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Payroll Tax Grouping Provisions

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Grouping provisions under the Payroll Taxation Act 2007 (“the Act”) are often misunderstood. Some common misconceptions are that the grouping provisions only apply to employers as they relate to payroll tax liability or that they only apply to those entities which do business together.

In fact, the grouping provisions under the Act are uncomfortably broad and consequences can be significant. Being grouped under the Act means every member becomes jointly and severally liable for the payroll tax liability of another member of the group. Further, liability is imposed in a passive manner and is not dependent on whether the Chief Commissioner of State Revenue issues an assessment. However, once an assessment is issued, then the member is met with a ‘pay first, argue later’ regime, which can have severe cashflow consequences.

In this article, we discuss broadly how grouping operates under the Act. The examples used are not intended to be exhaustive but illustrate how grouping may occur in particular circumstances.

To understand the grouping provisions, it is useful to first understand the legislative purpose of the provisions. Firstly, the provisions were introduced to prevent employers from splitting their businesses to take advantage of the threshold amounts. Secondly, making each member liable (whether employer or not) aides in the recovery of payroll tax.

Under the Act, there are 5 ways in which entities can be grouped and these include:

  1. related body corporates;
  2. entities using common employees;
  3. entities with common control;
  4. where (direct, indirect or aggregate) controlling interest can be traced in corporations; and,
  5. smaller groups subsumed into a larger group.

Related Body Corporates

The related body corporate definition is the same as that under the Corporations Act 2001 and generally applies in relation to holding/subsidiary companies.

Entities using common employees

Use of common employees in some respects may appear obvious but it can also produce surprising outcomes. The below examples demonstrate the 3 ways in which the use of common employees can group entities:

  1. if an employee of A performs duties for or in connection with one or more businesses carried on by A and B, then A and B constitute a group;
  2. if an employee of A is employed solely or mainly to perform duties for or in connection with one or more businesses carried on by B, then A and B constitute a group;
  3. if an employee of A performs duties for or in connection with one or more businesses carried on by B, being duties performed in connection with or in the fulfillment of A’s obligation to under an agreement, arrangement or undertaking for provision of services to B, then A and B constitute a group.

Under the third example, a courier business providing delivery services using its employees (in accordance with its agreement) to its client, may be grouped with the client!

Common control

Where a person or group of persons have a controlling interest in 2 or more businesses, then the persons carrying those businesses are grouped.

The below summarises which person(s) have a controlling interest in a business carried on by different entities:

Business carried on by   (or under) Person or set of persons that have a controlling interest
1 Sole Trader Owner
2 Partnership Person or set of persons who owns more than 50% of the capital of the partnership or is entitled to more than 50% of the profit of the partnership.
3 Company Director or set of directors who are entitled to exercise more than 50% of the voting power at the meeting of directors.

Person or set of persons who can exercise (directly or indirectly) more than 50% of the voting power attached to shares or class of shares issued by the Company.

4 Body corporate or unincorporated entity Person or set of persons who constitute more than 50% of the board of management
5 Trust The person (or set of persons) is a beneficiary in respect of more than 50% of the value of interests in the trust

A beneficiary under a discretionary trust is deemed, for the purpose of this grouping, to be a beneficiary with more than 50% interest, thereby making the beneficiary have a controlling interest.

Example: Roy and Ari are both beneficiaries under a discretionary trust. Both Roy and Ari will be deemed to have a controlling interest in the discretionary trust. Roy is also a sole director of Roy Constructions Pty Ltd, therefore has controlling interest in it. As Roy has a controlling interest in the discretionary trust and Roy Constructions, both are grouped.

Tracing of Interests in Corporations

An entity and a corporation form a group if the entity has a controlling interest in the corporation.

The term entity includes “a person” which is not surprising but also includes 2 or more persons who are “associated persons”. The term “associated persons” is deceptively wide and includes related persons such as spouse and domestic partner, parent and child, and siblings.

Controlling interest in a corporation includes:

  1. where an entity has direct or indirect interest in the corporation’s shares of more than 50%; or
  2. where an entity has an aggregate interest in the corporation’s shares of more than 50%.

An entity has a direct interest if it has voting power attached to the shares in the corporation. For example, Smith owns 70% of the shares in A J Smith Pty Ltd and therefore has a direct interest of 70%.

Indirect interest is where an entity has a direct interest in another entity that has a direct interest in a corporation. For example, if A J Smith Pty Ltd has a subsidiary company, A J Smith (Junior) Pty Ltd in which it owns all the shares, then Smith has an indirect interest in A J Smith (Junior) Pty Ltd over 70% of its shares.

Aggregate interest is a combination of direct and indirect interest.

Smaller groups subsumed into the larger

Where two groups have a common member, all members of the two groups together constitute a large group. Grouping on this basis operates even if there is no direct connection between the other members of the group.


The operation of the grouping provisions can produce unexpected outcomes and therefore the Act provides an opportunity for a group member to apply to the Chief Commissioner to de-group if it can show that it carries on its business independently and is not connected with the carrying of business by any other member of the group. However, a de-grouping application is not available to related body corporates as defined under the Corporations Act 2001.

Revenue Ruling PTA 031 provides guidance as to how the Chief Commissioner deals with de-grouping applications.

It is important to note that a de-grouping application will assume that a member is grouped to start with. Accordingly, it is useful to carefully consider the basis of grouping and whether it can be challenged, before commencing with the de-grouping application.


When dealing with an assessment based on grouping, the following matters should be considered:

  • carefully understand the basis of grouping as asserted and consider whether it can be challenged;
  • check that the calculation and threshold applied is correct. Often, the assessment following an audit also includes other sources of liability such as liability under contractor provisions under Part 3 division 7 of the Act or employment agency provisions under Part 3 division 8 of the Act; and,
  • consider whether an application can be made to de-group. However, it is important to be aware of precisely what is meant by the “group” as when applying to de-group the member will be expected to show that it operates independently of other members of the group.

Where assessments have not been issued, the (potential) members need to be aware of their liability and consider whether a de-grouping application is appropriate. It is important that businesses concerned about grouping take appropriate advice early rather than wait for enforcement action to commence. If you need assistance or advice relating to the Payroll Tax Grouping Provisions and how it applies to you and your business, please do not hesitate to get in touch with Coleman Greig’s Litigation & Dispute Resolution team.


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