NSW Payroll Tax compliance activities

Following a benign period of enforcement programs during the COVID period and with the need for all levels of Government to raise revenue, it has been expected that the ATO and State Revenue Offices would commence ramping up compliance initiatives. Ian Matthews I Director I Sydney Taxation

In this article, we explore some recent compliance initiatives of Revenue NSW in relation to payroll tax compliance.

Under information sharing arrangements between the ATO and State Revenue Authorities, the use of data matching and analytical tools has meant that all State Revenue Authorities have become proficient in detecting potential non-compliance to payroll tax obligations, without needing to contact taxpayers direct to request data.

We have seen two recent Revenue NSW Payroll Tax Upfront Compliance investigation programs being conducted via email or letter. These investigations are based on data matching documents lodged with the ATO and compared to information lodged in NSW annual payroll tax reconciliations.

If that data does not match, taxpayers might expect to receive investigation correspondence in relation to:

1. The value of shares and option granted and declared as wages in annual payroll tax reconciliations when compared to Employee Share Scheme statements lodged with the ATO.
2. Fringe benefits type 1 and type 2 aggregate amounts, multiplied by the type 2 gross-up rate, declared as wages in annual payroll tax reconciliations, when compared to the FBT returns lodged with the ATO.

Revenue NSW might also be expected to use data matching techniques in analysing amounts declared for salary and wages, including bonuses, commissions, and Director fees, amongst other salary components declared through single touch payroll.

These issues can be largely avoided by taxpayers ensuring that amounts declared in annual payroll tax reconciliations are reconciled to specific amounts reported to the ATO. For amounts like superannuation, reconciliation is always advised to ensure alignment with ledger accounts or payments made through clearing houses.

The issue for taxpayers, along with having to fund the additional payment of primary tax payable for the current and prior four payroll tax years, is the penalty regime on detected underpayments which commences with a 25% flat rate penalty found during an investigation. This might then be increased to 50% or 75% depending on culpability factors.

We have also recently become aware of system generated penalties of 25% of the tax payable for late lodgement and payment of monthly payroll tax returns. This has been applied even when the lodgement and payment is only a few days late, but where Revenue NSW has issued an estimated assessment of the tax payable within that few days.

This flat rate penalty for late lodgement and payment is ‘low hanging fruit’ for Revenue NSW and is automated and system generated, so involves no real resource cost for Revenue NSW to issue the estimated assessments and impose the 25% flat rate penalty. For example, where the estimated assessment of monthly payroll tax is $50,000, the 25% flat rate penalty added would be $12,500. These penalties can be avoided by ensuring the payroll tax obligations are met by the due dates.

Talk to the team about what your payroll tax obligations may be and avoid the aforementioned fees.