We have observed a recent increase in State Revenue Office (SRO) investigations regarding payroll tax compliance.
The current focus of the SRO provides a timely reminder for businesses to review their arrangements with contractors and employees, and to ensure they are meeting their payroll tax obligations.
The payroll tax legislation contains exemptions and other forms of relief for businesses. Relevantly for operators in the transport and logistics industry, this article examines:
- the payroll tax exemption for owner-drivers; and
- the lower payroll tax rates applicable to ‘regional employers’.
Overview of payroll tax
Payroll tax is a state-based tax which is imposed on employers, and calculated on wages paid to employees. Victorian employers who pay wages which exceed the monthly threshold of $58,333 (or the annual threshold of $700,000) will be liable to pay monthly payroll tax at the rate of 4.85%.
To assess an employer’s payroll tax liability, it is necessary to distinguish between employees and contractors. Typically, a worker who is engaged via a company or trust would not be considered an employee and may instead be a contractor.
However, even if you only engage contractors to perform services for your business, you may still have a payroll tax liability on payments made to these contractors if the arrangement constitutes a ‘relevant contract’.
‘Relevant contracts’ are caught by payroll tax regime
Under the Victorian payroll tax regime, any amounts paid to contractors pursuant to a ‘relevant contract’ are deemed to be taxable wages on which payroll tax is imposed, with the business engaging the contractor deemed to be an employer.
This is the case irrespective of whether the contractor provides their services via a company, trust, partnership or as a sole trader.
However, certain types of contracts are specifically exempt from this treatment. Where an exemption applies, there will be no payroll tax liability on payments made to contractors.
Exemption for owner-drivers
If your business engages owner-drivers for the provision of transport and delivery services, you may be eligible for an exemption on this basis.
Payments made to owner-drivers who provide transport and delivery services will be exempt from payroll tax if:
- the vehicle provided by the contractor is not owned or leased by the principal;
- the principal makes no contribution to the capital or running expenses of the vehicle; and
- the main purpose of the contractor’s work is the transportation and delivery of goods.
To qualify for the exemption, it is not necessary that the contractor own the vehicle outright; the vehicle may be leased to, or hired by, the contractor.
If, however, the owner-drivers convey goods for the purpose of installation at the point of delivery, or for use in connection with repair, maintenance or servicing work, the SRO considers the ‘main purpose’ of the contract is not the actual conveyance of the goods but rather the installation or repair/maintenance work.
If your business currently claims this exemption, we recommend that your entitlement to this exemption be reviewed with respect to your contractor arrangements, given the current SRO compliance focus.
Regional employers and payroll tax relief
A lower payroll tax rate applies to taxable wages paid by ‘regional employers’ to their ‘regional employees’. For wages paid from 1 July 2021, the rate is 1.2125% (as opposed to the general rate of 4.85%).
A ‘regional employer’ is an employer that pays at least 85% of their Victorian taxable wages to regional employees. A ‘regional employee’ is an employee who performs more than 50% of their services in regional Victoria during the month.
For example, if the majority of your employees regularly travel to regional Victoria when providing transport and delivery services, and spend the majority of their time in regional Victoria, you may wish to review your entitlement to access reduced payroll tax rates.
Previously, it was also necessary that the ‘regional employer’ was based in regional Victoria. This is no longer the case – a ‘regional employer’ can be physically based in metropolitan Melbourne – with the sole focus being on the location of the services performed by its employees.
How can Rigby Cooke Lawyers help?
If you would like us to review your payroll tax obligations, including entitlement to the owner-driver exemption, or whether you may be eligible to access the reduced rates applicable to regional employers please contact Tamara Cardan, Tax Counsel.
|Disclaimer: This publication contains comments of a general nature only and is provided as an information service. It is not intended to be relied upon, nor is it a substitute for specific professional advice. No responsibility can be accepted by Rigby Cooke Lawyers or the authors for loss occasioned to any person doing anything as a result of any material in this publication.
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