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Payroll tax – no need to tip...

Payroll tax – no need to tip...

James Trainor and Stacey Biggar discuss how taxpayers should handle overpayment of payroll tax and other payroll tax errors.

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Kerry Packer is said to have joked that while he accepted paying the taxes that were legally owed, he did not see the need to give the revenue authorities (or governments) a tip for the job they were doing.

Perhaps surprisingly, in our work with employers in reviewing payroll tax obligations, we have come across a number of areas where too much payroll tax has been paid due to deficiencies in internal processes.

These include:

  • fringe benefits being grossed up at the ‘Type 1’ rate
  • incorrect treatment of salary sacrifice arrangements
  • failing to take into account forfeiture of employee share scheme interests, on which payroll tax was paid at grant
  • certain parental leave payments.

In a number of cases, the fact that the items were flagged in the payroll system as “not subject to payroll tax” did not prevent the error. The reason for this was that the payroll tax reconciliations were completed using a separate software platform (often a spreadsheet) due to the need to combine payroll information with data from other sources.

Employers can generally apply for a refund of overpaid payroll tax relating to the last five completed financial years. However it is important for employers to proceed thoughtfully rather than rush to make applications to the state revenue authorities.

Where the refund amount is potentially large, it would be prudent to conduct an overall review of payroll tax compliance in order to ensure that systemic underpayments are not lurking in other areas of the employer’s remuneration and benefits framework. Where such exposures come to light, it is usually best to advise the state revenue authorities of the under- and overpayments at the same time, together with a summary of the overall review work that has been carried out. KPMG’s payroll analytics technology can assist employers in demonstrating a high level of assurance in respect of their key payroll tax components, thereby smoothing the path to obtaining refunds where net overpayments have occurred.
 

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