This guide breaks down everything you need to know about payroll tax, from what it is and who pays it, to thresholds, rates, and tips for staying compliant.
What is Payroll Tax?
Payroll tax is a state or territory-based tax on employment. It is imposed on employers when their total wages exceed a certain threshold and is payable to the state or territory where the employees perform their work.
Unlike income tax, which is paid by employees, payroll tax is an employer’s responsibility. It’s a way for State governments to raise revenue.
Who Needs to Pay Payroll Tax?
Whether you need to pay payroll tax depends on:
- Where your employees are based (state or territory)
- The total amount of wages paid in a given period
Each Australian state and territory sets its own:
- Thresholds (the minimum amount of wages you can pay before payroll tax applies)
- Rates (the percentage of wages that must be paid as payroll tax)
If your total Australian wages exceed the threshold in any state or territory, you may be required to register and pay payroll tax in that State.
What Counts as Wages?
Wages include more than just salary. Here’s a list of common wage components that are subject to payroll tax:
- Gross salaries and wages
- Bonuses and commissions
- Superannuation contributions
- Allowances (e.g., travel, car)
- Fringe benefits
- Termination payments
- Contractor payments (in some cases)
It’s crucial to understand what your State defines as “taxable wages” to ensure you’re calculating payroll tax correctly
Payroll Tax Rates and Thresholds
Here’s a snapshot of payroll tax thresholds and rates across Australia (note that these figures are subject to change):
State/Territory | Threshold | Rate |
NSW | $1.2 million annually | 5.45% |
VIC | $900,000 annually | 4.85% (metro) / 1.2125% (regional) |
QLD | $1.3 million annually | 4.75% – 4.95% |
WA | $1 million annually | 5.5% |
SA | $1.5 million annually | 0% to 4.95% (tiered) |
TAS | $1.25 million annually | 4.0% – 6.1% |
ACT | $2 million annually | 6.85% |
NT | $1.5 million annually | 5.5% |
Tip: If you operate across multiple states, your total wages are grouped and apportioned based on where your employees work.
For example, suppose you employ in Victoria and your total wages bill (as defined above) is $1 million. Due to the fact that you are over the Victorian threshold of $900,000, you will be liable for payroll tax of $4,850 calculated as follows ($1,000,000 less $900,000 x 4.85% = $4,850). Note that if you also employ in another state, this will increase the amount of payroll tax payable in Victoria. Please contact your accountant Melbourne for calculations.
Payroll Tax on Contractors
Many businesses mistakenly believe that contractors are exempt from payroll tax. However, in many cases, contractor payments can be taxable, depending on the nature of the arrangement. Most states apply a “relevant contract” test to determine if the payments are subject to payroll tax.
How to Register and Lodge Payroll Tax
If you’re liable for payroll tax, you must:
- Register with the relevant state revenue office.
- Lodge payroll tax returns—monthly, quarterly, or annually depending on your State (monthly in Victoria).
- Pay tax by the due date to avoid penalties.
All lodgements can be done online via the state or territory revenue office portals or through your tax accountant Melbourne.
Tips for Managing Payroll Tax
- Monitor your wage totals regularly to ensure you don’t exceed thresholds unexpectedly. There can be strategies that can be implemented to stay below the threshold. Please contact Nobel Thomas or your tax accountant Melbourne to discuss further.
- Review contractor arrangements and seek advice from your accountant Melbourne if unsure about taxability.
- Use payroll software such as Xero or Quickbooks to help track and report wages accurately.
- Engage an accountant Melbourne or payroll expert to ensure compliance with the State payroll tax rules.
Final Thoughts
Payroll tax is a significant expense for Australian employers. While the rules can vary by location and business size, understanding the basics can help you avoid costly mistakes and keep your business compliant with the law – otherwise you risk becoming one of the numerous businesses who have received an audit who are above the payroll tax thresholds and have not yet registered for payroll tax.
In conclusion, if you’re unsure about your obligations, consult with a tax accountant Melbourne or tax advisor, like Nobel Thomas, who understands your industry and the payroll tax rules in each of the Australian States.
