Payroll Tax – Employment Agent Provisions – Shifting the Goal Posts

Probably the most contentious issue that has arisen in OSR payroll tax audits in the last 3 years is the OSR’s broadening of its interpretation of the Employment Agent (“EA”) provisions in the payroll tax legislation. Numerous taxpayers who for years were determining their liability on contractor payments under the payroll tax Contractor Provisions (which has numerous exemptions) were suddenly assessed by OSR auditors under the Employment Agent Provisions (which has few exclusions). A common example is where a business employs subcontractors to assist the business to deliver a service to a customer (e.g., a cleaning company using subcontractors to provide cleaning services to its customers).

In general terms, the contractor provisions are intended to tax payments by businesses to contractors who provide their services exclusively or mainly to that business. Consequently, the legislation has a large number of exclusions to ensure that the majority of contractor payments are exempt for most businesses.

The EA provisions were originally introduced to create certainty as to who had liability for payroll tax in a typical three-party EA arrangement (worker-agent-client). Under these provisions, the EA, rather than the client, has the liability. Until three years ago the OSR’s policy was to only apply these provisions to traditional employment agents.

However, because the wording of the EA provisions is so broad (“a contract .. under which a person .. procures the services of another person .. for a client”), the OSR took the position three years ago that it could use the EA provisions to override the contract provisions, which in some instances increased the liability of the taxpayer tenfold. As most payroll tax audits go back at least four years, the audit adjustments have been very substantial.

There are a number of legal challenges to the OSR’s views currently proceeding through the Supreme Court and NCAT. The most recent Supreme Court decision reined in the OSR’s position somewhat but further decisions are awaited before any final position can be settled.

Action Point: We have represented a number of businesses in disputes with the OSR on the issue of whether the EA provisions or contractor provisions are applicable to their circumstances. Please contact Shane Peters if you would like further information about this issue or require assistance in relation to a client with a current dispute with the OSR.

GST – Do you have clients who sell into Australia?

The biggest change to GST since its inception in the year 2000 takes effect from 1 July 2017. While the deferral of GST on low-value imports is making all the political noise, the commencement of the so-called “Netflix tax” next month is likely to affect more transactions and raise more GST in the long term.

GST will apply from 1 July 2017 on the supply by non-residents of digital products and intangibles to Australian consumers. The most obvious transactions to be taxed are the downloading of movies, music, apps, games and e-books. What is not as well known is that the new tax can also apply to professional, consulting and other services. The new tax will only apply when Australian individuals or non-GST registered organisations acquire the digital products and intangibles. While some non-resident suppliers will be below the GST registration threshold and not required to charge GST, we understand that the Government is expecting to collect GST on more than 80% of the targeted supplies.

Action Point: Accounting, legal and other business professionals are encouraged to consider any of your connections which may be affected by this change. These include Australian and non-resident developers of digital products and creative content, resident clients who supply into Australia via a non-resident entity and venture capitalists or investors in non-resident entities and R&D. Others who may need to know about the changes include non-resident affiliates of your firm and even any non-resident client. After all, that non-resident client of yours may have generated the capital to buy their Australian investment property from a business supplying digital products worldwide. Please contact Steve Baxter if you would like to receive before and after charts displaying the changes and if you would like to know what matters need to be discussed with your clients.

R&D Incentives – Claims under Greater Scrutiny

Two taxpayer alerts have recently been co-issued by AusIndustry and the Tax Office concerning R&D claims in specific industries. These are software development and building & construction. There are concerns that many projects in these sectors may not satisfy the eligibility criteria and expenditure claimed is not directly related and claimable.

Claims in these sectors may be subject to much greater scrutiny. There are many concerns raised in the taxpayer alerts and you can contact us if you have clients making claims in these sectors to ensure that they are compliant.

Action Point: R&D claims relating to building and construction should be thoroughly reviewed to ensure that they satisfy all eligibility criteria and expenditure is directly related and claimable. You can contact us to conduct this review before these claims are lodged. Contact John Walden for further information.

Wine Equalisation Tax (WET) – A Sobering Thought!

WET is a sizeable impost of 29 percent of a wholesale price. Notwithstanding the Wine Producer Rebate, there are still some WET traps to navigate, particularly for imported wine. The WET legislation sets out the “Assessable Dealings Table” and the “Normal taxable value” required.

The WET Table refers to Part A – Australia Wine and Part B – Imported Wine. There are differing taxable value methods for both wines. The half retail price method allows for calculation of a notional wholesale selling price for a retail sale of Australian grape wine.

A taxable dealing with wine that is not a retail sale of wine requires that the notional wholesale selling price is the price (excluding wine tax and GST) for which you could reasonably have been expected to sell the wine by wholesale under an arm’s length transaction.

Therefore, a sale between an importer-wholesaler of wine to an associated retail entity cannot use the half retail price (including WET and GST) method as it is a wholesale transaction and not a retail sale.

To ensure that no under or overpayments of WET occur, taxpayers need to review the method of taxable value calculations periodically and under guidance. Action Point: Contact Steve Callanan for further information.