In detail
When does a payroll tax liability arise for wage underpayments?
Whilst Victoria has announced a compliance focus on wage underpayments, New South Wales (NSW) has previously provided guidance on the application of payroll tax in this context.
Commissioner's practice note: CPN 021 Employer Superannuation Contributions - Payroll Tax Act 2007 including Division 3 of Part 3 (CPN 021) predominantly focuses on the application of payroll tax to superannuation remediation amounts, however the guidance includes commentary on the taxing point for wage underpayments.
Specifically, the guidance provides that “underpaid wages are taxable in the financial year in which the wages should have been paid” - i.e. the taxing point is not the financial year of remediation, but rather in the year when the underpayment entitlement arose. This necessitates a voluntary disclosure to reassess historical periods, with the ancillary overlay of penalties and interest (as well as the administrative burden of calculating historical amendments).
Broadly, the technical background of the NSW guidance is that, under payroll tax legislation, payroll tax is due based on when wages are “paid or payable”; further, the Nexus Provisions include an outline that “(i)f wages are paid in a different month from ... payable ... whether the wages are taxable in (NSW) is to be determined by reference to the earlier of the relevant months”.
In this regard, while the above legislative provisions are harmonised across each of the Australian jurisdictions, other SROs, in our experience, have not consistently adopted this treatment. That is, in some instances the regulator has accepted including remediation payments in the year the remedy occurs (i.e. when paid).
In the absence of guidance by other SROs, this has created uncertainty for employers undergoing wage remediation programs. The VSRO compliance focus, and recommendation of voluntary disclosure, suggests historical amendments are required (i.e. in alignment with the NSW position); however, this is not explicitly stated within any Victorian publicised guidance.