Interaction of superannuation guarantee and additional payroll tax liability

The NSW State Revenue office has released a Commissioner’s Practice Note: CPN 021 on the application of payroll tax to employer superannuation contributions. The aim of the Commissioner’s Practice Note is to assist taxpayers in determining when superannuation payments are included in taxable wages calculations to determine payroll tax liability. 

Employer superannuation contributions that are paid or payable in relation to employees and contractors under a relevant contract are considered wages and included in the calculation for determining your payroll tax liability. The contributions included are those that are paid or payable (under Division 3 of Part 3 of the Payroll Tax Act 2007):

• To a superannuation fund of the employee or contractor
• To a provident or retirement fund or scheme
• As superannuation guarantee charge, as required by the Superannuation Guarantee Charge Act 1992
• Salary sacrifice arrangements
• Lump sums paid on behalf of a class of employees
• As any form of superannuation
• To contractors under a relevant contract (per s32 of the Payroll Tax Act 2007)

To navigate this issue, it is important to distinguish payments that form part of employee remuneration from contributions that are made by or on behalf of an employee from their after-tax income, as the latter are not included as extra amounts of taxable wages. 

Deemed to be wages

Employer superannuation contributions are generally calculated by reference to wages paid to the employee (with the exception of salary packing arrangements and lump sums). Superannuation guarantee amounts are required to be paid quarterly to an employee's specified superannuation fund. 

As a result, for the purposes of payroll tax, the contributions are deemed to be wages when they are either paid or become payable by:

• A third party for the benefit of an employee (for example, if you use a payroll company that arranges payment to employees)
• For the benefit of a person taken to be an employee under a relevant contract (contractors that are providing services ordinarily required by the taxpayer)
• By an employment agent for the benefit of a person taken to be an employee under an employment agency contract 
• Payments made to directors of a company including board members

What happen where you’ve underpaid wages?

If you are liable for superannuation guarantee charge (SGC) as a result of underpayment of wages to your employees, this amount will be included as ‘wages’ for payroll tax. In some circumstances, there may be a delay in when the SGC is calculated and assessed.

However, despite the ‘deeming’ of wages in relation to when a payment first become paid or payable, SGC payments are included in your payroll tax calculation in the period that you receive a SGC assessment. Where the ATO issues a default SGC assessment, the SGC is included in your taxable wages calculation on the date the default assessment was made. 

The first example provided in the Commissioner Practice Note highlights the ‘time delay’ in SGC assessments and the resulting impact on a taxpayer’s payroll tax return:

In March 2021 ABC discovers that it underpaid wages to a worker in the 2019-20 financial year because it failed to pay the correct hourly rate under the relevant award. ABC pays the underpaid wages to the employee on 15 April 2021.

The additional payment of wages increases the “ordinary time earnings” of the employee. Therefore, ABC also makes an additional payment of 9.5% of the under-paid wages to the employee’s superannuation fund on 15 April 2021, as required under the SGA Act.

ABC is required to include the additional payment of wages in an amended payroll tax return for the 2019-20 financial year, but the payment of the additional superannuation contribution must be included in its 2020-21 payroll tax return.

Where an SGC statement is amended, the increase in SGC is deemed to be payable at the date of the original assessment.

The SGC amount needs to be included in the taxpayer payroll tax return (either monthly or financial year) regardless of whether the amount has been paid to the ATO. 

The third example in the Commissioner’s Practice Note shows where the ATO has amended an SGC statement – and interest and penalty tax may be imposed: 

ABC lodges an SG Statement and pays an SGC on 15 February 2020. The ATO conducts an audit and on 1 Nov 2020 reassesses ABC for an increased amount of SGC. Under s.37(7) of the SGA Act the additional SGC was payable on 15 February 2020.

ABC must return the shortfall for the 2019-20 payroll tax year, and interest and penalty tax under the TAA may be imposed for late payment of the additional SGC.

How can Tax Controversy Partners help you?

Firstly, it is important that you carefully consider your position as early as possible if you think you have missed a superannuation payment, calculated your employee superannuation contributions incorrectly or are concerned about the complexity of determining resulting changes to your payroll tax liability. We are able to assist you in preparing your SGC statements, engaging with the ATO during a Superannuation Guarantee audit by the ATO, or an audit by the State Revenue Office where you are concerned about your payroll tax calculations.  

Obtaining legal advice before it is too late is important, as expert tax lawyers we can provide you with detailed advice on your circumstances, guide you through making the best choices for you and help you to manage any engagement with the ATO and State or Territory Revenue Offices. 

At Tax Controversy Partners, our experienced lawyers can represent your best interests in providing advice that is compliant with the current case law and based on understanding likely ATO/State and Territory Revenue Office actions. 

Please contact us to help using our online contact form, via email at admin@taxcontroverypartners.com.au or by phone at 02 8513 3813.