The rise in activity has been facilitated by the substantial increase in information sharing between jurisdictions and between the Australian Taxation Office (ATO) and state revenue authorities, and the implementation of sophisticated data analysis techniques.
In our experience, it is not uncommon for an employment tax audit by the ATO to be followed by a payroll tax audit. Further, where payroll tax non-compliance is discovered in one jurisdiction, we often find that audits follow in multiple jurisdictions.
Some of the key pieces of information that are of interest to the state revenue authorities when performing a data matching analysis of the payroll tax annual reconciliation are:
- fringe benefits tax (FBT) amounts disclosed on the company’s FBT return
- employee payments disclosed on the company’s annual pay-as-you-go (PAYG) payment summary statement
- employee share scheme (ESS) discounts disclosed on ESS annual reports
- salary and wage and superannuation expense figures (including defined benefit funds) disclosed on the company’s income tax return.
In addition to this, the state revenue authorities take a keen interest in companies who have employees working in Australia but paid offshore, disclose large contractor expense figures on their income tax return, as well as companies operating in industries where engaging contractors is commonplace (e.g. construction, IT).
It is important to remember that payroll tax is payable not only on amounts paid to employees, but also on amounts paid to contractors engaged under a ‘relevant contract’ (with the exception of WA). A relevant contract can exist even where the contractor operates through an incorporated entity.
If your business does not already have protocols in place for ensuring consistent reporting of data and identifying relevant contracts, we recommend that a proactive approach is taken before the state revenue authorities come calling.