate Bus Drivers). In such cases, employers will be required to provide WorkCover coverage in the State in which they usually work or are usually based.

Contractors

Have you reviewed contractors for PRT and WC? Don’t be misled in assuming that because they are contractors there are no PRT or WC obligations.
Both WC and PRT have provisions which can deem payments to contractors as if they are wages. Generally, this will be the case where a contractor works a significant proportion of the year for the one principal. Even where a contractor provides an invoice and quotes an ABN, an obligation can exist.
In some states, PRT and WC can even apply where the contractor works through their own company structure.

Grouping

In certain circumstances, provisions in WC and PRT can group two or more employers. For PRT this can mean effectively losing a tax free threshold and for WC, it can impact on workplace classifications and premium calculations.

Grouping can occur where there is common ownership or control, or where employees of one business perform services for the other business (e.g. service companies). Businesses which together have a high degree of dependence and connection are particularly at risk of grouping.

WorkCover Industry Classifications

Have you reviewed the WorkCover Industry Classification (‘WIC’) assigned to the business? If there has been any change in the main activities of the business, you should review the WIC to ensure it is still appropriate.
The WIC is a major variable in determining how much premium you must pay. Generally, the WIC is based on the predominant activity of the business at each workplace. As a rule, activities with a higher risk profile will be assigned a higher industry premium rate.

We have encountered many situations where an employer’s failure to regularly review its WIC has meant a sizeable premium adjustment.

Annual declarations

Whilst there are many similarities between PRT and WC, it is critical is to understand the differences between the definitions of wages and remuneration that exist when completing an employer’s annual returns.
The table opposite is a comparison of the main differences between taxable wages for PRT in New South Wales and rateable remuneration for New South Wales WC purposes.
Although the States and Territories are now reasonably consistent in terms of what is subject to PRT, the same cannot be said for WC. If an employer has employees in a number of States or Territories, it is imperative that you individually review each State’s requirements rather than just assuming that they are consistent with a particular State.

Payroll Tax Audit Activity

In recent years State Revenue Offices (SROs) have become extremely active in relation to payroll tax audits.
Some of the more common ways in which audit targets are determined are as follows:
WorkCover Data Match: SROs obtain reports from the WC Authorities which show businesses that are paying wages in excess of the relevant PRT threshold; these are then matched against the PRT database to identify unregistered businesses.
The reports can also identify cases where the wages declared for PRT are substantially less than those declared for WC. Reports also highlight workplace addresses where multiple businesses are registered to identify potential PRT groups.
SRO Data Match: Since harmonisation of PRT there has been a greater level of co-operation between the States including exchanging of audit results.
BAS Data Match: SROs are sourcing PAYGW data from the BAS’s lodged with the ATO and using this to identify unregistered businesses or possible understatements of wages.
FBT Data Match: SROs are sourcing data from FBT returns lodged with the ATO and identifying variances from the FBT figures lodged for PRT. They are also obtaining details of amended FBT assessments to ensure that these are followed by amended PRT assessments.

ASIC Director/Shareholder Search: SROs obtain reports from ASIC of all entities that have common directors and/or shareholders. These are used to identify potential PRT groups.
Defaulters: Businesses that fail to lodge their Annual PRT return or regularly fail to pay their PRT liabilities are targeted for audit.
Industry Based: Certain industries are targeted from time to time based on previous audit results or industry issues. Current industries under review include the building, IT and transport industries.

WorkCover Audit Activity

WorkCover uses a range of data mining techniques to review employers’ policy details, develop risk profiles for identifying areas of high-risk for non-compliance, and target wage audits. In addition, WorkCover’s Scheme Agents also identify employers for wage audit based on observed policy activity.
Certain industries are targeted from time to time based on previous audit results or industry issues. Current industries under review include employment agencies and industries with high contractor use (e.g. building, IT, transport).
The authorities use various information sources to identify employers who may have incorrect workplace classifications (e.g. wholesaler v manufacturer)

Fringe Benefits
PRT

WC
Grossed up taxable value (Type 2 rate)

Grossed up at the rate as set out in the FBT return using either Type 1 or Type 2 gross ups.
Termination Payments (not including lump sum leave payments)
PRT


WC
Taxable except tax free portion of a genuine redundancy payment

Exempt
 Maternity Leave
PRT

WC
Exempt for first 14 weeks

Rateable
 Apprentices’ Wages
PRT

WC
Rateable but rebate available

Disclosed but apprentice premium exemption will be deducted from employers’ premium
 Contractors’ Payments
PRT


WC
Contains some specific industry based exemptions

Has a potentially narrower application to contractors than 
 Employee Share Schemes
PRT

WC
Taxable

Exempt

Conclusion

As has been demonstrated through this article, there are a number of issues that need to be addressed in relation to payroll tax and WorkCover to ensure that your business is getting it right. It is not an area that should be ignored as errors can lead to major discrepancies.

Contact us now to see how our accounting experts can help.

Article from: John Ross

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