Payroll tax – What is payroll tax?
Payroll tax is an Australian state tax that employers pay on the money they spend employing their staff.
Payroll tax is just one of many taxes you need to consider when you run a small business. Find out more about small business taxes in Australia.
Whereas some taxes – such as income tax and GST – are managed federally, payroll tax is managed by individual states and territories, which means that the rates and thresholds for payroll tax vary throughout the country.
Payroll tax is collected in each state or territory that your employees are located in, so you may be liable for payroll tax in more than one state if you have employees across Australia.
Payroll tax rate
Because payroll tax is managed by individual states and territories, the rate you'll pay depends on where your employees are located. For the 2019-2020 tax year, the payroll tax rates are:
- Western Australia: up to 6.5%, depending on how much you pay in wages per year
- Northern Territory: 5.5%
- South Australia: between 0% and 4.95%, depending on how much you pay in wages per year
- Queensland: 4.75% if you pay less than $6.5 million in wages per year, 4.95% if you pay more than $6.5 million
- New South Wales: 5.45%
- Victoria: 4.85% (or 2.425% for regional employers)
- Australian Capital Territory: 6.85%
- Tasmania: 4% (or 6.1% if you pay more than $2 million in wages per year)
Payroll tax threshold
Businesses are only required to pay payroll tax if their Australia-wide payroll bill is above the payroll tax threshold, which varies between states. For the 2019-2020 tax year, the payroll tax thresholds in each state and territory are:
- Western Australia: $850,000 per year, $70,833 per month
- Northern Territory: $1,500,000 per year, $125,000 per month
- South Australia: $1,500,000 per year, $125,000 per month
- Queensland: $1,300,000 per year, $108,333 per month, $25,000 per week
- New South Wales: $900,000 per year
- Victoria: $650,000 per year, $54,166 per month
- Australian Capital Territory: $2,000,000 per year, $166,666.66 per month
- Tasmania: $1,250,000 per year
If you have employees in more than one state or territory, you may need to register in more than one state, depending on whether your total payroll bill is above the payroll tax threshold in those states.
For example, you have employees in Western Australia and South Australia. In total, you spend $900,000 per year on wages for your employees across the country. You cross the payroll tax threshold in Western Australia but not in South Australia. You therefore only need to register and pay payroll tax in Western Australia.
How to calculate payroll tax
Payroll tax is calculated based on the total amount you spend on payroll. This figure includes the money you spend on employee wages and salaries, directors' remuneration, bonuses, commission, superannuation, allowances, fringe benefits, and termination payments. Your payroll bill is based on the total amount you spend throughout Australia, rather than the amount you spend in specific states.
Once you’ve calculated your total payroll bill, you need to work out where you might need to pay tax and check whether you cross the payroll tax threshold.You then need to apply the payroll tax rate to the amount you spent on wages, salaries, etc. In some states, you may receive a tax deduction, which means that you only pay tax on a certain percentage of your payroll bill.
Payroll tax return
Payroll tax is collected by individual states and territories, and you therefore need to lodge payroll tax returns in each state or territory that you’re taxed in. Each state has its own process for lodging payroll tax returns, which is usually online.
If you’re liable for payroll tax, you will need to lodge payroll tax returns for every month apart from June. You also need to submit an annual payroll tax return in July, which should include the wages from June. The annual return allows you to check that you’ve reported the correct figures throughout the year and to make any necessary adjustments to your monthly payroll tax returns.
Payroll tax due dates
As part of an attempt to harmonise the payroll tax process across Australia, the payroll tax due dates are the same in every state and territory.
Monthly payroll tax returns are due on the 7th of the following month. For example, if you are lodging your return for April, you need to submit your return and pay any tax due by May 7th. Annual payroll tax returns are due by July 21st.
Payroll tax exemption
Not all businesses are liable for payroll tax. Businesses that do not meet the payroll tax threshold are exempt, and your business might also have payroll tax exemption if you meet certain criteria.
For example, businesses can get payroll tax exemption in Tasmania if they relocate to Tasmania from another state or territory. You could also be exempt from payroll tax if you run a charity.