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Payroll Tax Australia 2025: Complete Guide for Small Business Owners | Rates & Thresholds

Australian payroll tax rates comparison table showing 2025 thresholds and rates by state for small business owners

Published: June 2025, Updated: August 2025

Payroll tax is one of Australia's most misunderstood business taxes, yet it affects thousands of small and medium enterprises across the country. With varying rates and thresholds across different states and territories, many business owners find themselves caught off guard when they hit the taxable threshold.

This comprehensive guide breaks down everything you need to know about payroll tax in Australia, helping you understand when it applies, how much you'll pay, and most importantly, how to plan for it effectively.

What is Payroll Tax?

Payroll tax is a state-based tax levied on employers when their total Australian wages exceed a certain annual threshold. Unlike income tax, which employees pay, payroll tax is entirely the employer's responsibility.

The tax applies to wages, salaries, commissions, bonuses, allowances, fringe benefits, and even some contractor payments. It's calculated as a percentage of your total taxable wages above the tax-free threshold.

Check out our payroll tax threshold calculator here

2025 Payroll Tax Rates and Thresholds by State

Understanding your state's specific rates and thresholds is crucial for accurate planning. Here's the current breakdown:

Important Notes:

  • Victoria has additional mental health surcharge for employers with Australian taxable wages over $10 million
  • Queensland offers regional employer discounts in designated areas
  • Northern Territory threshold increased to $2.5 million for 2024-25 (previously $1.5 million)
  • Rates and thresholds are subject to annual review

Check out our payroll tax threshold calculator here

When Does Payroll Tax Apply to Your Business?

Payroll tax becomes relevant when your business meets specific criteria:

Annual Wages Test

If your total Australian wages exceed your state's annual threshold, you must register for payroll tax. This includes wages paid to employees across all states, not just your home state.

Monthly Test

Even if you don't expect to exceed the annual threshold, you must register if your monthly wages exceed the monthly threshold (typically 1/12 of the annual threshold) in any single month.

Group Employer Provisions

If you're part of a group of related companies, the wages of all group members are combined when determining liability. This prevents businesses from avoiding payroll tax by splitting operations across multiple entities.

Calculating Your Payroll Tax: Worked Examples

Let's examine three realistic scenarios for Australian businesses using correct rates and thresholds:

Example 1: Melbourne Marketing Agency

  • Business: Digital marketing agency in Victoria
  • Annual wages: $1,200,000
  • Calculation:
    • Taxable wages above threshold: $1,200,000 - $1,000,000 = $200,000
    • Payroll tax payable: $200,000 × 4.85% = $9,700 annually
    • Monthly liability: $9,700 ÷ 12 = $808.33

Example 2: Sydney Construction Company

  • Business: Construction company in NSW
  • Annual wages: $1,450,000
  • Calculation:
    • Taxable wages above threshold: $1,450,000 - $1,200,000 = $250,000
    • Payroll tax payable: $250,000 × 5.45% = $13,625 annually
    • Monthly liability: $13,625 ÷ 12 = $1,135.42

Example 3: Brisbane Tech Startup

  • Business: Software company in Queensland
  • Annual wages: $1,100,000
  • Calculation:
    • Wages below threshold ($1,300,000)
    • Payroll tax payable: $0

What Wages Are Included in Payroll Tax?

Understanding what constitutes "wages" for payroll tax purposes is essential:

Included:

  • Salaries and wages
  • Overtime payments
  • Commissions and bonuses
  • Director fees
  • Allowances (car, mobile, meal)
  • Fringe benefits taxable value
  • Superannuation contributions above statutory requirements
  • Certain contractor payments
  • Termination payments
  • Share-based benefits
  • Leave loading and unused leave payments

Excluded:

  • Statutory superannuation contributions (up to current SG rate)
  • Genuine reimbursements for business expenses
  • Workers' compensation payments
  • Some apprentice wages (state-specific exemptions)
  • Payments to volunteers
  • Genuine contractor payments for specific results

Registration and Compliance Requirements

When to Register

You must register for payroll tax before the end of the month in which you first exceed the threshold. Late registration can result in penalties, even if no tax is ultimately payable.

Record Keeping

Maintain detailed records of:

  • Employee wages and allowances
  • Contractor payments
  • Fringe benefits provided
  • Leave payments and accruals
  • Superannuation contributions
  • All payroll-related documentation

Reporting and Payment

Most states require monthly lodgement and payment, with annual reconciliation returns. Key dates:

  • Monthly returns: Generally due by 7th or 28th of the following month
  • Annual returns: Due by 21st July (28th July for ACT, NSW, and SA)
  • Payment: Usually required with monthly returns

Common Payroll Tax Mistakes to Avoid

1. Misclassifying Contractors

Many businesses incorrectly treat contractors as exempt from payroll tax. However, certain contractor arrangements may be subject to payroll tax, particularly if the contractor is paid mainly for their labour rather than achieving a specific result.

2. Ignoring Fringe Benefits

The taxable value of fringe benefits must be included in your payroll tax calculation. This includes company cars, entertainment, gym memberships, and other benefits provided to employees.

3. Forgetting Group Provisions

Related companies must combine their wages when determining payroll tax liability. This often catches businesses by surprise when they establish new entities or acquire other businesses.

4. Missing Registration Deadlines

Failing to register by the required deadline can result in penalties of several thousand dollars, even if no tax is ultimately payable.

5. Incorrect Threshold Calculations

Remember that thresholds apply to total Australian wages, not just wages in your home state.

