What is Grouping in Payroll Tax?
Grouping is a provision in payroll tax laws that requires related businesses to be treated as a single entity for payroll tax purposes. This means that the wages of all businesses within the group are combined when determining whether they exceed the payroll tax threshold in a particular state.
Why Does Grouping Matter?
Grouping rules prevent businesses from splitting wages across multiple entities to stay under the threshold and avoid payroll tax. If grouped, all related businesses are jointly liable for payroll tax, even if each individual entity would not meet the threshold on its own.
How Are Businesses Grouped?
Businesses may be grouped for payroll tax purposes if they meet any of the following conditions:
- Common Control Test
- If a person or set of persons control multiple businesses, they may be grouped.
- This applies to sole traders, companies, trusts, and partnerships where ownership or control is shared.
- Related Entities Test
- Companies that are related under the Corporations Act 2001 (e.g., parent-subsidiary relationships) may be grouped.
- Use of Common Employees Test
- If two or more businesses share employees, such as a service entity providing staff to another business, they may be grouped.
- Business Relationship Test
- If a business is significantly dependent on another business (e.g., a franchise arrangement), grouping may apply.
Implications of Grouping
- Thresholds Apply to the Entire Group: The combined wages of all grouped entities determine if payroll tax applies.
- Single Lodgment Requirement: A designated group member is responsible for submitting payroll tax returns.
- Joint & Several Liability: Each business in the group is individually liable for the payroll tax of the entire group. If one fails to pay, others may be required to cover the liability.
How to Avoid Unintentional Grouping
- Carefully structure business ownership to avoid common control where unnecessary.
- Review employee-sharing arrangements and ensure compliance with state laws.
- Seek professional advice if operating across multiple entities.
Final Thoughts
Grouping rules vary slightly between Queensland (QLD), New South Wales (NSW), and Victoria (VIC), but the general principles remain the same. If your business operates multiple entities, it’s crucial to assess whether grouping provisions apply, as this can significantly impact payroll tax obligations. Consulting a payroll tax expert can help mitigate risks and ensure compliance.
The Team at The Accountants and The Finance Brokers are here to help you navigate your cash flow requirements in your business. We offer complimentary cash flow reviews and assist you in understanding your finance needs.
