Payroll tax obligation in Australia

Payroll tax can be a tricky subject for many business owners in Australia. With different thresholds and compliance rules across states, it’s easy to get lost in the details. But if your business has employees, understanding payroll tax is crucial to staying compliant and avoiding unexpected penalties.

At its core, payroll tax is a state-based tax on wages paid by employers once they exceed a specific threshold. While it’s often mistaken for a federal tax, each state and territory sets its own payroll tax rates and thresholds. This means that where your business operates determines how much payroll tax you’ll need to pay—or whether you’ll need to pay it at all.

Each state and territory has its payroll tax threshold, meaning businesses only pay payroll tax if their total Australian wages exceed the relevant threshold. While thresholds differ, many states have set a payroll tax-free threshold of around $1.2 million annually.

As of 2024, payroll tax thresholds in some key states are:

• New South Wales (NSW): $1.2 million
• Victoria (VIC): $700,000
• Queensland (QLD): $1.3 million
• Western Australia (WA): $1 million
• South Australia (SA): $1.5 million
• Tasmania (TAS): $1.25 million
• Australian Capital Territory (ACT): $2 million
• Northern Territory (NT): $1.5 million

If your business’s total wages exceed these thresholds, you must register for payroll tax and begin making payments.

If your total taxable wages are below the payroll tax threshold for your state or territory, you do not have to pay payroll tax. However, you should still:

• Monitor your payroll expenses: If your wages are approaching the threshold, you may soon need to register for payroll tax.
• Understand what counts as wages: Payments such as salaries, superannuation contributions, bonuses, and some contractor payments may contribute to your payroll total.
• Check your state’s specific rules: Some states have exemptions for certain types of wages or businesses.

Keeping up with different payroll tax rules is essential if your business operates across multiple states. Even if you’re under the threshold in one state, you may exceed it in another. Some states, such as New South Wales, require businesses to aggregate wages paid across multiple states. This means that even if your payroll is below the threshold in one state, wages paid elsewhere could push you over the limit, requiring payroll tax registration. Careful tracking and professional advice and management are key.

If your total wages exceed your state’s payroll tax threshold, you must register and pay payroll tax. Your obligations include:

Registering for payroll tax: Businesses that exceed the threshold must register for payroll tax with their state or territory revenue office. Registration can usually be completed online.
Calculating payroll tax: Payroll tax is a percentage of total taxable wages. Rates differ by state but typically range from 4% to 6.85%. For example, in NSW, the payroll tax rate is 5.45% for wages above $1.2 million. If a business pays $2 million in taxable wages, the payroll tax would be: ($2,000,000 – $1,200,000) × 5.45% = $43,600
Lodging and paying payroll tax: Payroll tax is generally paid monthly but may have quarterly or annual options depending on the state and the business’s total payroll amount.
Businesses must:
Lodge payroll tax returns (typically online)
Calculate and pay payroll tax based on total taxable wages
Keep accurate records of wages, superannuation, and contractor payments

Businesses under common control (e.g., subsidiaries, related entities) may be grouped for payroll tax purposes, meaning their combined wages determine whether they exceed the threshold. If grouped, businesses must share a single threshold rather than each entity having its own.

It is important to seek professional advice as some industries or payments may be exempt from payroll tax. Apprentices and trainees (in certain states) and charitable and not for profit organisations are usually exempt and there are various specific industry exemptions such as some medical and educational institutions.

Some states also offer rebates or discounts for businesses that employ new workers or operate in regional areas.

In other words, professional advice from a qualified business accountant will ensure your business or organisation is compliant and is receiving any exemptions it is entitled to.

Avoiding registration or failing to pay payroll tax has financial consequences and can result in penalties. You may be required to pay interest on unpaid tax, fines for late lodgements, or be audited.

To stay compliant, business owners should review payroll expenses regularly to ensure correct reporting and use certified payroll software that tracks taxable wages and alerts for threshold breaches. To safeguard your business, consult a tax professional, as payroll tax rules can be complex, especially when your business operates across different jurisdictions.

We strongly encourage you to take payroll tax seriously, particularly as your business grows and expands its workforce. Understanding whether your business is liable and ensuring compliance with state-specific regulations will help you avoid penalties and manage cash flow effectively.

North Advisory is a specialist business, tax, and accounting advisory firm located in Sydney’s Northern Beaches. We work with various industries, ensuring they maximise their financial opportunities, safeguard compliance, and remain competitive in challenging business environments.