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James Millar
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The states have organisations that manage administration of payroll tax (SRO) and Workcover. Fortunately the payroll tax harmonization program has brought some consistency in requirements across each state, particularly with regard to trust distributions in leiu of salary (mostly now exempt). I note however that the Vic SRO was successful recently in disputing that trust distributions made by a business were a sham as a replacement of salary to a non stakeholder. So obviously they still have the capability to reclassify items as wages for payroll tax in extreme cases.

I can’t advise on the current status of each states Workcover requirements but their respective websites should have some guidance on this issue.

Just a footnote to my point 1. Some qualifications to my comments. There are some instances where profits must be emptied by a company to key employees as salaries or super – primarily this relates to an old income tax ruling for incorporated medical practioners. In short those companies are not allowed to retain profits at the company tax rate for later distribution to shareholders.

However generally speaking, if your business entity passes the PSI tests and it passes the general anti avoidance alienation of income tests then you can legitimately distribute profits over wages as you see fit.

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