When do you have to pay payroll tax?

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Taxation
By
John Liston
John Liston
Director | Adviser
March 31, 2020
5
minute read

What you need to know to understand payroll tax for your business

Payroll tax is required for businesses whose total wage payments reaches and exceeds a certain threshold. But it differs for each state, so it’s important to understand the payroll tax obligations for your state.

Liston Newton Advisory will work with you to ensure you understand exactly what your payroll tax obligations are, and when you’re required to pay them.

What is payroll tax?

Payroll tax itself is reasonably straightforward. It’s a tax you pay that’s assessed based on the amount you spend on employee wages.

It comes into effect when your business reaches or exceeds your state’s threshold, and it varies from state to state.

Payroll tax can be lodged either monthly, quarterly, or annually, with your state’s revenue office.

When do I start paying payroll tax?

If your business reaches or exceeds your state’s payroll tax threshold, you’re required to lodge payroll tax. This differs depending on the state in which your business is based, and the amount your business pays in employee wages.

  • VIC threshold: $54,166 (monthly), $650,000 (annually)
    VIC rate:
     4.85% or 2.425% for regional employers
  • NSW threshold: $65,205 (28-day month), $69,863 (30-day month), $72,192 (31-day month), $950,000 (annually)
    NSW rate
    : 5.45%
  • ACT threshold: $166,666.66 (monthly), $2 million (annually)
    ACT rate:
     6.85%
  • QLD threshold: $25,000 (weekly), $108,333 (monthly), $1.3 million (annually)
    QLD rate
    : 4.75%
  • SA threshold: $125,000 (monthly), $1.5 million (annually)
    SA rate
    : variable from 0% to 4.95%
  • WA threshold: $79,166 (monthly), $950,000 (annually)
    WA rate
    : 5.5%, and $950,000—$7.5 million receives a diminishing threshold
  • NT threshold: $125,000 (monthly), $1.5 million (annually)
    NT rate: 
    5.5%
  • TAS threshold: $95,890 (28-day month), $102,740 (30-day month), $106,164 (31-day month), $1.25 million (annually)
    TAS rate: 
    4%, but amounts over $2 million receive a subsequent rate of 6.1% and a 60% increase on monthly thresholds

There are two requirements to meet each state’s full tax-free threshold. Your business must:

  • only pay employees or contractors in one state or territory.
  • have employed staff or contractors for the full financial year.

What wages are assessed for payroll tax?

There are many different employee payments and benefits that attract payroll tax. These are all assessed as an accumulated sum.

  • Employee wages (including PAYG)
  • All payments to contractors
  • Remuneration for company directors
  • Superannuation
  • Bonuses and commissions
  • Employee allowances and fringe benefits
  • Termination payments

What if I have a business in different states?

Once your total wage payments reach or exceed your state’s threshold, you’re required to register for payroll tax in each state or territory in which you employ and pay staff.

However, each state threshold is assessed on your wage payments Australia-wide. So if you employ staff in more than one state, your state threshold takes into account your complete staff payments, effectively reducing the threshold for each state.

Example

Your business has a branch in Victoria and WA. You pay $500k in wages in VIC, and $400k in WA. Your total Australian wages are $900k.

While your total VIC wages are below the threshold of $650k, your total Australian wages exceed the threshold, so you’re required to register for payroll tax in VIC.

Your total WA wages don’t exceed the threshold, so you’re not required to apply for payroll tax in WA.

What if I have different businesses?

If you own, or can claim substantial management or ownership relations across more than one business, then their wage payments may be considered as combined for payroll tax assessment.

For example, your group wages may be considered as combined for tax purposes if:

  • You control at least two businesses
  • You have a substantial controlling interest in two or more businesses
  • Your business is a subsidiary of another company, or a holding company
  • You employ the same staff across more than one business

Similar to assessment across states, if your wages across multiple businesses combined exceed your relevant state’s tax threshold, you may be required to register for payroll tax.

When registering, you must state that you own more than one business, or that you’re part of a group that does.

If you’re part of a business group, then only one member of the group can claim each state’s tax-free threshold. The remaining business group members pay a flat tax rate.

If you’re a single business when you register but purchase another business at a later date, you can change your status with your state’s revenue office.

Do I pay payroll tax on contractors?

If you employ a contractor who is a one-person business, whose majority of work is for your business, then they’re considered an employee for payroll tax purposes. You must then include their wages in your assessment.

Certain exceptions do apply, so contact your state’s revenue office to find out.

How do I register for payroll tax?

As a business, you’re required to assess your wage payments yourself. If your wage amounts approach or reach your particular state’s threshold, then the onus is on you to register for payroll tax.

Upon assessment that your business has reached the threshold, you must lodge your payroll tax application with your relevant state’s revenue office. Most of these can be done online.

Accounting software platforms such as Xero can help calculate your wage payments and assist you in determining your wage payment levels.

It’s important that you follow your payroll tax obligations strictly, as each state conducts regular audits on business wage payment levels.

When lodging your application for payroll tax, you’ll need to supply the following information:

  • Your business’ ABN
  • The total amount of wages paid in each state or territory where your business operates
  • An estimate for the following financial year’s wages

Also, if you own one or more businesses, or you’re part of a business group, you’ll need to provide the total amount of wages paid across all businesses

The final word

When you look at the numbers, payroll tax won’t likely be required if you only have a handful of employees. But it’s important to be aware and keep track of your wage payments.

Remember, this includes regular staff wages, but also employment benefits, superannuation, bonuses, and termination payments.

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