Payroll Tax Grouping Provisions for Builders

What it is

The grouping provisions treat related businesses as one employer for payroll tax. Every state and territory has them in near-identical terms, and they apply across borders. A business in Sydney and a business in Adelaide under the same control are one group.

The effect is blunt. The group gets one tax-free threshold or deduction entitlement between all of it, not one each. And every member is on the hook for the whole group debt.

For a residential builder this is the most expensive rule in payroll tax, because the way builders structure invites it. A building company. A separate labour or admin entity that employs the staff. A plant hire trust that owns the excavator. A development entity for the current site. Four ABNs, one family, one group.

What triggers a group

There are four gateways. Any one of them is enough.

Related bodies corporate. Companies related within the meaning of section 50 of the Corporations Act 2001 are grouped. Holding company and subsidiary, or two subsidiaries of the same parent.

Common employees. If employees are used in more than one business, the businesses are grouped. This catches the builder whose site supervisor is employed by the admin entity but runs jobs for the building company.

Common control. Where the same person, or the same set of persons, has a controlling interest in two or more businesses, those businesses are a group. A controlling interest is usually more than 50 per cent of the share capital, or more than 50 per cent of the votes at directors meetings, with equivalent tests for partnerships and trusts. The ACT Revenue Office example is a person who owns 55 per cent of one company, 100 per cent of another and is sole director of a third. All three are grouped.

Tracing of interests. An entity with a direct, indirect or aggregate controlling interest in a corporation is grouped with it. Interests trace through trusts and interposed companies, which is how family structures get pulled in.

The designated group employer

Every member of a group that employs in a state must register and lodge its own return there. The group nominates one member as the designated group employer, and only that member claims the threshold or deduction entitlement. If the group does not nominate one, the Commissioner may designate any member.

Where a group employs across state lines, the entitlement in each state is apportioned by the share of group wages paid there. In South Australia the group entitlement of up to $600,000 is apportioned as SA group wages divided by total Australian group wages. Unused entitlement can be reallocated to other members at annual reconciliation, and revenue offices must be told when an entity joins or leaves a group.

Joint and several liability

All members of a group, whether or not they employ anyone, are jointly and severally liable for the debts of the group incurred while they were members. If one member defaults, the amount may be recovered from any other member.

Read that with a builder balance sheet in mind. If the trading company carrying the wages folds owing payroll tax, the revenue office can pursue the plant hire trust that owns the machines, or the entity holding the display home. The group is one wallet.

Applying to be excluded from a group

Every jurisdiction gives the Commissioner a discretion to exclude a member from a group. In New South Wales it is section 79 of the Payroll Tax Act 2007. The test is high. The Chief Commissioner must be satisfied that the business is managed independently of every other group member, with no connections between them, and that any connections that do exist are only casual, irregular or occasional.

Two hard limits. Corporations grouped as related bodies corporate under section 50 of the Corporations Act cannot apply for an exclusion order at all. Neither can entities grouped as illegal phoenix operators.

Why builders usually fail the exclusion

A residential builder set of entities is rarely independent in any sense a revenue office recognises.

• The labour entity has one customer, the building company
• The plant hire trust hires plant to one client at a rate the family sets
• The bookkeeper and the estimator work across all of them
• Directors and shareholders are the same people
• Money moves between entities as loans nobody ever calls in

Each of those is the connection the test rules out. Exclusion works where two genuinely separate businesses happen to share an owner. It does not work where the entities exist to serve the build.

What to do about it

Draw the group diagram before the wage bill goes near a threshold, then calculate payroll tax on combined group wages rather than entity by entity. Register every employing member and nominate the designated group employer deliberately. If a restructure is on the table, get advice first, because splitting wages across entities to duck a threshold is what these provisions exist to stop.