Strategic Planning for Payroll Tax

Threshold Management

For businesses approaching the threshold, consider:

  • Timing of wage payments and bonuses
  • Salary packaging arrangements
  • Hiring timeline decisions
  • Use of contractors vs employees

State Considerations

When expanding interstate, factor in different state thresholds and rates. Some businesses benefit from establishing operations in states with higher thresholds or lower rates.

Cash Flow Planning

Build payroll tax into your cash flow forecasts. For a business paying $1.5 million in wages in NSW, the annual liability would be approximately $16,350 – a significant amount requiring careful planning.

Small Business Exemptions and Concessions

Several states offer specific concessions for small businesses:

Apprentice Exemptions

Most states provide full or partial exemptions for apprentice wages during their first few years of training. These exemptions can provide significant savings for businesses taking on apprentices.

Regional Incentives

  • Queensland: 1% discount for regional employers until June 2030
  • Victoria: Reduced rate of 1.2125% for regional employers
  • Other states may have specific regional development incentives

New Business Concessions

Certain states provide temporary exemptions or reduced rates for new businesses or those creating jobs in specific industries. Check with your state revenue office for current programs.

Industry-Specific Exemptions

Some states offer exemptions for specific industries like not-for-profit organizations, religious institutions, or seasonal agricultural workers.

Multi-State Operations

If your business operates across multiple states, payroll tax becomes more complex:

Registration Requirements

You may need to register in multiple states if you exceed individual state thresholds, even if your total wages are below the combined threshold.

Apportionment Rules

Wages must be apportioned to the state where work is performed, which can be challenging for remote workers or travelling employees.

Compliance Burden

Managing multiple state registrations, returns, and payment schedules requires careful planning and often professional assistance.

Getting Professional Help

Given the complexity of payroll tax across different states and the significant penalties for non-compliance, many businesses benefit from professional advice. Consider consulting with:

  • Registered tax agents specialising in payroll tax
  • Payroll service providers who can manage compliance
  • Business advisors familiar with multi-state operations
  • State revenue office guidance services

The cost of professional advice is often minimal compared to penalties for incorrect compliance or overpayment of tax.

Recent Changes and Future Considerations

Payroll tax legislation changes regularly. Recent trends include:

  • Increasing focus on contractor arrangements
  • Enhanced penalties for non-compliance
  • Digital reporting requirements
  • Interstate harmonization discussions

Stay informed about changes by:

  • Subscribing to state revenue office updates
  • Regular consultation with tax professionals
  • Monitoring industry publications

Key Takeaways

Payroll tax is a significant consideration for growing Australian businesses. Understanding your obligations early helps avoid costly surprises and ensures compliance. Key points to remember:

  • Thresholds and rates vary significantly between states
  • Registration is required before exceeding thresholds
  • All forms of employee remuneration may be included
  • Group provisions can catch businesses unexpectedly
  • Professional advice is often worthwhile for complex situations
  • Regional discounts and exemptions can provide significant savings
  • Multi-state operations require careful planning
  • Regular review of your position is essential

By staying informed about payroll tax requirements and planning accordingly, you can ensure your business remains compliant while managing this significant cost effectively. Regular review of your payroll tax position should be part of your ongoing business planning process.

Remember, payroll tax laws change regularly, and this guide provides general information only. Always consult with your state revenue office or a qualified professional for advice specific to your situation.

Frequently Asked Questions - Payroll Tax Australia

What is payroll tax?

Payroll tax is a state-based tax on employers when total Australian wages exceed the annual threshold. It's calculated as a percentage of wages above the tax-free threshold and is the employer's responsibility, not the employee's.

When must I register for payroll tax?

Register before the end of the month when you first exceed your state's annual threshold OR monthly threshold. Annual thresholds range from $1,000,000-$2,000,000 depending on your state.

What wages are included in payroll tax?

Included: salaries, overtime, bonuses, commissions, allowances, fringe benefits, director fees, some contractor payments, and super above statutory rates.Excluded: statutory super, genuine reimbursements, workers' compensation, and genuine contractor payments for specific results.

How is payroll tax calculated?

Tax = (Total wages - Threshold) × Tax rate. For example: $1,200,000 wages in Victoria = ($1,200,000 - $1,000,000) × 4.85% = $9,700 annually.

Do contractor payments count?

Some do. Contractors paid mainly for labour (rather than achieving specific results) may be subject to payroll tax. Each arrangement needs individual assessment based on the substance of the relationship.

What are group employer provisions?

Related companies must combine wages when determining liability. You can't avoid payroll tax by splitting wages across multiple related entities. This includes companies with common ownership or control.

When is payroll tax due?

Most states require monthly payment by the 7th or 28th of the following month, plus an annual reconciliation return due by 21st July (28th July for ACT, NSW, and SA).

Are there any exemptions?

Yes, including apprentice wage exemptions, regional business incentives, new business concessions, and industry-specific exemptions. Availability and conditions vary by state.

What are common mistakes?

Misclassifying contractors, ignoring fringe benefits, forgetting group provisions, missing registration deadlines, not including all wage types, and incorrectly calculating multi-state obligations.

Do I need professional help?

Given the complexity and penalties for non-compliance, many businesses benefit from consulting registered tax agents or payroll specialists, especially for multi-state operations or complex contractor arrangements.

What happens if I don't comply?

Penalties can include registration penalties, late lodgement fees, interest on unpaid amounts, and in serious cases, prosecution. Penalties often exceed the actual tax liability for small businesses.

Can I get a refund if I overpay?

Yes, you can apply for refunds of overpaid payroll tax. However, there are time limits and specific procedures that vary by state. Professional advice can help ensure you don't overpay.

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