Published: June 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.
Understanding your state's specific rates and thresholds is crucial for accurate planning. Here's the current breakdown:
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 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.
Let's examine three realistic scenarios for Australian businesses:
Business: Digital marketing agency in VictoriaAnnual wages: $850,000Calculation:
Business: Construction company in NSWAnnual wages: $1,450,000Calculation:
Business: Software company in QueenslandAnnual wages: $1,100,000Calculation:
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.
Maintain detailed records of:
Most states require monthly lodgement and payment, with annual reconciliation returns. Payment is typically due by the 7th or 28th of the following month, depending on your state.
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, 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, even if no tax is ultimately payable.
For businesses approaching the threshold, consider timing of wage payments, bonus structures, and hiring decisions to manage your liability.
When expanding interstate, factor in different state thresholds and rates. Some businesses benefit from establishing operations in states with higher thresholds.
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 $14,550 – a significant amount that requires 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.
Some states offer payroll tax exemptions or reductions for businesses operating in designated regional areas.
Certain states provide temporary exemptions or reduced rates for new businesses or those creating jobs in specific industries.
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:
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.
Scale Suite provides scalable finance and HR solutions designed to fuel the growth of your Australian businesses. Offering customised packages tailored to your unique needs, our flexible solutions seamlessly integrate with your internal team, complementing in-house staff and tax accountants, while saving your time on unwanted tasks and reducing salary costs.
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