23 August 2024
Navigating payroll tax can be a bit of a headache for small business owners, but it’s something you definitely don’t want to overlook. Payroll tax is a state and territory tax on the wages you pay your employees, and understanding whether your business needs to pay it is essential for staying compliant and avoiding penalties. Plus, getting your payroll tax right can help build trust and good relationships with your team.
In this guide, we’ll break down the ins and outs of payroll tax—from thresholds and rates to exemptions—so you can manage it with confidence.
Payroll tax is a tax levied by states and territories on employers whose total taxable wages exceed a certain threshold. This tax is administered by local revenue offices and varies between states and territories in terms of rates and thresholds.
Payroll tax rates and thresholds differ across Australia. Here’s a breakdown of the current rates, thresholds, and maximum annual deduction entitlements:
State/Territory | Rates | Annual Threshold | Monthly Threshold | Maximum Annual Deduction Entitlement |
Australian Capital Territory | 6.85% | $2,000,000 | $166,666.66 | Same as annual threshold |
New South Wales | 5.45% | $1,200,000 | N/A | Same as annual threshold |
Northern Territory | 5.5% | $1,500,000 | $125,000 | Same as annual threshold |
Queensland | 4.75% ($6,500,000 or less) | $1,300,000 | $108,333 | Same as annual threshold |
| 4.95% (more than $6,500,000) |
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| + additional 0.25%-0.75% for wages > $10M |
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South Australia | 0% to 4.95% | $1,500,000 | $125,000 | $600,000 |
Tasmania | 4% ($1,250,001 – $2,000,000) | $1,250,000 | $24,038 (weekly) | Same as annual threshold |
| 6.1% ($2,000,001 or more) |
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Victoria | 4.85% | $700,000 | $58,333 | Same as annual threshold |
Western Australia | 5.5% | $1,000,000 | $83,333 | Same as annual threshold |
Note: For further details on rates, thresholds, and deduction entitlements, consult the respective revenue offices.
You need to register for payroll tax if your total Australian wages exceed the threshold in any state or territory where you employ workers. Each state has different reporting and payment requirements. Failing to register and pay payroll tax can result in significant penalties.
Payroll tax is calculated on the total taxable wages, which include:
Some payments are exempt from payroll tax under specific conditions. Common exemptions include:
Exemption | Description |
90-day rule | Contractor works for 90 days or less during the financial year. |
180-day exemption | Services required for less than 180 days in a financial year. |
Services ancillary to goods | Contract primarily for the supply of goods with related services. |
Services not ordinarily required | Services not usually required by the business and performed generally for the public. |
Ordinarily rendering to public | Contractor performs similar services for the public generally. |
Two or more persons | Contractor employs two or more people for the contract. |
Owner-driver contracts | Contractor’s services relate to the transport of goods in a vehicle they provide. |
When employees work in multiple states or territories, employers must navigate the “nexus test” to determine payroll tax obligations. This test helps determine which state or territory payroll tax applies to.
To calculate payroll tax, determine if your total wages exceed the thresholds in each relevant state or territory. If so, apply the respective rates to the taxable wages exceeding the threshold.
Since 2007, Australian states and territories have enacted harmonised payroll tax legislation. This includes aligning key payroll tax provisions such as the timing of returns, motor vehicle allowances, and fringe benefits. This harmonisation simplifies compliance for businesses operating in multiple jurisdictions.
If you need assistance understanding your payroll tax obligations, contact Retinue for professional assistance and support. Call us today at 1800 861 566.
*Retinue’s (ABN 66 658 618 449) payroll service includes the processing of hours and wages rates provided by you. We do not determine award rates for your employees or provide advice on the correct employment status of your employees. It is your responsibility to ensure that your employees are paid correctly and we recommend obtaining advice from specialised employment relations experts.
Protection is only provided for ATO investigations notified to us during the period which you are a client and relating to any tax returns or lodgements prepared by us. Fines includes any penalties and interest that may result from any errors made by us but does not include any additional tax liability that may result from an amended lodgement.
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