Payroll Tax for Residential Builders in South Australia

What it is

Payroll tax in South Australia is a state tax on wages. It is administered by RevenueSA under the Payroll Tax Act 2009 (SA). A residential builder that pays Australian taxable wages above the threshold must register, lodge monthly returns and pay the tax.

South Australia does not use the Payroll Tax Act 2007. It rewrote its own law in 2009, and RevenueSA describes the result as harmonised with New South Wales, Victoria, Tasmania and the Northern Territory. So the wage definitions, the contractor deeming rules and the grouping tests read like the eastern ones. The rate structure does not. South Australia runs a variable rate band that exists nowhere else in the country.

Threshold and rate

The threshold is 1.5 million dollars a year of Australian taxable wages, or $125,000 a month.

The rate then works in three bands, set by Australia-wide annual wages:

• Nil where Australian taxable wages do not exceed $1.5 million
• A variable rate scaling from 0 per cent up to 4.95 per cent where wages exceed $1.5 million but not $1.7 million
• 4.95 per cent where wages exceed $1.7 million

That 200,000 dollar band is a steep climb. A builder growing from 1.5 to 1.7 million dollars in wages goes from paying nothing to the full rate.

There is a second moving part. RevenueSA gives a deduction entitlement, capped at 600,000 dollars a year or $50,000 a month, which reduces as Australian wages rise. Tax is charged on South Australian taxable wages less the deduction, and RevenueSA Online works out both.

The detail builders miss: the rate is set on Australia-wide wages, before the deduction comes off. A builder whose crews are mostly interstate can still be pushed into the 4.95 per cent band by wages it never paid in South Australia.

What counts as wages

• Gross wages, salaries, overtime, commissions and bonuses
• Allowances paid in cash, above the exempt motor vehicle and accommodation rates
• Superannuation contributions, including the 12 per cent Super Guarantee and salary sacrifice amounts
• Fringe benefits grossed up at the Type 2 rate, which captures site utes, fuel cards and entertainment
• Termination payments, excluding the tax-free part of a genuine redundancy
• Director fees and working-shareholder salaries
• The labour component of contractor payments caught by the relevant contract rules

Super at 12 per cent is the line that pushes builders over. A firm on 1.4 million dollars of salaries is past 1.5 million once super lands.

Contractor deeming rules

Division 7 of Part 3 of the Payroll Tax Act 2009 (SA) deems contractors to be employees and their payments to be wages. RevenueSA is explicit about the target: contractors who supply predominantly labour services and who work exclusively or mostly for one principal in a financial year. That describes a lot of residential trade subcontracting.

Division 7 then lists exemptions. If any one applies to a contract, the payments under it are not taxable. The ones that matter on a build:

• The contractor supplied the same or similar services on no more than 90 days in the financial year, under section 32(2)(b)(iii). Part of a day counts as a full day, and the days need not be consecutive. Once you pass 90 days, the whole year of payments to that contractor becomes taxable, not just the excess
• The service is one the principal ordinarily needs for less than 180 days in the financial year
• The contractor ordinarily supplies services of that kind to the public generally
• The contractor engages their own employees or subcontractors to do the work
• The contract is ancillary to the supply of goods, or is an owner-driver arrangement

Where none applies, only the labour component of the payment is taxable.

Grouping

Grouping combines the wages of related businesses so a single threshold and a single deduction are shared across the group, claimed by one designated group employer. It follows common control, corporate holding relationships, shared employees and tracing through trusts.

For a builder the risk is structural rather than deliberate. A building company, a development entity and a trust holding the plant are three ABNs and one payroll tax group. Combined wages set the rate band, which is how a group lands in the 4.95 per cent band while each entity alone would have paid nothing.

Lodgement and what to do

Monthly returns are lodged and paid through RevenueSA Online by the seventh day of the following month. South Australia then differs from most of the country on the annual date. The annual reconciliation is due 28 July, not 21 July. Miss it, and a default assessment carries penalty tax at 25 per cent plus interest.

Once salaries plus super plus grossed-up fringe benefits plus contractor labour approach 1.4 million dollars, model the next twelve months, because the 1.5 to 1.7 million dollar band moves fast. Map every related entity and treat it as grouped. Keep the day counts behind any contractor exemption you claim.