Jonathan Casson
The legislation in relation to payroll tax changed in 2007 and the Payroll Tax Act 2007 (the “Act”) was enacted.
The Act replaced the Payroll Tax Act 1971.
Payroll Tax Exemption
Section 48 of the Act provides, essentially, that certain wages are exempt from payroll tax if they are paid or payable by:
- a religious institution; or
- a public benevolent institution; or
- a non-profit organisation having as its sole or dominant purpose a charitable, benevolent, philanthropic, or patriotic purpose;
and, provided the wages are paid or payable:
- for a work of a kind ordinarily performed in connection with the religious, charitable, benevolent, philanthropic or patriotic purpose of the institution or body; and
- to a person engaged exclusively in that kind of work.
The Office of State Revenue (“OSR”) has issued Revenue Ruling PTA009 giving its interpretation of the types of activities in respect of which wages are exempt from payroll tax.
Characterisation of Arrangement
The Act allows for, essentially, three (3) arrangements whereby the wages of relevant employees of an organisation that falls within Section 48 of the Act may be exempt from payroll tax. Consideration should be given to which relationship is applicable in any given circumstance.
They are:
- Employment Agency (exemption is under Section 40 of the Act);
- Principal Contractor/Subcontractor (exemption is under Section 17 of Schedule 2 to the Act);
- Long term labour supply (exemption is under Section 32 of the Act).
OSR
The OSR is the administrative body in relation to exemption from the payment of payroll tax.
Currently, the OSR seems to have the expectation that charities (for example, organisations, bodies, associations) that may fall within the relevant exemptions in the Act, should to apply to the OSR for exemption. There is no provision within the Act to support this view, although Section 37 of the Tax Administration Act 1996 which provides the Chief Commissioner may give approval for a special arrangement for the payment of tax, which may include an exemption for a taxpayer, may be the basis for the Commissioner's attitude.
If an organisation which believes it is entitled to the exemption decides to apply to the OSR for exemption from payroll tax, the OSR may grant the exemption and that grant may be given retrospectively.
Where an organisation has paid payroll tax in the past, and is subsequently exempted, and that exemption has been given retrospectively, then the organisation is entitled to a refund of all relevant payroll tax paid dating back 5 years.
Once the exemption is granted by the OSR, it is reviewed every 3 years and there are obligations on the organisation to notify the OSR of any changes that may affect its exempt status at any time. The recent case of Northern NSW Football Ltd v Commissioner of State Revenue [2009] NSW ADT 113 (the “Northern NSW Football Case”) addressed this very point.
The Northern NSW Football Case
In this case:
- An application was made by Northern NSW Football Ltd to the OSR for exemption from payroll tax.
- Exemption was granted on the basis that Northern NSW Football Ltd was a “non-profit organisation…having as one its objects a charitable, benevolent, philanthropic or patriotic purpose.”
- Following exemption being granted, and at the end of the 3 year period, Northern NSW Football Ltd informed the OSR of a change of its corporate name and requested an extension of the exemption.
- The OSR withdrew the exemption on the basis that Northern NSW Football Ltd was “not a charitable organisation…[its main objects] are to facilitate the promotion of soccer in northern New South Wales….To be considered as charitable (its sporting purposes and activities) would have to be merely incidental to a purpose that is otherwise charitable…sporting associations, whose activities might be considered charitable would be those that have training and education as their main objects…”. It pointed to the association's annual report to justify its position.
- The exemption was later reviewed by the Administrative Decisions Tribunal and was reinstated on the basis that Northern NSW Football Ltd was in fact charitable because its activities were in fact beneficial to the community.
- There are a number of lessons to be taken from this case, including:
- the OSR's attitude to what constitutes a charity, and the right to exemption to payroll tax is not necessarily the same as the ATO's attitude to exemption to income tax and FBT;
- whether an organisation is successful in claiming exemption depends not only on its Constitution and its activities, but also how the activities are described in its public documents;
- if an exemption is given by the Payroll Tax Commissioner, it might be later withdrawn even if the activities upon which endorsement was originally given have not changed.
Jonathan Casson is a partner at Holman Webb Lawyers and can be contacted at jonathan.casson@holmanwebb.com.au
This article first appeared in associations forum news, edition 22 – October 2009