Payroll tax in Australia is a state-based tax imposed on employers based on their total wages paid to employees. It is an essential part of business compliance, ensuring fair contribution to public services and infrastructure. This guide breaks down the key elements of payroll tax, covering rates, thresholds, exemptions, and compliance requirements.
How does Payroll Tax Work in Australia
Table of Contents
1. What is Payroll Tax?
Payroll tax is a state and territory tax levied on employers who pay wages above a certain threshold. It applies to salaries, wages, bonuses, and other employee benefits.
2. Who Pays Payroll Tax?
Employers must pay payroll tax if their total wages exceed the state or territory threshold. It applies to:
- Businesses with employees.
- Groups of employers (related businesses).
- Contractors under specific conditions.
3. State and Territory-Based System
Payroll tax laws differ across states and territories. Each jurisdiction sets its own rates and thresholds, requiring businesses operating in multiple states to comply with varying regulations.
| State/Territory | Threshold (Annual) | Tax Rate (%) |
|---|---|---|
| New South Wales | $1.2 million | 5.45% |
| Victoria | $700,000 | 4.85% |
| Queensland | $1.3 million | 4.75% (up to $6.5M) / 4.95% (above $6.5M) |
| Western Australia | $1 million | 5.5% |
| South Australia | $1.5 million | 0%–4.95% (progressive) |
| Tasmania | $1.25 million | 4%–6.1% (tiered) |
| Australian Capital Territory | $2 million | 6.85% |
| Northern Territory | $1.5 million | 5.5% |
4. Payroll Taxable Components
Payroll tax applies to various types of remuneration, including:
- Salaries and wages.
- Bonuses and commissions.
- Allowances (e.g., travel, housing).
- Superannuation contributions.
- Fringe benefits (e.g., car benefits).
- Termination payments.
- Contractor payments (if deemed employees).
5. Exemptions from Payroll Tax
Some payments and employees are exempt, including:
- Apprentices and trainees (partial exemptions).
- Maternity, paternity, and adoption leave.
- Redundancy payments.
- Charitable and non-profit organizations (partial or full exemptions).
6. Registration for Payroll Tax
Employers must register for payroll tax if their total wages exceed the threshold in any state or territory.
Steps to Register:
- Assess wages paid.
- Compare wages against the state threshold.
- Register via the relevant state’s revenue office portal.
- Submit monthly or annual returns.
7. Calculation of Payroll Tax
To calculate payroll tax:
- Determine Taxable Wages – Sum up all taxable wages for the period.
- Apply Threshold – Deduct the threshold amount for the period.
- Calculate Tax Payable – Multiply the remaining wages by the payroll tax rate.
Example:
- Wages Paid: $1.5 million (NSW)
- Threshold: $1.2 million
- Taxable Amount: $1.5M – $1.2M = $300,000
- Tax Rate: 5.45%
- Payroll Tax Payable: $300,000 × 5.45% = $16,350
8. Lodgment and Payment Requirements
- Frequency: Monthly or annually, depending on the state and employer’s circumstances.
- Deadlines: Usually due by the 7th day of the following month.
- Payment Methods: Online payments via state revenue offices or direct debit.
9. Penalties for Non-Compliance
Failing to comply with payroll tax laws can lead to:
- Penalties for late payments.
- Interest on unpaid amounts.
- Audits and legal actions.
Employers must maintain accurate payroll records and report wages correctly to avoid penalties.
10. Grouping Rules for Payroll Tax
Businesses with related ownership or control may be grouped for payroll tax purposes. This includes:
- Holding and subsidiary companies.
- Partnerships and joint ventures.
- Shared employees or resources between entities.
Grouped businesses are treated as a single entity, sharing thresholds and tax obligations.
11. Contractor Payments and Payroll Tax
Payments to contractors may attract payroll tax if:
- Contractors work exclusively for the business.
- There is ongoing dependency or control over their work.
- Contracts are primarily for labor rather than materials.
Employers must assess contracts carefully to determine tax liability.
12. Payroll Tax Reporting Requirements
- Monthly Reporting: Employers lodge monthly payroll tax returns to estimate liability.
- Annual Reconciliation: Employers submit a final report reconciling actual wages and taxes paid.
- Record Keeping: Employers must retain payroll records for at least 5 years for audit purposes.
13. Payroll Tax Concessions and Rebates
Some states offer rebates and concessions, including:
- Regional Payroll Tax Discounts – Lower rates for businesses in regional areas.
- Employment Incentives – Rebates for hiring apprentices, trainees, or unemployed workers.
- COVID-19 Relief Measures – Temporary tax deferrals or waivers during emergencies.
14. Payroll Tax for Remote Workers
Payroll tax applies based on the location where work is performed, not where the employer is located. Employers must account for remote or interstate employees when calculating liabilities.
15. Key Payroll Tax Compliance Tips
- Track wages across all states and territories.
- Regularly review contractor agreements.
- Use payroll software to automate reporting.
- Stay updated with changes in rates and thresholds.
- Seek professional advice for complex cases.
FAQs about How does Payroll Tax Work in Australia
- What is the payroll tax threshold in Australia?
Each state has a different threshold ranging from $700,000 to $2 million annually. - Do small businesses need to pay payroll tax?
Small businesses below the threshold are exempt from payroll tax. - Are contractor payments subject to payroll tax?
Yes, if contractors are deemed employees based on dependency or control. - Is superannuation included in payroll tax?
Yes, employer superannuation contributions are taxable. - How do businesses register for payroll tax?
Registration is done through the relevant state revenue office. - Are charities exempt from payroll tax?
Some charities and non-profits may qualify for exemptions. - What happens if payroll tax is not paid?
Penalties and interest charges apply for late or non-payment. - Can businesses claim refunds for overpaid payroll tax?
Yes, overpayments can be refunded or offset against future payments. - Does payroll tax apply to fringe benefits?
Yes, fringe benefits are included in taxable wages. - How often is payroll tax calculated?
It is usually calculated monthly, with an annual reconciliation.
By understanding payroll tax obligations, businesses can maintain compliance and avoid penalties. Employers should stay informed about legislative changes to manage their payroll responsibilities effectively.