Victoria and NSW have kicked off the Pay-roll Tax (PRT) harmonisation project with the introduction of supposedly harmonised PRT laws effective 1 July 2007. The other States and Territories have indicated they will come on board as of 1 July 2008.Let us say at the outset that we think a uniform PRT base and streamlined compliance procedures across Australia are a welcome and long overdue reform (even though that is not what we are getting).
Who knows where this reform revolution will end? Efforts to sync up the PRT and Workers Compensation ‘wages’ definitions both within and between jurisdictions would be a welcome next step.
In the meantime, let’s consider some of the juicier PRT initiatives revealed so far.
The Winners
Grouping
Changes to the grouping rules in NSW and Victoria seemingly provide opportunities for taxpayers in both states.
In Victoria the trigger for grouping under the wide ranging ‘common control’ limb of the grouping provisions changes from a ‘50% or more’ test to a ‘more than 50%’ test. This change allows businesses that were grouped (at a 50% test) to automatically be excluded from a group without having to seek the (subjective) Commissioner’s discretion. The Commissioner’s discretion provision broadly operates whereby a business can be excluded from a group upon demonstrating (to the Commissioner’s satisfaction) sufficient independence from other group members. Victorian taxpayers that were grouped will need to be proactive and approach the State Revenue Office to avail of any opportunities created by this change. A grouped business paying the Victorian wages threshold of $550,000 secures a $27,775 per annum reduction in PRT if able to be de-grouped.
In NSW businesses grouped under the ‘common control’ test can finally request de-grouping under the equivalent Commissioner’s discretion provisions. One would imagine the Office of State Revenue will receive a flurry of de-grouping submissions given common ownership often has little to do with the degree of independence between businesses. A grouped business paying the NSW wages threshold of $600,000 secures a $36,000 per annum reduction in PRT if able to be de-grouped.
Taxing Trust Distributions
In a welcome move the NSW rules that deemed certain trust distributions to be wages have been dumped. Introduced in July 2002 the rules were always at odds with a tax that was meant to be imposed on wages paid to employees. Unfortunately the rules remain for NSW Workcover purposes.
Victoria has not attempted to introduce similar rules.
The Losers
Share Schemes
Employee share and option schemes have been added to the Victorian wage base. Whilst not unexpected this change will continue filling up Treasury coffers but can be expected to cause numerous compliance difficulties. Currently employee share and option plans require the employee recipient of the shares/options to include amounts in their personal tax returns meaning the ‘discount’ received by an employee is unknown to the personnel who are responsible for preparing PRT returns. Calculating the discount between what an employee pays for shares or options and what they are worth can be as ’simple’ as getting an independent valuation of the company for the purposes of valuing the discount. Good luck to the first pay-roll clerk who asks the owners of a private company for details of any shares/options that may have been issued. Probably be the last PRT return they get to prepare!
Charities
A contentious change is the new test in Victoria that requires a charity to have ‘wholly charitable purposes’ should PRT exemption be available to any or all wages paid by the charity.
The Victorian Government is rightly under some pressure to clarify that the use of a ‘wholly charitable purposes’ test does not significantly reduce the scope of PRT exemption afforded to charities. Given the stated intention was not to reduce exemption for charities we might need some corrective legislation to sort out what, on a literal reading, is a significant problem. How many charities have at least one purpose that, when viewed in isolation, is not charitable?
Retrospectivity
An increase in Victoria to a 5 year period of retrospectivity (currently 3 years) will cause a sting in the tail for businesses that have erred in their PRT compliance.
Overall
We do like the new system but would like it a whole lot more if was actually uniform. Hopefully the remaining States and Territories don’t stray too far from the model now established when they come on stream in 2008.
A useful summary of the key changes can be viewed at ’summary of changes’.
This edition of The Assessment was prepared by Michael Doran. If you have any comments in regards to the contents of this edition please feel free to contact Michael at michaeld@webbmartinconsulting.com.au.
