Payroll tax grouping tipped to erode protections for SMSFs

Queensland Revenue’s pursuit of unpaid payroll tax via the assets of an SMSF could cause a serious commercial disadvantage for SMSFs in the future and weaken the current asset protections they offer, one industry lawyer has warned.

Recent preliminary litigation has seen Queensland Revenue include an SMSF and its holding trust within a payroll tax grouping, on the basis that they are each a business (in keeping with the definition outlined in payroll tax legislation).

Michael Hallinan, special counsel for Townsends Business & Corporate Lawyers, told SMSF Adviser that although only preliminary issues have so far been litigated, a successful claim on behalf of Queensland Revenue could see the asset protection of SMSFs "materially reduced".

"This is the first time I’m aware that the state revenue has gone after a super fund for unpaid payroll tax. If it’s successful, it would mean that there is a significant commercial risk to an SMSF where its members carry on business and their control is of those businesses," said Mr Hallinan.

"The fact that the super fund doesn’t employ anyone is irrelevant to whether you are being grouped or not, and the fact it is not carrying on a business in a traditional sense is also irrelevant, because there’s a much wider definition of ‘carrying on a business’ in the Payroll Tax Act than would normally apply," he added.

According to Mr Hallinan, a ruling in favour of Queensland Revenue would simply mean that any unpaid payroll tax liability could be sought by accessing the assets of the SMSF, and could lead to a significant competitive disadvantage.

"It could mean that people who operate businesses would be in a better position to have their money in a non-SMSF, because a large APRA fund would not form part of the payroll tax group.

"It’s still early days in the battle," Mr Hallinan concluded.

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