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.
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
Understanding your state's specific rates and thresholds is crucial for accurate planning. Here's the current breakdown:
Important Notes:
Check out our payroll tax threshold calculator here
Payroll tax becomes relevant when your business meets specific criteria:
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.
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.
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.
Let's examine three realistic scenarios for Australian businesses using correct rates and thresholds:
Understanding what constitutes "wages" for payroll tax purposes is essential:
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.
Maintain detailed records of:
Most states require monthly lodgement and payment, with annual reconciliation returns. Key dates:
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.
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.
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.
Failing to register by the required deadline can result in penalties of several thousand dollars, even if no tax is ultimately payable.
Remember that thresholds apply to total Australian wages, not just wages in your home state.
For businesses approaching the threshold, consider:
When expanding interstate, factor in different state thresholds and rates. Some businesses benefit from establishing operations in states with higher thresholds or lower rates.
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.
Several states offer specific concessions for small businesses:
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.
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.
Some states offer exemptions for specific industries like not-for-profit organizations, religious institutions, or seasonal agricultural workers.
If your business operates across multiple states, payroll tax becomes more complex:
You may need to register in multiple states if you exceed individual state thresholds, even if your total wages are below the combined threshold.
Wages must be apportioned to the state where work is performed, which can be challenging for remote workers or travelling employees.
Managing multiple state registrations, returns, and payment schedules requires careful planning and often professional assistance.
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:
The cost of professional advice is often minimal compared to penalties for incorrect compliance or overpayment of tax.
Payroll tax legislation changes regularly. Recent trends include:
Stay informed about changes by:
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:
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.
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.
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.
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.
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.
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.
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.
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).
Yes, including apprentice wage exemptions, regional business incentives, new business concessions, and industry-specific exemptions. Availability and conditions vary by state.
Misclassifying contractors, ignoring fringe benefits, forgetting group provisions, missing registration deadlines, not including all wage types, and incorrectly calculating multi-state obligations.
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.
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.
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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