Payroll Tax Act 2007

The Act primarily affects employers who pay or are liable to pay wages above the threshold amount. "Employer" is defined in s 3(1) to include the Crown, public authorities (unless immune), and persons taken to be employers under the Act (e.g. principal contractors under relevant contracts in s 33, employment agents in s 38, and group members under s 81). Any person or entity carrying on a business in NSW that pays taxable wages is captured.

Groups are treated as a single taxable entity. A "group" arises automatically where corporations are related (s 70), where there is common control of two businesses (s 72), where employees are used in common (s 71), or through tracing of interests in corporations (s 73). Smaller groups are subsumed into larger ones (s 74). Former entities can now be grouped with successors under s 74A (inserted 2023). The designated group employer (s 80) bears primary compliance responsibility, but all members are jointly and severally liable (s 81).

Employees are indirectly affected because the tax increases the cost of labour, although the legal incidence falls on the employer. Service providers under employment agency contracts are deemed employees of the agent (s 39), and contractors under relevant contracts are deemed employees (s 34). Directors receiving remuneration (s 13(1)(c)) or shares/options (s 24) are brought within the net even if not common-law employees.

Exempt categories include religious institutions, public benevolent institutions and non-profits whose dominant purpose is charitable (s 48, limited to work of that character), public hospitals and certain health-care providers (s 51), local councils for non-business activities (s 58), and volunteer firefighters or emergency service members (ss 55-56). Special rebates or exemptions apply to businesses with annual Australian wages of $10 million or less in 2019-20 and 2021-22 (ss 99A, 99B), living organ donors (s 66C), and employers under Jobs Plus agreements (s 66F, up to 1 October 2028).

Foreign employers paying wages for services performed in NSW (s 11(1)(c)) and interstate employers whose employees are based in NSW are caught. The Act does not apply to wages paid for services performed wholly in another country for more than six continuous months (s 66A). Commonwealth places are dealt with by mirror-tax provisions (s 12).

In practice, the Act affects medium-to-large private employers, government departments (grouped under Sch 2 cl 15), State-owned corporations (expressly not grouped with each other under Sch 2 cl 16), medical centres using contracted general practitioners (Sch 2 cll 10A-10D), and any business using labour-hire or contractors where the s 32 exceptions do not apply.

Employers must register within seven days after the end of the month in which the weekly threshold is exceeded (s 86(2)). They must lodge returns within seven days after the end of each month (except June, which is 28 days) (s 87(1)) and pay tax within the same periods (s 9(1)). Group employers may lodge joint returns with Chief Commissioner approval (s 87(2)). Annual reconciliation is required under s 83; if tax paid is less than the correct amount, the difference must be paid with the June return.

The designated group employer must ensure group wages are correctly aggregated (s 80). Every group member is jointly and severally liable for the group's unpaid tax (s 81(1)), including interest and penalty tax (s 81(3)). Principal contractors can be made liable for subcontractors' payroll tax on relevant employees (Sch 2 cl 17) unless they obtain the prescribed written statement (Sch 2 cl 18).

Rights include the ability to claim exemptions (Part 4) provided records are kept (e.g. medical certificates for maternity leave under s 54). Employers may elect the relevant day for share or option grants (s 19) and the valuation method (market value or Commonwealth income-tax value under s 23(3)). Fringe-benefit valuation elections are available under s 16. Motor-vehicle allowance exemptions can be calculated using either the continuous-recording or averaging method (Sch 1 Pt 5, ss 13-17 of that Schedule).

Taxpayers may apply for exclusion from a group under s 79 if businesses are carried on independently. Hardship relief is available through the Hardship Review Board (Sch 2 cl 22). Refunds are payable when annual tax paid exceeds the correct amount (s 83(1)). Objections and reviews lie under the Taxation Administration Act 1996 Part 10, although s 66F(7) prevents objection to revocation of a Jobs Plus exemption.

The Chief Commissioner may determine values where returns are not lodged (s 23(4)), make determinations under anti-avoidance rules (ss 42, 47), and approve alternative kilometre-recording methods for motor vehicles (s 29(6)).

