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Although we don’t usually talk about state taxes anywhere near as much as their federal cousins, every now and then an issue pops up that takes the limelight. Payroll tax, for many a costly and annoying administrative burden, grudgingly accepted, has taken the limelight with the recent attention on medical centre arrangements on one hand and the grouping of closely held (and sometimes not so closely held) businesses on the other.
Another issue getting airtime at the moment is the grouping of commonly controlled businesses for payroll tax purposes, essentially to group the wages paid to employees of those businesses. Payroll tax commences to apply to a business (including a group) when the Australia-wide taxable wages of that group exceed a certain threshold.
The grouping provisions were introduced as anti-avoidance provisions to prevent what would otherwise be single businesses, from being broken up (i.e. by geography or business unit) in order to place each segment under the payroll tax threshold.
The State Commissioners have been very busy in the last few years, in grouping businesses and dealing with degrouping requests. If you have client businesses that have been grouped or are at risk of grouping, there are two broad avenues of resistance that can be taken.
The first is to determine whether the businesses are in fact grouped under the legislation and if they are, whether their ownership or arrangements can be altered, so that they are no longer grouped. The second is to seek the Commissioner’s discretion to degroup businesses that are otherwise grouped, on the basis that they are not sufficiently connected.
This discretion exists because of the broad scope of the grouping provisions, so that relief can be given to its otherwise draconian operation. This is more commonly achieved here there are separate business types in a family or closely held ownership, carried on by different persons (e.g.. a wife’s business versus her husband’s business or a husband and wife with their own business assisting their child’s business).
We have recently had a number of successes in this space both with being able to degroup businesses at first instance (i.e. so that in a manner consistent with how they operate, they cease to meet the grouping tests under the legislation) and in securing the Commissioner’s discretion to degroup businesses that are technically grouped but truly independent. The most recent degrouping decision obtained for our clients was denied on objection but reversed by the Commissioner in an early settlement, after the commencement of Administrative Tribunal proceedings.