Payroll Tax in Australia is often misunderstood by business owners, which can be costly if you qualify but don’t register for it. So if you are an employer in Australia, you may be liable for payroll tax depending on your total wages expenses – which means you need to read on for more details.
Payroll tax is a state and territory-based tax that employers with wages over the threshold need to pay. Each state or territory sets its own payroll tax threshold and once an employer reaches that threshold, they are required to self-register for payroll tax.
So far it’s simple, right? While it’s true that the basics aren’t that complicated, it becomes more complex if:
- You use contractors in your business,
- Your business is part of a group employer, or
- You employ people in other states.
It’s important to get it right – there can be steep penalties for failing to register or make payroll tax payments!
Following is a guide to help you out.
Payroll Tax Rates
The amount to be paid will depend on several things:
- The business’s total ‘liable wages’ compared to the threshold amount
- The state or territory payroll tax rate
- Any exemptions the employer is entitled to
What is included in ‘liable wages’?
The most common types of remuneration subject to payroll tax include:
- Salaries, commissions, director fees, bonuses, allowances and any ordinary earnings, penalty rates, overtime and leave payments
- Apprentice/trainee payments (depending on the state or territory)
- Some payments to Contractors
- Fringe benefits – all benefits subject to the Fringe Benefits Tax Assessment Act 1986
- Superannuation contributions (including super guarantee and salary sacrifice)
- Leave and termination payments (those declarable for income tax purposes)
- The value of shares and options given to employees and directors.
2020 Financial Year Thresholds & Rates
|Payments for employees in:||Threshold||Payroll Tax Rate|
|New South Wales||$900,000||5.45%|
|Australian Capital Territory||$2,000,000||6.85%|
* variable amount from 0%-4.95% between $1.5 million and $1.7 million. 4.95% from $1.7 million.
** 2.425% for regional employers.
*** 6.10% above $2 million
Some payments to employees are exempt from payroll tax, including Paid Parental Leave (PPL) under the Commonwealth Government scheme, expense reimbursements and tax-exempt redundancy payments.
Payments to contractors are subject to payroll tax, unless an exemption is met. There are specific criteria a contractor arrangement must meet to be exempt from payroll tax.
Registration, Lodgement and Payment Obligations
Registration for payroll tax is required in each state once your total monthly Australian wages exceeds the monthly threshold for that state.
Once registered, your reporting and payment obligations are monthly. At the end of the year an annual reconciliation is required to be lodged. For NSW, the lodgement and payment obligations are:
- Monthly – 7 days after the end of the month
- Annual – 21stJuly
Other Payroll Tax Factors to Consider
Employers may be grouped for payroll tax purposes. This means their wages are added together and one payroll tax threshold applies. Grouping can occur when two employers have common control or common use of employees.
Threshold Entitlement – employees in multiple states or territories
If an employer has employees in different states, the threshold entitlement for each state is calculated on a proportional basis. For example, if 25% of your liable wages are in Sydney and 75% are in Melbourne, your threshold entitlement would be 25% of the NSW threshold and 75% of the VIC threshold.
What Are The Next Steps?
By now you should know whether you are liable for Payroll Tax. If you are and you haven’t yet registered then you can do that via Payroll Tax Australia.
However, even if you are not currently required to register for Payroll Tax, it is important for all businesses to understand, monitor and continually review their Payroll Tax obligations considering that:
- Payroll tax thresholds are continually changing and vary between States and Territories;
- The definition of ‘taxable wages’ for Payroll Tax purposes has a wide application and is not restricted to salaries and wages paid to employees;
- Grouping rules can result in two or more businesses being entitled to only one Payroll Tax threshold (i.e. related companies, use of common employees, commonly controlled businesses etc); and
- Payroll Tax compliance programs of state revenue offices have increased within recent years with substantial penalties imposed for non-compliance (including penalty tax and interest).
So make sure you stay updated with the changes to avoid costly ramifications, and if you would like to discuss your situation in more detail then please don’t hesitate to get in touch with our team who will certainly assist you.