Background
Payroll tax is payable when an employer's total Australia wages exceed the payroll tax free threshold (which is determined by each states/territory's revenue office). Australian wages comprise of Victorian and interstate wages but only the Victorian wages are subject to payroll tax. Interstate wages are made up of wages subject to payroll tax in other jurisdictions.
Under the payroll tax harmonisation arrangements similar guidelines will apply in the other States and Territories.
Determining taxable Victorian wages under the Nexus Provisions
Determining whether wages paid or payable are subject to Victorian payroll tax is determined when lodging each monthly payroll tax return. Where an employee has not performed services in both Victoria and interstate/overseas in the one month the nexus provisions set in place a four tiered test under section 11(1)(b).
- Employee's principle place of residence
(PPR). Where the employee's PPR is located
during the month is where the wages will be subject to payroll tax.
In the case where the employee has more then one PPR, the employees
PPR on the last day of the month is taken to be the PPR.
If a corporation is deemed to be an employee under the Act, the corporations PPR will be there the ABN address is located. If the corporation has more than one ABN address or does not have an ABN address, the state or territory where the corporations' principle place of business (PPB) in Australia is located will be the relevant payroll tax jurisdiction. If the corporation has more then one PPB in a month (e.g. the corporate changes PPB address) the PPB will be the address on the last day of the month. - Employer's ABN address or principle place of business. If
an employee does not have a PPR in an Australian jurisdiction the
services are subject to payroll tax in the jurisdiction where the
employers ABN address is located.
The same as was detailed in (1) above, if the employer has more than one ABN address or does not have an ABN address, the state or territory where the employers principle place of business (PPB) in Australia is located will be the relevant payroll tax jurisdiction. If the employer has more then one PPB in a month (e.g. the employers changes PPB address) the PPB will be the address on the last day of the month. - Where wages are paid or payable. If the employee does not satisfy (1) or (2) above, the wages will be subject to payroll tax in the jurisdiction where the wages are paid/payable. If this is more than one jurisdiction in the one month, then the jurisdiction where the largest portion of wages paid/payable that month will be the jurisdiction subject to payroll tax.
- Services performed mainly in Victoria. If the employee mainly provided services in Victoria during the month (i.e. more than 50% of actual time worked) the wages are subject to payroll tax in Victoria.
Overseas assignments
Where an employee performs services in another country for less than 6 months, the wages paid to them by Victoria will be subject to payroll tax in Victoria. Where the employee performs services overseas for a continuous period of more than 6 months (from the date of first being paid for the services) will be exempt from payroll tax.
A continuous period will not be broken if the employee returns to Australia for a holiday or performs services exclusively related to the overseas assignment for a period of less than one month.
For service performed offshore and not in an Australian jurisdiction (e.g oil rig employees) the wages will be subject to payroll tax in Victoria if the salary and wages are paid in Victoria.
Wages paid in foreign currency will need to be converted to AUD based on the Reserve Bank of Australia's daily rate published (on the date of payment) or the average yearly rate published by the Australian Taxation Office.
Other nexus provisions
- Wages paid in a particular month are deemed to relate to services performed in that month. The most common example would be a bonus paid in relation to a financial year, the bonus will be subject to payroll tax in the month it was physically paid.
- If wages are paid in a different month from when they were payable, the liability arises in the earlier of the two months e.g. an employee performed services in Victoria in June and then performed services in NSW in August, if the employee was paid in August for both June and August the June wages would be subject to payroll tax in the earlier month i.e. June.
- Where no services are performed in the month in which wages are paid, the liability for payroll tax is determined by ascertaining where the services were provided for that employer during the most recent prior month.
- Grants of shares and options to employees are also subject to payroll tax. If all the work was performed in Victoria in the month in which the relevant date (i.e. grant or vesting date) falls, then the shares or options are taxable in Victoria. If the relevant rates fall within a month where the employee performed services in more than one Australian or overseas jurisdiction, then the four tiers will be applied to determine which jurisdiction the wages are subject to payroll tax in.
If the shares or options to buy shares are for a Victorian company then the wages are taken to be paid in Victoria. If the share or option is not in a Victorian company, the relevant wages are taken to be paid outside Victoria.
The Revenue Ruling PTA.039 Nexus Provisions has a detailed flow chart of how to determine taxable wages in Victoria for payroll tax purposes. This can be found at the following link:
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