The Act itself contains few offence provisions; enforcement occurs under the Taxation Administration Act 1996. Failure to register (s 86) or lodge returns (s 87) can attract penalty tax and interest under that Act. Knowingly giving a false written statement to avoid principal-contractor liability is an offence carrying 100 penalty units (Sch 2 cl 18(8)). Liquidators must notify the Chief Commissioner within 14 days (s 99(1)) and set aside assets for tax; failure is an offence of 50 penalty units and exposes the liquidator to personal liability (s 99(4)-(5)).

Joint and several liability (s 81) allows the Chief Commissioner to recover the whole debt from any group member. Recovery from agents, trustees, executors, controllers of absentees and liquidators is facilitated by Divisions 1 and 2 of Part 8 (ss 88-99). The Chief Commissioner may disregard arrangements intended to reduce liability and determine that payments are wages (ss 42, 47).

Penalty tax for late payment or under-reporting is imposed under the Taxation Administration Act 1996 s 21 (up to 25% for failure to take reasonable care) or s 23 (up to 75% for intentional disregard). Interest accrues daily. Garnishee orders, charging orders and recovery as a debt are available. For Jobs Plus agreements, revocation causes wages to be treated as never exempt, with reassessment possible until 1 July 2033 (s 66F(6)).

The Act is expressly to be read with the Taxation Administration Act 1996 (s 4), which supplies assessment, collection, objection, review and recovery powers. Definitions in s 3 incorporate terms from the A New Tax System (Australian Business Number) Act 1999 (ABN), Corporations Act 2001 (director, voting share, related bodies corporate), Income Tax Assessment Act 1997 (ITAA) (termination payments, unused leave, ESS interests, car-expense rates), Fringe Benefits Tax Assessment Act 1986 (FBTA Act) (fringe benefit, taxable value, reportable fringe benefits), Superannuation Industry (Supervision) Act 1993, Superannuation Guarantee (Administration) Act 1992 and GST legislation.

Grouping provisions mirror, but are not identical to, those in other Australian payroll-tax jurisdictions, promoting uniformity while containing NSW-specific exclusions (Sch 2 cll 15-16). The Interpretation Act 1987 applies to definitions and construction (s 3(1) note).

Interaction with Commonwealth law occurs in several places. Section 12 adjusts for payroll tax paid under the mirror-tax regime for Commonwealth places. Wages subsidised by JobKeeper (s 66D) or Aged Care Workforce payments (ss 66E, 66EA) are exempt only to the extent of the subsidy. The Jobs Plus scheme (s 66F) involves delegation to tax officers and disclosure of personal information, overriding privacy constraints.

Industrial laws interact via exemptions for maternity, paternity and adoption leave (ss 53, 13A) that reference the Fair Work Act 2009 (Cth) for JobKeeper. Contractor provisions (s 32) overlap with Independent Contractors Act 2006 (Cth) but apply a different test focused on tax avoidance.

Local government interacts via the Local Government Act 1993 (s 58) and the limitation in s 60. Health exemptions reference the Health Services Act 1997 (Sch 2 cl 10). The Apprenticeship and Traineeship Act 2001 defines apprentices and trainees for the Sch 2 cl 5 rebate.

Anti-avoidance rules (ss 42, 47) are modelled on general anti-avoidance provisions in Commonwealth income-tax law but are stand-alone. The Act prevails over inconsistent terms in Jobs Plus agreements (s 66F(11A)).

Since 2007 the Act has been amended frequently to modernise the tax base, close loopholes and provide temporary relief.

The State Revenue Legislation Further Amendment Act (No 2) 2009 substituted the jurisdictional nexus rules (new ss 10-12, 11A-11C) to align with other States following the 2007 Intergovernmental Agreement on payroll tax. The previous "substantial connection" test was replaced by a clearer employee/employer location hierarchy. This reduced disputes and improved harmonisation.

Employee-share-scheme amendments in 2010 (State Revenue Legislation Further Amendment Act 2010) aligned the taxing point and valuation with ITAA Division 83A, allowing election of grant or vesting date (ss 18-23) and addressing rescission (s 21). The changes were designed to reduce compliance costs and align with federal tax treatment.

The 2012 amendments extended the paternity-leave exemption to match maternity leave (new s 13A) for gender equity.

Contractor provisions were tightened in 2014 (State Revenue Legislation Further Amendment Act 2014) by adding anti-avoidance overrides (s 32(2A)-(2B)) and clarifying that additional services outside an exception do not qualify for the carve-out. This countered arrangements that mixed exempt and non-exempt services.

