Tax Tip 419: Trusts and Relatives Operating Businesses - Payroll Tax Trap

There are traps all over the place in the structuring arena.

One trap is that the NSW Payroll Tax Act 2007 (NSW) allows for different trusts to be aggregated for payroll tax purposes.

See s 72

PAYROLL TAX ACT 2007 - SECT 72 Groups of commonly controlled businesses


Aggregated together the separate trusts could result in payroll tax having to be paid because the threshold is exceeded – whereas separately they would not have had to pay payroll tax.


Example

Bart is operating a real estate business through a trust and the trustee employs 10 people. Bart controls the trust.

Aunt Thelma is operating a bikini waxing salon and also employs 10 people.

Under the payroll tax laws each business is under the threshold for having to pay payroll tax.

But combined they are over the threshold.

They didn’t know about the grouping provisions, but after being audited they soon found out.

Revenue NSW aggregated the businesses together, for the purposes of calculating payroll tax.

Because of Thelma’s relationship to Bart she is a beneficiary of that trust as the wording includes all family members, whether they know it or not. The trust deed empowers the trustee to potentially give all the capital or the profits to Thelma.


This is the case even though the Trust controlled by Bart has never benefitted Thelma and never intends to – it is still a possibility.

Thelma could be excluded from benefitting from the trust, but the effect of this is only when the relevant deed excluding her is executed.

See the Commissions Practice Note CPN 010

Commissioner's practice note: Grouping of discretionary trusts - removal of a potential benefit under a discretionary trust - Payroll Tax Act 2007, ss.72(2)(g) & 72(6)

CPN 010: Grouping of discretionary trusts - removal of a potential benefit under a discretionary trust