It pays to use the correct bank account

It’s been said many times – payroll is a complicated beast. Keeping up with all the various regulatory requirements including awards, Fair Work requirements, ATO obligations, superannuation, workers compensation (the list is long) is a full-time job for many employers.

What if you’re doing all of that, but somehow still falling foul of the rules?  A single misstep can be deadly. The complex rules for payroll and taxation hide many traps, and one false move could bring everything crashing down which is exactly what happened for one business earlier this year resulting in prohibitive and seemingly unfair penalties.

There’s a section in the Tax Administration Act 1953 that sets out the requirement to withhold tax from payments to employees. It reads: 12-35 An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that entity or not).

That seems straightforward enough and perhaps it is, if your business is a one-entity structure. What happens though, if you’re part of a group, and one entity in the group pays all the wages?

This was a question decided by the Administrative Review Tribunal (ART) in early February 2025 in DJG Consulting Pty Ltd ATF David Gerrans Family Trust v FCT.  If we look back at section 12-35 quoted above, the legislation refers to payment to “an individual as an employee (whether of that entity or not).”

DJG Consulting entered into a service agreement with a related trust, DJG Admin, to provide among other things, employees for the business group. DJG Admin was the employer and reported via STP and BAS as required. DJG Consulting made all payments from its bank account, as DJG Admin did not have a bank account. DJG Admin fell behind in lodging BAS and making BAS payments and the group became subject to an ATO audit.

The ATO found that DJG Consulting had a shortfall for the PAYG withholding that had not been reported by DJG Admin and charged penalties. DJG Consulting objected on the grounds that they were not the employer, and when that objection was unsuccessful, referred the matter to the ART.

The ART found that DJG Consulting was in fact responsible for the unpaid PAYG withholding. The fact that DJG Admin was the employer did not impact the decision, because it was DJG Consulting that made the payments of wages. The ART held that the language of the legislation is quite clear, and further, is actually intended to include payments made to employees of other entities.

In small business groups, it’s common to have one bank account that is operated on behalf of the whole group. It seems that, at least for the purposes of PAYG withholding, that this has a good deal of risk attached. Of course, it is possible that if the BAS lodgements had been kept up to date, this situation may not have arisen. However, using the strict interpretation of the law as the ART has done, DJG Consulting always had the responsibility of withholding and remitting the PAYG withholding. Payment has been clearly interpreted to mean the act of transferring money to employees.  

Key Take Out:

If you have a structure that involves a single bank account for a group of entities and your business has employees, it would be prudent to rethink how payroll operates in your business. As always, WLF are here to help – give us a call if you’d like to know more.