Grouping examples: Payroll Tax Employer Guide

In this example Red Pty Ltd is the holding company of Purple Pty Ltd, Green Pty Ltd and Yellow Pty Ltd. Blue Pty Ltd is the subsidiary of Purple Pty Ltd.

These companies constitute a group because Red Pty Ltd is the ultimate holding company.

Service Pty Ltd employs Maria to perform duties for three businesses operating out of the same premises.

Maria receives and distributes goods, answers phone calls and responds to general requests from any of the three businesses.

All three businesses and Service Pty Ltd are grouped.

Below is an excerpt from two company share registers which show the names of shareholders and their shareholdings.

B. Brown and C. Jones together hold 80 per cent of the shares in ABC Pty Ltd and 60 per cent of the shares in XYZ Pty.  They effectively control both companies.

As there is common control, both companies constitute a group for payroll tax (s. 33(2)).

ENTITY A --> 80% --> CORPORATION A

Entity A controls 80 per cent of the voting power in Corporation A.

Therefore, Entity A holds a direct interest in Corporation A and will form a group.

ENTITY --> 80% --> CORPORATION A --> 70% --> CORPORATION B --> 40% --> CORPORATION C

• The Entity has a direct interest in Corporation A
• Corporation A has a direct interest in Corporation B
• Corporation B has a direct interest in Corporation C (although it is not a controlling interest)

The Entity has an indirect interest in both Corporations B and C.

• The value of Entity’s indirect interest in Corporation B is 80% x 70% = 56%
• The value of Entity’s indirect interest in Corporation C is 80% x 70% x 40% = 22.4%

Therefore, as the value of the Entity’s indirect interest in Corporation B is greater than 50 per cent, the Entity, Corporation A and Corporation B will form a group.

Corporation C does not form part of the group as the entity’s indirect interest is less than 50 per cent.

The Entity has a direct interest in Corporation A (80%) and Corporation C (50%)

The Entity has indirect interests in Corporation B (through Corporation A) and Corporation C (through Corporation A & B)

• The value of Entity’s indirect interest in Corporation B is 80% x 40% = 32%
• The value of Entity’s indirect interest in Corporation C is 80% x 40% x 50% = 16%
• The value of the Entity’s aggregate interest in Corporation C is 16% + 50% = 66%

Therefore, the Entity, Corporation A and Corporation C form a group. Corporation B cannot be part of the group because the interest is less than 50%.

Section 36(1) – Groups with common members

Company A is common to each group. Therefore, Group 1 and Group 2 will be amalgamated and Companies A and B, and Partnership C will form one group.

Section 36(2) – Common members with controlling interests

• Corporation A and Corporation B form a group
• Corporation A has a 25% interest in Corporation C
• Corporation B has a 30% interest in Corporation C
• Corporation A and Corporation B together have a controlling interest (55%) in Corporation C