July 17, 2024 
In the ever-evolving realm of business operations, companies often overlook a critical aspect that can significantly impact their financial health: the correct grouping of business implications.
One common trap is the failure to understand and implement PTX grouping, particularly in the context of payroll tax. In this article, we will explore the nuances of PTX grouping and highlight how businesses can avoid costly mistakes in this critical area.
Understanding PTX Grouping
PTX grouping is a process that involves grouping businesses or entities together for payroll tax purposes. Grouping can occur regardless of where a business operates in New South Wales (NSW) or interstate.
Grouping has important implications for calculating threshold entitlements because where a group exists:
- the gross wages of all group members must be added together, and a single threshold deduction applies to the group
- the threshold entitlement is based on the proportion of NSW wages against total Australian wages, and
- every member of the group is liable for any unpaid payroll tax of any other group members.
Where a business is a member of more than one group, all businesses in each group are subsumed into a single payroll tax group.
Criteria for Forming Groups in Payroll Tax
A payroll tax grouping can be formed through:
1. Related Corporations
This category encompasses a holding company and its subsidiaries, as well as subsidiaries sharing the same holding company. Businesses falling under these relations are grouped together for payroll tax considerations.
In this structure:
X holds a controlling interest in Y and Z.
Y further holds a controlling interest in P and Q.
The entire group is linked through X, making it the ultimate holding company. This structure ensures that all companies are part of a single group for the purposes of PTX.
2. Common Employees
When employees are utilised in more than one business, these businesses are grouped together. This emphasises the importance of recognising shared human resources across entities.
3. Common Control
If an individual or entity has a controlling interest exceeding 50% in two or more businesses, these businesses are grouped. Common control is a crucial factor in determining PTX grouping.
Example
Person A holds 30% of the shares in Apple Pty Ltd and is one of two directors of Banana Pty Ltd. Person B holds 45% of the shares in Apple Pty Ltd and is the other director of Banana Pty Ltd.
Together as a set of persons A and B have a controlling interest in both Apple Pty Ltd (controlling 75% of the voting power attached to the share capital) and Banana Pty Ltd (controlling 100% of the voting power at directors’ meetings). The businesses are grouped for payroll tax purposes.
4. Tracing of Interest
An entity and a corporation are grouped if the entity holds a direct, indirect, or aggregate interest of more than 50% in that corporation. This criterion underscores the significance of ownership structures in PTX grouping.
In this instance, Apple & Banana are grouped with Fruit under the tracing of interest provisions, because Fruit has an interest greater than 50% in both businesses.
To illustrate, imagine Fruit’s ownership of Apple is 90%.
Apple’s ownership of Apple Pie is 70%.
Apple Pie’s ownership of Banana Bread is 60%.
90 x 70 x 60 = 37.8%.
Fruit’s ownership of Banana is 40%.
Banana’s owndership of Banana Bread is 40%.
40 x 40 = 16%
37.8 + 16 = 53.8%
Therefore, Fruit has an aggregate interest in Banana Bread of 53.8% (indirect).
5. Merged Groups (Subsuming)
In cases where a person is a member of two or more groups, the members of all these groups are considered one large group for payroll tax purposes. This ensures comprehensive coverage and compliance in payroll tax management.
It’s important to note that the term ‘Person’ in this context includes individuals, sets of persons, corporations, all bodies and associations (corporate, incorporated and unincorporated), and partnerships.
In this example, company Apple Pty Ltd is the holding company of Apple 1 & Apple 2 (Group 1 & Group 2). Apple Pty Ltd is common to Groups 1 & 2, and as such a payroll tax group is formed by Apple Pty Ltd (Parent), Apple 1 & Apple 2 (Subsidiaries).
The directors of Apple 2 Pty Ltd are also the directors of Banana Pty Ltd (Group 3). The shareholders of Apple 2 Pty Ltd are also the shareholders of Orange Pty Ltd (Group 4). Apple 2 Pty Ltd is common to Groups 3 & 4, as such, a payroll tax group is formed by Apple 2 Pty Ltd, Orange Ptd Ltd & Banana Pty Ltd.
Apple 2 Pty Ltd is commong to BOTH groups. Therefore, subsuming apples and so a group consisting of all 5 businesses (Apple Pty Ltd, Apple 1, Apple 2, Banana & Orange) is formed.
Claiming the Threshold
Only one member of a payroll tax group can claim the tax-free threshold. The threshold can be claimed either as the:
- Designated Group Employer (DGE), or
- Single Lodger (SL).
The designation of a Designated Group Employer (DGE) is a pivotal aspect of this process, as it plays a central role in consolidating the wages of all group members, both in-state and interstate. It’s essential to note that there can be only one DGE per jurisdiction.
SL group is mandatory if none of the group members by themselves pay gross taxable wages that exceed the threshold.
It is important to determine a group’s total Australian wages because it will affect the threshold that the group is entitled to claim in NSW and in other states/territories.
When group members have interstate wages, the group’s tax-free threshold will be reduced, using the proportion of total Australian wages that consist of NSW wages.
For example, if total NSW wages represent 50% of total Australian wages, the NSW threshold is reduced to 50% of the full monthly and annual thresholds. Read the interstate wages page for more details on how to calculate your threshold.
Avoiding Costly Mistakes
Businesses can mitigate the risk of errors in PTX grouping by adopting a proactive approach. Regular audits of business relationships, ownership structures, and employee allocations can help identify potential pitfalls.
If you are unaware that your company is part of a group, your company may face penalties and increased interest rates on the due amount for falsely claiming thresholds and consequently paying less tax.
Seeking professional advice, especially when undergoing mergers or changes in corporate structures, is crucial to ensuring accurate PTX grouping and compliance with payroll tax regulations.
In the intricate world of payroll tax management, the correct grouping of business implications is a cornerstone for financial efficiency. Recognising the criteria for PTX grouping and understanding the role of the Designated Group Employer are vital steps in avoiding costly mistakes.
By staying informed and proactive, businesses can navigate the complexities of PTX grouping and contribute to a seamless and compliant payroll tax process.
Feeling overwhelmed by PTX Grouping and looking for some assistance. Look no further. Our team of local specialists are here to help take the complexities out of Australian payroll. Get in touch today!
