THE Queensland Government’s regional employer payroll tax discount was introduced to encourage employment, investment and economic activity in regional parts of the state.

According to the Queensland Revenue Office, the discounted payroll tax rate for an eligible regional employer through to 2030 is:

• 3.75pc for employers or groups of employers who pay $6.5 million or less in Australian taxable wages
• 3.95pc for employers or groups of employers who pay more than $6.5 million in Australian taxable wages.

It is an important policy measure in responding to challenges that regional businesses often face, including labour shortages, higher operating costs and greater logistical complexity. However, we see a disconnect between the policy objective of the concession and the statutory tests used to determine eligibility.

Food and agribusiness sectors impacted

That disconnect is particularly apparent across the food and agribusiness industry. Workforce shortages have become a persistent feature of many agricultural sectors and employers have adapted accordingly.

Seasonal labour, employee accommodation, mobile workforces and interstate and overseas recruitment have become essential features of many regional businesses. Yet the concession continues to rely on criteria that often bear little relationship to those commercial realities.

The result is that businesses creating jobs, investing capital and generating economic activity in regional Queensland can find themselves excluded from relief that was intended to support those very outcomes.

The concession is measuring the wrong things

To access the concession, an employer must satisfy two key requirements:

Its principal place of employment must be located in regional Queensland, this being the location of the relevant business’ registered business address. The Queensland Revenue Office takes this to mean the address on the Australian Business Register; and

• At least 85pc of total taxable wages must be paid to regional employees, who are defined as employees with a ‘principal place of residence’ in regional Queensland, determined by reference to the ordinary meaning of that term.
• Neither requirement is unreasonable in principle; however, the issue is that both operate as proxies for regional economic activity and neither proxy appears particularly effective in a modern regional economy.

A registered business address is a poor indicator of regional activity

As outlined above, the first limb effectively turns on the location of a business’s registered business address. Whilst this provides a simple administrative rule, it is difficult to see why a registered address should determine access to a concession designed to support regional employment.

On the Australian Business Register, or on Australian Securities and Investments Commission records, many businesses use the address of their accountant, lawyer or corporate services provider as their registered address. Others use a head office address that performs administrative functions for multiple operations spread across regional Queensland. Neither arrangement is unusual.

For a food producer operating across regional Queensland, the location of a registered address may have little connection with where employees work, where assets are located or where economic activity occurs.

A cattle operation may conduct all of its productive activities in regional Queensland while using a metropolitan address for administrative convenience. A horticultural business may employ hundreds of workers in regional Queensland while retaining an accounting or legal practice, and accordingly a registered address, in Brisbane. The position is similar across many agricultural businesses operating through corporate structures.

The obvious question is whether the location of an accountant’s office tells us anything meaningful about where jobs are created. In most cases, it does not.

If the purpose of the concession is to reward regional investment and employment, eligibility should be assessed by reference to where business operations occur, not where administrative documents happen to be registered.

The 85pc wages requirement does not reflect workforce realities

The second limb presents an equally significant challenge. To qualify for the concession, at least 85pc of taxable wages must be paid to regional employees, determined by reference to the employees’ principal place of residence. The problem is that the requirement does not adequately reflect the workforce models that now exist throughout regional Queensland.

Food and agribusiness provide perhaps the clearest example. In light of declining rural populations, many businesses recruit workers from outside of the region it produces in. This is not a matter of preference. It is a commercial necessity.

Employers have increasingly adopted workforce models that rely on seasonal employees, working holiday-makers and accommodation-based workers. Despite maintaining some other domicile or abode, those employees live and work in regional Queensland, often for extended periods, and play a critical role in supporting production and supply chains

In many cases, and again despite holding an alternative domicile or abode, workers live where they work because there is no practical alternative.

These arrangements are not unusual. They are increasingly fundamental to the operation of regional businesses. Yet the operation of the term “principal place of residence” obscures the true purpose of the 85pc test: that the relevant business employs workers that do physically toil regionally.

At a time when employers are competing nationally and internationally for workers, a test that assumes a more traditional and static workforce is becoming increasingly difficult to justify.

Regional industries have evolved

The regional economy has changed significantly over the past decade. Agribusinesses operate in highly competitive global markets while managing labour shortages, weather events, biosecurity risks and escalating input costs.

Many businesses now provide accommodation, transport and other support services simply to attract and retain employees. In other circumstances, it is a practical necessity caused by the remoteness of the business. These are not temporary developments – they are structural features of doing business in regional Queensland.

The payroll tax concession, however, continues to rely on indicators that appear to reflect an older understanding of how regional employment works.

It assumes a close alignment between a business’s registered address and its operational footprint; and a workforce that lives and works permanently in one location. Increasingly, neither assumption reflects commercial reality. As a result, the concession risks excluding businesses that are delivering precisely the economic outcomes the policy was intended to encourage.

Time for reform (or an administrative arrangement)

The regional employer payroll tax concession remains an important measure, and there is a strong case for its continuation.

However the current eligibility criteria do not reliably identify genuine regional employers. This is particularly concerning because employers that fail to satisfy the criteria, most commonly the requirement that their principal place of employment be in regional Queensland, often do so unknowingly and may not discover the issue until the QRO issues reassessments for the previous five years.

The resulting liability can be substantial and cause material financial hardship.

More fundamentally, the issue extends beyond the statutory criteria themselves. In practice, the QRO’s administration of the concession often places significant weight on technical compliance with the eligibility requirements, even where doing so produces outcomes that seem difficult to reconcile with the purpose of the concession.

As a result, businesses that are genuinely contributing to regional employment and economic growth may nevertheless be excluded from relief that was designed to encourage those outcomes.

A review of the concession should consider whether the location of a registered business address remains an appropriate proxy for regional economic activity and whether the 85pc wages requirement reflects the workforce arrangements common across agriculture, horticulture, food production, regional tourism and hospitality.

Most importantly, the concession should focus on outcomes. Businesses that create jobs in regional Queensland, invest in regional Queensland and contribute to regional economies are delivering the very outcomes the policy was designed to support.

When eligibility can turn on the location of an administrative address or workforce assumptions that no longer reflect how regional industries operate, there is a risk that the legislation is measuring the wrong things.

For regional employers already grappling with workforce shortages and rising costs, that is not merely a technical issue. It goes to the effectiveness of a concession that was intended to support regional Queensland and the businesses that drive its economy.

McCullough Robertson’s specialist payroll tax team can advise on the structure of businesses for regional employer payroll tax discount purposes, or otherwise assist with reviews and objections to Queensland Revenue Office assessments that deny the discount.