Amendments made to the Pay-roll Tax Act 1971 (“the Pay-roll Tax Act”) by the Pay-roll Tax(Harmonisation) Amendment Act 2008 (“the Harmonisation Act”) harmonised Queensland’s pay-roll tax arrangements with those of New South Wales and Victoria with effect from 1 July 2008. In particular, the amendments included the adoption of provisions which impose pay-roll tax on payments made by employers to certain types of contractors (“the relevant contractor provisions”).

The changes have been designed to capture all payments to contractors, subject to a range of exemptions intended to exclude genuine independent contractors.

The new contractor provisions identify ‘relevant contracts’ that are included for the purposes of calculating and the payment of pay-roll tax. (see below)

When does pay-roll tax apply?

Companies have an obligation to pay pay-roll tax when their ‘taxable wages” exceed $1 million. The threshold amount of $1 million means that there is no pay-roll tax obligation for employers with a “taxable wages” total of less than $1 million. Companies caught by these changes with existing contracts are encouraged to contact their Accountants to determine their legal rights under those contracts. (I doubt you can recover payroll tax unless there is an express provision to pick up such charges in an existing contract – need to check with the lawyer’s on this one.)

Who is likely to be affected by these changes?

A company will most likely be affected by these changes if they regularly engage individuals on labour-only or majority labour-only contracts on hourly, daily or meterage rates.

For example, Contractors engaging 10-13 employees/workers and self employed sub-contractors for majority labour only on a daily, square meterage or hourly rate, whether engaged as a Self Employed, Husband & Wife Partnership or Pty Ltd Company, are likely to incur pay-roll tax obligations.

Under certain circumstances, payments to contractors will be taxable as a ‘relevant contract’. Generally, those circumstances are where the contractor provides essentially labour services, and works exclusively or primarily for one or two principals. The term ‘contractors’ is generic and includes all subcontractors, consultants and outworkers.

Are there any contracts that are not included?

The changes also identify that various contracts are not “relevant contracts” for pay-roll tax purposes. These include a contract of service and contracts under which a person, in the course of a business carried on by that person, is supplied with services meeting any of the below criteria.

When will contract payments NOT be included as part of taxable wages?

All contracts may be liable for pay-roll tax unless the contract can be considered exempt. A contract may be exempt if:

A. The services are incidental to the supply or use of goods by the person who is supplying the services.

B. The services are of a kind not ordinarily required in the course of the person’s business and which are provided by persons who are genuinely supplying services to the public generally.

C. The services are of a kind ordinarily required in the course of the person’s business but are required for less than 180 days in a financial year.

D. The services are provided by a person for less than 90 days in a financial year.

E. None of B,C&D criteria are met, but the Commissioner of State Revenue is satisfied that the services are supplied by a person who ordinarily supplied services of that kind to the public generally in the financial year in respect of which a periodic, annual or final liability is being assessed.

F. A contractor who supplies services to a person, in the course of a business carried on by that person, and uses one or more additional persons to perform the work to which the services relate.

G. Under the contract, the contractor conveys goods in a vehicle they provide.

H. Under the contract, the contractor procures persons for insurance coverage.

I. Under the contract, the contractor sells goods door to door solely for domestic purposes.