With the end of financial year fast approaching, responsible businesses around Australia are moving to finalise their accounting information before the financial year is completed. (Many not so reputable will try and fix it later with backdated transactions!) Most Bookkeepers and Accountants believe that their categorisation of expenses and revenues are correct, but often a closer look at the detailed tax law will show that many categorisations are incorrect and can have significant ramifications for their businesses. One such area is Payroll tax and recently in a presentation to our Parramatta Accountants Discussion Group (PADG) by Michael Collett revealed some interesting facts.
Contractors are regularly used by many Australian businesses across a wide range of areas, they provide flexibility and often highly specific skills but from a tax viewpoint it is important that businesses recognise how the relationship between the employer and contractor is categorised. The following factors need to be considered when employing contractors, because if a condition below is found to be met, there could possibly be serious Payroll Tax implications for the business employing the contractor:
- If Goods or materials associated with the employment of the contractor are directly supplied by the employer.
- If the remuneration of the Employer of the Contractor represents 40% of the contractors total yearly income.
- If the services of the Contractor are required for 180 days or more in a single financial year.
- If there is another employee performing the same role within the organisation and they contractor is employed for a period of more than 90 days.
- If the contractor is not offering their services on a contract basis to other businesses.
- If the contractor does not have a track record of providing their services on a contractual basis.
- If a contractor is not employed within a group of independent contractors
- To a lesser extent, if there is no a company structure behind the contractor.
- If there is no third party involved, for example if the contractor is employed through an employment agency then it would not be likely it would fall under the provisions.
All of the above are important factors but a situation needs to be taken “on the whole” in order to come up with the correct solution. Thus an important aspect that helps to identify employees is regularity of such a use and payment. The definition of “Employer” on the other hand is far simpler; in short it simply means a person who pays or is liable to pay wages, yet it has the ability to be very broadly read. Michael stressed that every situation is different and expert advice should be sort as to potential exposure to Payroll Tax payments.
Once caught for Payroll Tax the behemoth will open; next comes Superannuation, the Pay As You Go and Workers Compensation. It’s enough to send you broke!