Global Employer Services Update – January 2025

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Hello all and Happy New Year! May 2025, the Year of the Snake, bring prosperity to you all.

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Welcome to our Global Employer Services update for January 2025. In this video, we'll cover a policy announcement by the Coalition that will impact employment taxes, wage compliance headlines, and recent payroll tax cases.

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On January 19, 2025, the Coalition government announced a proposal to cut red tape for small businesses by introducing a capped tax deduction of $20,000 for business-related meal and entertainment expenses. Small businesses with a turnover of up to $10 million will be eligible. Alcohol will be excluded from the policy. The measure is expected to run for an initial two years and include an exemption from fringe benefits tax. However, practical details such as what is included and excluded still need to be developed. It is likely we will see the policy drawn out post-election should the Coalition form a government.

0:52
A recent survey conducted by Lonergan Research revealed an alarming trend: 19% of businesses suspect they have an issue with pay, while 17.7% were unsure. The survey asked payroll leaders across 533 companies with an employee base ranging from 50 to 5,000. One-third of the survey respondents confirmed there was a past payroll underpayment issue and believed it was corrected, while another 22% stated they had recently identified an issue and were in the process of correcting it. The Fair Work Ombudsman estimates Australians lose between $850 million to $1.55 billion a year in stolen wages.

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Australian businesses are starting to feel the squeeze, and increased spotlight on wage compliance risks only made more evident with the ongoing fear of jail time and multi-million dollar penalties. Under the legislation, a company can face fines of up to $8.25 million or three times the amount of the underpayment, whichever is greater. An individual can face up to 10 years in prison and fines of up to $1.65 million or three times the amount of the underpayment, whichever is greater. Civil penalties for wage underpayments will also increase by as much as 25 times for larger companies engaged in serious contraventions, with fines going up to $4.95 million. With these alarming penalties, it is imperative businesses are regularly reviewing wage compliance, not just when an issue comes to light.

2:13
Recently, a luxury island retreat was found to have underpaid staff by more than $20 million. The operators of the Hamilton Island Retreats and Leisure facilities have agreed to backpay more than $28 million to thousands of hospitality employees who were underpaid for almost a decade. The years-long investigation conducted by the Fair Work Ombudsman found the companies operating Queensland's popular Hamilton Island failed to compensate full-time staff on annual salaries appropriately. It was found their annualized salaries were insufficient to cover minimum award entitlements, including overtime penalties for their time actually worked. As of January, the payments had been made to 2,152 current and former staff, with an average payout of $8,000 per employee. While the company signed an enforceable undertaking showing a strong commitment to rectify non-compliance issues, a significant amount of reputational damage is already done.

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Moving on to payroll tax, during a recent session, the WA State Revenue Office indicated their reasons for audit or further investigation included routine verification, information from external sources and members of the public, projects targeting specific problems or issues, and industry trend analysis. It is evident the WA State Revenue Office is updating its audit target strategy, and it is recommended the procedures forming part of your annual payroll tax reconciliation are reviewed to ensure there are no tax gaps due to non-disclosure or miscalculations.

4:28
A recent VCAT case in Victoria tested whether discretion should be exercised to de-group the applicant and commonly controlled company, as well as testing the relevant contractor provisions. Value Marketing Queensland Pty Ltd engaged certain sales representatives. It was argued by the Commissioner of State Revenue in Victoria that Value Marketing Queensland Pty Ltd failed to pay payroll tax as it was grouped with Value Marketing Pty Ltd and there was no exception to the contractor provisions. Consideration was given to whether some or all of the payments made by Value Marketing Queensland Pty Ltd to the sales representative are exempt from payroll tax due to the exception relating to door-to-door sale of goods, as well as the services provided for less than 90 days in a financial year. In terms of grouping, an argument was made that Value Marketing Queensland Pty Ltd and Value Marketing Pty Ltd should not be grouped on the basis they were carrying on independently of one another and are not connected in a relevant way. Due to the mechanics of the sales representatives providing a voucher to discounted repairs or free service, it was found that the contractor exception would not apply as there is no goods being sold, rather a piece of paper with a right to the free services and discounted repairs. Due to the lack of documentation present, the 90-day exception was also excluded as it could not be evidenced or inferred the sales representatives worked less than 90 days. It was also upheld that both businesses could not be de-grouped on the basis there was one sole director who appeared due to his position to have strategic oversight and control of both businesses and they shared the one main client and used the same voucher, indicating a significant financial connection to the case at hand. Accordingly, payroll tax was assessed and held for all financial years in question, with the remaining entity and designated group employer, Value Marketing Pty Ltd, being liable to the assessment.

