Payroll tax and NSW sports organisations - clarifying your position
Sport & Events eBulletin - 14 January 2014
Payroll tax is a confusing area for sports organisations. Common questions that arise include: do I have to pay payroll tax for volunteers receiving an honourarium? Can my organisation get an exemption from payroll tax as the work we do is beneficial to the community?
In this eBulletin, we clarify the current position in relation to payment of payroll tax by sporting organisations.
- What is payroll tax?
- Payroll tax and volunteers receiving honorarium payments
- Payroll tax and organisations that serve charitable purpose
- Apportionment: an exemption for part of your wages paid?
- Eastern Football and Northen NSW Football - more details
- Further information
Payroll tax is a state tax payable by employers. It is based on the wages paid or payable to employees (and contractors in defined circumstances).
Payroll tax must be paid once an employer's total wages exceed a general deduction threshold level. The annual threshold in NSW for the 2013/2014 financial year is $750,000.The current rate of payroll tax in NSW is 5.45%.
We often receive queries from clients about the obligation on sporting organisations to pay payroll tax in relation to volunteers who receive an honorarium payment, such as umpires.
In each case, the question that may be asked is can the relationship between the volunteer and the sporting organisation be characterised as employee and employer?
A Victorian Civil and Administrative (VCAT) decision in 20061 established that the Eastern Football League (which is an Australian rules football league based in the eastern suburbs of Melbourne) was not required to pay payroll tax to the State Revenue Office in relation to umpires, as they were not considered to be employees. Following this decision, in Victoria it has generally been accepted that umpires who are volunteers or only paid an honorarium are not considered employees and therefore a sporting organisation is exempt from paying payroll tax in relation to its umpires.
There is no legislative definition of employee, and so the test applied by VCAT in Eastern Football League continues to determine whether an individual is characterised as an employee or contractor in both Victoria and NSW.
Since the Eastern Football League decision, however, the payroll tax legislation in Victoria and NSW has changed. The new payroll legislation harmonised the law in NSW and Victoria and it is now almost identical in both states.
Under Victorian and NSW legislation, payroll tax is only payable by employers in relation to employees and not for contractors (except in a few defined circumstances). However, the legislation in both states now specifies certain circumstances where employers will be liable to pay payroll tax for contractors.
As a general guide, the question of whether payroll tax is payable in relation to a contractor will depend on the particular arrangements with the contractor, the role they perform and the payment made to the contractor.
Confusion often arises as to whether sports organisations are essentially serving a benevolent or charitable purpose and are therefore exempt from paying payroll tax.
Under NSW legislation, an organisation is exempt from paying payroll tax provided that it is a non-profit organisation whose sole or dominant purpose is charitable, benevolent, philanthropic or patriotic.
However, NSW case law2 (footnote required) has established that the promotion of sport is not a charitable or benevolent purpose. As the legislation in NSW and Victoria is almost identical (NSW uses the words 'sole or dominant' and Victoria uses the words 'whole or dominant'), it is likely that the same conclusion would be reached by a court in Victoria in relation to sport not being a charitable or benevolent purpose.
Even though sporting organisations are not considered to have a purpose which is charitable, benevolent, philanthropic or patriotic, Yachting Australia Incorporated was found to be entitled to a partial exemption from payroll tax by the Administrative Decisions Tribunal in NSW.3 (footnote required)
This was on the basis that part of the services provided by Yachting Australia involved training that was educational and beneficial to the community. The Tribunal determined these activities were significant and therefore Yachting Australia's activities were not merely confined to sport and yachting. The exemption applied to those staff engaged in the training activities (and, in some cases, applied in part to staff who were partly engaged in the training activities).
For a more extended version of this eBulletin, which contains a summary of the criteria used by VCAT in Eastern Football League and a brief overview of the decision in Northern NSW Football, please click here for a printable PDF.
Amelia Lynch, Senior Associate
Anastasia Smietanka, Lawyer
1 Eastern Football League v Commissioner of State Revenue (Taxation)  VCAT 233.
2 Northern NSW Ltd v Chief Commissioner of State Revenue  NSWADTAP 28.
3 Yachting Australia Incorporated v Chief Commissioner of State Revenue  NSWADT 2008
All information on this site is of a general nature only and is not intended to be relied upon as, nor to be a substitute for, specific legal professional advice. No responsibility for the loss occasioned to any person acting on or refraining from action as a result of any material published can be accepted.