Member Q&A – Employees working from interstate home

Question

Our organisation conducts a business activity in an entity for which we are required to pay payroll tax in Victoria. This business activity is conducted from our business premises in Victoria near the NSW border.  A number of our employees live in NSW. Some of these employees work from home two or three days per week, with the other days worked from our business premises. The other NSW employees work solely in our business premises in Victoria.

In which state are we required to pay  payroll tax for these employees’ wages?

Answer

A payroll tax liability will typically arise in a state or territory where:

• an employer’s total Australian wages exceeds that particular state or territories’ tax-free threshold; and
• the employer has paid wages that are taxable in that state or territory.

To determine in which state or territory an employee’s wages for a particular month are taxable, an employer needs to apply the ‘nexus’ provisions.

The first step in applying the nexus provisions is determining where an employee performed their work during that month.

If the employee performed their work for that month wholly in one state or territory, wages paid to that employee in that month will taxable in that state or territory.

Where an employee performs their work for a particular month in more than one state or territory, wages paid to that employee in that month are taxable in the state or territory as determined by the application of the four tiered ‘nexus’ test outlined below.

These tests must be applied sequentially.

Test 1 – Employee’s principal place of residence (PPR)

The PPR test deems the employee’s wages to be taxable in the state or territory in which the employee’s principal place of residence is located in that month.

If an employee has more than one PPR in that month (e.g. due to moving homes), the employee’s PPR on the last day of that particular month is the one taken to be the PPR.

Test 2 – Employer’s ABN address or principal place of business

If an employee does not have a PPR in Australian during that month, their wages are taxable in the state or territory where the employer’s ABN address is located.

If the employer does not have an ABN address, or has two or more ABN addresses in different jurisdictions, the employee’s wages are taxable in the state or territory in which the employer’s principal place of business (PPB) in Australia is located.

Test 3 – Where wages are paid or payable

If an employee does not have a PPR in Australian during that month and the employer does not have an ABN address or a PPB in Australia in that same month, the employer’s wages are taxable in the state or territory where the wages are paid or payable (ie where the employee’s bank account is located).

If wages are paid or payable in a number of states or territories, the employee’s wages are taxable wages are taxable on the aggregate of the wages in the jurisdiction where the largest proportion of wages is paid.

Test 4 – Services performed mainly in the State or Territory.

If an employee does not have a PPR in Australia during that month and the employer does not have an ABN address or a PPB in Australia in that same month and wages are not paid in an Australian state or territory, the employee’s wages for a month are taxable in a particular state or territory if their work for that month was mainly performed in that state or territory. Work is considered to be mainly performed in a state or territory if the actual time worked in that state or territory is more than 50 per cent during the month.

We note that when determining which state or territory wages are taxable in, wages paid during a month are deemed to relate to the work performed in that same month e.g. if employees are paid on 1 October in respect of work performed in September, then for payroll tax purposes the wages paid on 1 October will be deemed to be paid in relation to work performed in October. Furthermore, where employees are paid multiple times during a month (e.g. on a weekly basis) the payments are aggregated before being deemed to relate to all work performed during that month. This is the case even if one or more of the payments during the month relate exclusively to work performed in a specific state or territory.

In applying the above to your circumstances:

• the wages paid to employees that solely perform work in Victoria will be taxable in Victoria;
• the wages paid to employees that work from their home during any part of the month will be taxable in NSW.

Further information on the nexus provisions is available on the relevant state revenue office websites here: VIC; NSW; QLD; TAS; SA; NT; WA; and ACT.

This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.