Temporary COVID-19 relief appeared in 2020: 25% reduction for businesses with Australian wages ≤ $10 m (s 99A), exemption for JobKeeper-subsidised wages (s 66D), and Aged Care Workforce Retention Grant exemption (s 66E). These were extended or modified in 2021 (50% reduction under s 99B, Aged Care Workforce Bonus in s 66EA).

The Payroll Tax Amendment (Jobs Plus) Act 2021 inserted s 66F to encourage job creation outside metropolitan Sydney by offering wage exemptions under negotiated agreements. The 2023 and 2024 amendments (Revenue Legislation Amendment Acts) refined grouping of former entities (s 74A), extended the Jobs Plus sunset, and introduced the general-practitioner medical-centre rebate (Sch 2 cll 10A-10D) to reduce cost pressures on bulk-billing practices. The 2024 changes lowered the relevant-proportion threshold for non-metropolitan centres to 70% and clarified the rebate mechanism.

Each change was driven by base-broadening, harmonisation, economic stimulus or targeted industry relief, as stated in the respective second-reading speeches and explanatory notes.

Because payroll tax is self-assessed, litigation is less common than in stamp duty or land tax, but several issues have reached the courts.

The meaning of "wages" has been contentious. In Commissioner of State Revenue (Vic) v Liquid Telecom Pty Ltd (analogous Victorian provisions) courts examined whether certain contractor payments were wages. NSW cases have focused on whether payments under "relevant contracts" fall within the s 32 exceptions. The Chief Commissioner has successfully argued that the exceptions are narrowly construed and that s 32(2A) catches avoidance-motivated arrangements.

Grouping litigation has centred on the "controlling interest" test in s 72 and the tracing rules in s 73. The concept of "substantially influence the exercise of" voting power has produced disputes about informal understandings. The exclusion power in s 79 has been challenged on natural-justice grounds; the Supreme Court has held that the Chief Commissioner must afford procedural fairness before refusing exclusion (Chief Commissioner of State Revenue v E Group Services Pty Ltd [2021] NSWSC 1016, although not a final authority on all points).

The jurisdictional nexus rules introduced in 2009 have reduced cross-border disputes, but questions remain about "principal place of residence" (s 11A) for mobile employees and the aggregation rule in s 11(6). The place-of-payment rules in s 11C have been tested in cases involving electronic funds transfers.

Share and option litigation has focused on the election of relevant day and the interaction with federal ESS rules. The 2010 amendments largely resolved valuation controversies by importing the ITAA methodology (s 23(7)).

Exemption disputes frequently concern whether an institution's dominant purpose is charitable (s 48(1)(c)) and whether work is "exclusively" charitable. The exclusion of educational companies (s 48(3)-(5)) has produced litigation about controlling interests.

Anti-avoidance determinations under ss 42 and 47 have been challenged on the basis that the arrangement did not have the requisite dominant purpose of reducing liability. Courts apply an objective test, examining the practical effect.

The Jobs Plus scheme (s 66F) has not yet generated reported litigation, but the prohibition on objection to revocation (s 66F(7)) and the retrospective effect of revocation (s 66F(5)(a)) are likely to be tested for constitutional validity.

Overall, the case law emphasises strict construction of exemptions and grouping exceptions, consistent with the Act's anti-avoidance purpose.

Most practitioners miss several subtle traps.

First, the monthly aggregation rule in s 11(6) can turn two separately non-taxable payments into taxable wages when combined. An employer paying $400 000 in NSW and $400 000 interstate in the same month for the same employee must apply the s 11(1)(b) test to the aggregated $800 000.

Second, the "relevant day" election for ESS interests (s 19) must be made in the return for the month in which the chosen day falls; late elections are not possible. If the grant is not included and the value is nil, the employer is deemed to have elected the grant date (s 20(2)), potentially accelerating liability.

Third, the contractor exceptions in s 32(2) are defeated if any additional services not covered by the exception are supplied under the same contract (s 32(2B)). Drafters must ensure contracts are cleanly severed.

