Payroll Tax Grouping Provisions

Payroll Tax Grouping Across Different States

Payroll Tax Grouping Provisions


A recent decision made by the New South Wales court of Appeal has again raised the profile of the grouping provisions for Payroll Tax purposes. Specifically, the case concerned revolved around the interaction of grouping provisions and companies or employing entities that may on the face of it be unconnected.

For NSW Payroll tax purposes a group can broadly be defined in the following ways:

  • Related companies - a holding company and a subsidiary or both subsidiaries of the same holding company. This includes where the holding company is overseas.
  • Use of common employees – businesses are grouped when an agreement for services between two or more businesses results in the employees of one business performing duties as an employee for another business.  This is subject to certain exceptions and businesses that would otherwise inadvertently be caught can apply for an exclusion from the group.
  • Commonly controlled businesses - businesses controlled by the same person or persons are grouped. All persons common to two businesses will have their interests combined. A person includes a natural person, trustee or corporate entity.

A controlling interest can occur when a person(s) together have a controlling interest of more than 50% across different entities.  A simple example of how the common controlled businesses grouping works is as follows:

Mr X and Mr Y are the only directors of A Pty Ltd. Mr X and Mr Y are both beneficiaries of the D discretionary trust. As A Pty Ltd and the D discretionary trust are commonly controlled, they are grouped.

Whilst the control of an entity is often easily identified, an often-overlooked issue involves who controls a discretionary trust. Under the Payroll Tax law a deeming provision applies such that beneficiaries under the trust are deemed to have a controlling interest in the trust.

As such, if two siblings each have a family trust and each of which operate separate businesses, then the two businesses could be grouped if the discretionary trusts class of beneficiaries are defined to include siblings, as is often the case. The grouping would apply even if the siblings never receive a distribution from the other trust.

In Chief Commissioner of State Revenue (NSW) v Smeaton Grange Holdings Pty Ltd [2017] NSWCA 184  t\he NSW Office of State Revenue issued  assessments to trustees of two separate trusts when the company controlled by a beneficiary of the trusts went into liquidation.

Widely cast beneficiary classes are common place and as a result often include beneficiaries who never benefit from the trust, however, this can in certain circumstances create issues.  Identifying grouping issues can be further complicated when family members or business partners operate multiple businesses across various advisers.

Should you have any questions on how payroll tax grouping affects you or require additional information please contact your relevant ESV engagement partner on 02 9283 1666.