State and territory taxes
Payroll tax
Payroll tax is a state and territory tax on wages paid by employers above a threshold, administered by state revenue offices, not the ATO, and it varies by jurisdiction.
Payroll tax is a tax on the wages that employers pay, and it is administered by state and territory revenue offices, not by the ATO. Each jurisdiction has its own legislation, rates, thresholds and rules, so the amount you owe depends on where your employees work and how much you pay in total. Because of these differences, you need to check with the revenue office in each state or territory in which you pay wages.
The tax generally applies only to employers whose total wages exceed a threshold set by the relevant jurisdiction. Small employers with wages below the threshold do not pay it, but those above it pay a percentage of the wages over the threshold. Rates, thresholds and any concessions change from time to time and differ between jurisdictions, so no single figure can be given here.
Taxable wages are defined broadly. They can include salaries, bonuses, commissions, allowances, employer superannuation contributions, fringe benefits and, in many jurisdictions, certain payments to contractors where they are treated as employees for payroll tax purposes. The contractor rules are particularly complex and can catch businesses by surprise, so it is worth checking whether payments to contractors are included.
Grouping rules can combine businesses that are related, for example by common control, so that their wages are added together for the threshold. This can bring a group of small businesses into the system when each would be under the threshold alone. Employers register with the state revenue office, lodge returns, often monthly, and reconcile annually, but the details and dates vary by jurisdiction.
Payroll tax does not involve GST on the tax itself. It is a government tax and not a supply for GST purposes. It is also separate from PAYG withholding, which is the tax withheld from employee pay for the ATO, and from superannuation. Payroll tax paid is generally a deductible expense for income tax, but it has no GST credit associated with it.
A common mistake is thinking payroll tax is administered by the ATO, or forgetting that wages paid across state borders can create obligations in more than one jurisdiction. This is general information only, so confirm your situation with your state or territory revenue office or a registered tax professional.
Worked example
Assume, purely for illustration, a state has a payroll tax threshold of $1,000,000 and a rate of 5%, and an employer pays $1,200,000 in taxable wages. Taxable amount above the threshold is $200,000. Payroll tax would be $200,000 x 5% = $10,000. Real thresholds, rates and calculation methods vary by state and territory, so check with the relevant revenue office.
Practical tips
- Check with the revenue office in each state or territory where you pay wages, because rules differ.
- Review whether contractor payments are included in taxable wages in your jurisdiction.
- Watch the grouping rules if you have related businesses, as wages may be combined for the threshold.