Fourth, the medical-centre GP exemption (Sch 2 cll 10A-10D) requires the relevant proportion of all GP services provided through the centre (not merely those of the particular practitioner) to be bulk-billed or under veterans arrangements. Centres must maintain practice-wide statistics; failure disqualifies the entire wage stream.

Fifth, s 74A grouping of former entities can apply even if the former entity executed a deed of company arrangement and the successor had no knowledge of the prior liability (s 81(7)). The successor can find itself jointly liable for historic debts.

Sixth, the motor-vehicle allowance exemption (s 29) uses the highest cents-per-kilometre rate if multiple rates exist (s 29(7)(b)). Many employers use an outdated single rate and under-claim.

Seventh, the 14-week cap on maternity/paternity leave exemption (ss 53(3), 13A(3)) is measured in weeks of pay, not calendar weeks. A part-time employee on half pay can claim 28 weeks of half-pay wages as exempt.

Eighth, once an employer elects the averaging method for a vehicle (Sch 1 cl 14), the same relevant percentage must be used for the next four years unless the Chief Commissioner directs otherwise or a new vehicle is added. Many compliance systems fail to track the five-year cycle.

Ninth, the Jobs Plus agreement (s 66F) cannot be revoked merely for creating 20-29 jobs if the employer's address is outside metropolitan Sydney, but revocation still causes retrospective loss of the exemption with no objection right. The indemnity in s 66F(10) protects the State but not the employer from downstream commercial claims.

Tenth, superannuation contributions to unfunded schemes (s 17(5)) are wages when the money is set aside, not when the employee retires. Many public-sector employers have been caught on accruals.

Compliance begins with a payroll-tax register that captures every payment or benefit that could fall within the s 13 or Part 3 definitions. Monthly extraction routines must isolate NSW taxable wages, interstate wages, exempt wages and grouped wages.

Registration is mandatory once the weekly threshold (calculated under s 86(1)) is exceeded. The designated group employer (chosen under s 80) must lodge a single return covering all group members. Returns are due seven days after month-end (28 days for June). Payment follows the same timetable (s 9), subject to any approved special arrangement under the Taxation Administration Act 1996.

For fringe benefits, maintain FBTA Act records and decide whether to use the 1/12th method (s 16). The election, once made, cannot be reversed without Chief Commissioner approval. Superannuation contributions must be tracked by employee and by service period; pre-1 July 1996 service is excluded (Sch 3 cl 6) but requires actuarial evidence.

Shares and options require a formal election of relevant day in the return for the month of the chosen day. Market-value or Commonwealth-income-tax valuation must be consistent across the return (s 23(3)). Rescission adjustments (s 21(2)) must be taken in the year of rescission.

Contractor and agency arrangements require written agreements that either fall squarely within a s 32(2) exception or are structured so the employment-agent provisions (ss 37-42) apply. Declarations under s 40(2) or Sch 2 cl 13B must be obtained before treating payments as non-wages.

Exemption claims require contemporaneous records: medical certificates for leave (s 54), evidence of exclusive charitable work (s 48(2)), and practice-wide billing statistics for medical centres (Sch 2 cl 10B). The 14-week leave cap must be calculated on a "weeks of pay" basis.

Grouping reviews should be conducted annually. If independence can be demonstrated, apply for exclusion under s 79 before the return is lodged. Joint-and-several liability makes creditworthiness of all group members relevant.

Monthly reconciliations should compare accounting wages with taxable wages, applying the s 11 nexus rules to each employee for each month. The aggregation rule (s 11(6)) must be applied before determining the taxable jurisdiction.

Annual adjustment under s 83 is mandatory. Where wages fluctuate, seek a s 85 determination to obtain the full threshold for the trading period.

Record-keeping obligations under the Taxation Administration Act 1996 s 53 (five years) apply. Electronic systems should be configured to produce Chief-Commissioner-audited reports on demand.

For Jobs Plus participants, ensure the agreement is executed by the authorised delegate, track new jobs created, and maintain evidence that wages claimed as exempt fall within the approved classes and four-year window.

Finally, engage external review of the payroll-tax model at least every two years. The combination of monthly compliance, annual reconciliation, grouping, anti-avoidance and complex exemptions makes payroll tax one of the highest-risk State taxes for large employers. A robust tax-risk framework that documents all material judgements (election of relevant day, characterisation of contractors, exemption eligibility) is the best defence against penalty tax.