6:28
Similarly, the relevant contract exclusions were tested in Queensland. In November 2024, the Commissioner of State Revenue Queensland assessed payments to various subcontractors as taxable wages. In this case, Roofing Services Queensland and its related entities were assessed for additional payroll tax by the Commissioner on payments made to independent workers. Only some additional liabilities were confirmed by the tribunal on the basis Roofing Services Queensland had established for the period that two or more people performed the work and had discharged its owners in relation to its claim for an exemption.

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EXL Retail Services was lucky to obtain full remission of penalty tax at a rate of 25% after recently being assessed through the New South Wales Tribunal for additional payroll tax on contractor arrangements. EXL Retail Services provides various services to supermarkets and other retail businesses, including cleaning and trolley collection services. Subcontractors are used to provide the services. The services were provided to each of its clients at multiple sites throughout the state, where the client generally had the power to add new sites or remove existing sites from the scope of services. It was held that the contracts between EXL Retail Services and its clients were employment agency contracts. The regularity and continuity of the provision of the services and the degree of control exercised by the client were indicative of the services provided for the clients in question being of a kind that fall within Division 8 concerning employment agency. That conclusion was also supported by the client's own ability hypothetically to establish a capability for the supply of those services, notwithstanding their specialist nature. These were services provided and used in and for the conduct of the client's businesses, whether or not there was interaction between the EXL Retail Services personnel and the client's customers or staff and whether or not the facilities of the clients were used by the staff of EXL Retail Services did not sway or have a significant bearing on the matter. That the services in question were provided on the premises of the clients has some relevance but was not deemed determinative. The personnel having its own branding on their uniforms or use of equipment it was contractually obliged to provide did also not sway the decision.

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We now turn our attention to capital gains tax changes which may impact your mobility population. Expats and foreign residents should be aware of the changes to the Australian foreign resident capital gains tax regime from January 1, 2025. Non-residents who sell or lease property in Australia must withhold 15% of the sale price or lease premium and remit the amount to the ATO. Non-residents must remit the 15% of the sale price or lease premium to the ATO when selling or leasing property in Australia, regardless of the property's value, with the $750,000 threshold now being removed. The withholding amount has increased from 12.5% to 15%. Australian residents selling their real property or granting leases over their property must take early action to avoid being caught under the scheme. They must apply for a clearance certificate from the ATO before settling their property sale or entering into a premium lease to prove they are not non-residents and subject to the scheme. The certificate must be provided to the purchaser or lessee before settlement or attached to the lease by the lessor. If not provided in time, the 15% withholding shall apply. Australian residents would then need to apply for a refund of the withholding once the clearance certificate is obtained. The certificates are free and valid for 12 months. For those organizations with a global mobility policy or have individuals undertaking foreign assignments, you may wish to think about how this information is included in any initial information packs or flagged through a tax briefing.

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Thank you for joining our update for January 2025. We can see a lot of activity in the wage compliance space and contractor engagement, and we encourage all employers to actively look at their level of compliance. As always, please feel free to connect with your local RSM contact: myself and Peter in Melbourne, Gina and Neeve in Perth, and Jason in Sydney.