Payroll tax is a State based tax paid by employers. It is collected throughout Australia by each State and Territory. Each State and Territory has its own rules for calculating and applying payroll tax. Even though it is a state based tax it is calculated on the total wages you pay in Australia.
Here are seven things you should know before registering for payroll tax:
1. When you must register
You must register for payroll tax whenever your Australian wages exceed the weekly or monthly amount specified by each State or Territory. In Queensland and Tasmania if your wages exceed the amount specified in any week you must register. The other States and Territories provide for monthly amounts. All the States and Territories except NT require payment to be made within 7 days after the end of a month. NT is 21 days. Details are:
| State/Territory | You must register when your Australian wages exceed |
|---|---|
| ACT | $166,666 per month |
| NSW | $98,630 per 30 day month |
| NT | $125,000 per month |
| Qld | $25,000 per week |
| SA | $125,000 per month |
| TAS | $102,700 per 30 day month |
| VIC | $54,166 per month |
| WA | $83,333 per month |
2. How Payroll Tax is Calculated
Payroll tax is calculated on the amount of your monthly wages. However, each State and Territory has its own exemption threshold amounts. These thresholds vary among the States and Territories. If your total Australian wages are under the threshold for your State or Territory you have no payroll tax liability in that State or Territory but you may have a taxation liability if you pay wages in another State or Territory that exceeds that State or Territory’s threshold amount.
The thresholds are:
| State/Territory | Rate | Threshold |
|---|---|---|
| ACT | 6.85% | $2,000,000 |
| NSW | 5.45% | $750,000 |
| NT | 5.50% | $1,500,000* |
| QLD | 4.75% | $1,100,000* |
| SA | 2.5% to 4.95% depending on wages paid for the full financial year | $600,000 |
| TAS | 6.10% | $1,250,000 |
| VIC | 4.85% or 3.65% for regional employers | $625,000 |
| WA | 5.50% | $850,000** |
*Threshold reduces by $1 for every $4 that the threshold is exceeded. In Qld you do not get the benefit of the threshold after $5.5m and NT after $7.5m.
**Diminishing threshold. Over $7.5m no threshold applies.
3. What’s included in Wages
Almost all payments made to employees are regarded as wages and include:
- Penalty rates, overtime payments, long service leave, holiday pay, sick leave, piece work rates, study leave, bonuses and termination payments
- Commissions
- Superannuation including salary sacrifice arrangements and top-up lump sum contributions made by employers into superannuation
- Most allowances such as clothing, tool, relocation and travel
- Fringe benefits such as loans to employees, free trips away and club memberships
- Employer contributions to employee share or option schemes
- Directors’ fees
Some exemptions:
- Wages paid to staff who are otherwise taking part in emergency operations with the SES or the Army Reserve but sick and recreational leave and long service leave are excluded from the exemption.
- Paternity leave but only up to 14 weeks normal time or 28 weeks part-time
- Accommodation allowances but only up to the exempt rate determined by the ATO
4. Who is Exempt from Paying Payroll Tax
Exemptions apply to:
- Public hospitals
- Charitable and religious institutions
- Not for profit schools and kindergartens
- Not for profit private hospitals
However, only wages paid to persons performing services that relate directly to the objects of the body are exempt.
5. Grouping of employers
Grouping provisions were introduced in the mid-1970s to overcome companies employing some of their employees by different entities to take advantage of the threshold exemption.
Some of the grouping provisions deem a worker to be employed by someone who is not in fact the worker’s employer. Other provisions provide for the grouping of entities that are connected in one or more of the ways specified in the legislation, and if two or more entities are grouped by the Act, the group gets only one such threshold exemption, rather than one for each separate entity.
The following groups are caught under the legislation:
- Using common employees
- Commonly controlled businesses
- Arising from tracing of interests in corporations
- Smaller Groups subsumed into larger groups
Because the grouping provisions are so wide the Office of State Revenue has discretion to exclude a business from being “grouped” if it can be shown that the businesses are sufficiently independent.
6. Contractors
Businesses are often caught for payroll tax because they thought payments to contractors did not amount to “wages”. In some cases, though not all, they are liable for payroll tax on these payments.
Despite the worker holding an ABN or invoicing the employer for his/her work the Office of State Revenue will regard payments as “wages” where:
- The worker is engaged directly or indirectly on an hourly or piecework rate
- The payment is wholly or principally for the labour of the worker
- The manner and sequence in which the work is performed is controlled by the business owner
- The worker performs the required services at the business owner’s business premises
7. Audit Activity
The Office of State Revenue carries out on-going audit activity. They have access to wages data held by the ATO, Workcover and the other States and Territories’ government offices. They match their own information records with the data held by the other various government offices.
Because there are many areas where you need to be certain of your rights and obligations before you are obliged to register for payroll tax you should seek specialist legal advice at the earliest opportunity.
If you would like to know more about payroll tax or how Peter Tobin can help you minimise payroll tax give Peter a call on 07 3260 5189 or email: peter@tobin.net.au
