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.
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
Each year, the rates are reviewed and updated where required. A monthly wage threshold is available per state to support the above annual rates.
Some payments to employees are exempt from payroll tax, including Paid Parental Leave (PPL) under the Commonwealth Government scheme, additional wages paid to employees to meet the requirements of the JobKeeper 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 –28th July
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.
COVID-19 Payroll Tax Concessions
All states have now released details on their Payroll Tax concessions as a result of COVID-19.
New South Wales
- Waiver – If your grouped Australian wages for the 2019/20 financial year are no more than $10 million, your annual tax liability will automatically be reduced by 25% upon lodgement of your annual reconciliation (due 28th July) . No separate application is required.
- Deferral – All businesses (no wage limit) have the option of deferring their Payroll Tax payments until October 2020 however the annual reconciliation is still required to be lodged by the due date. The deferral includes any outstanding liability for the 2019/2020 financial year and the monthly payments for July, August & September 2020. If businesses, are unable to pay in October 2020, an instalment plan can be applied for at this point.
- Other – The NSW state government have confirmed any JobKeeper top-ups and payments to stood-down employees will be exempt from Payroll Tax.
As most of our clients employ staff in NSW, I have focused on the details of this relief however further information on each states current relief measures can be found below:
- New South Wales
- South Australia
- Northern Territory
- Western Australia
- Australian Capital Territory
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);
- 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); and
- There are Payroll Tax Concessions as a result of COVID-19.
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 talk with us.