Contrary to what a lot of businesses think payroll tax is not administered by the Australian Tax Office. It is administered by each State by their own Office of State Revenue. It is a State-based tax, not a Federal government tax.
Payroll tax is levied on the amount of your employees’ wages. Unfairly it has nothing to do with the profitability of your business.
Every State and Territory in Australia has its own individual rate of tax and the amount of wages from which payroll tax applies “threshold”. However, most of the States’ legislation has been harmonised since 2007 so at least the legislation is much the same in every State and Territory.
A summary of the payroll tax rates and threshold amounts for wages as at the 1 July 2016 is:
| 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 | 4.95% | $600,000 |
| Tas | 6.10% | $1,250,000 |
| Vic | 4.85% | $575,000 |
| 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.
If your wages do not exceed the threshold for your State then you are not liable for payroll tax.
Even though that may seem simple enough, it is not quite that simple.
One also has to consider the definition of “wages” and the meaning of “employees” under the Payroll Tax legislation.
Wages
Almost all payments made to employees are included in the Payroll Tax definition of wages. The definition includes:
- Overtime payments
- Allowances
- Holiday pay
- Long service leave
- Superannuation
- Fringe benefits
- Directors’ fees
This is not an exhaustive list.
There are a few exemptions such as paternity leave and apprentices/trainees’ wages but you need to check each State’s legislation.
Exempt organisations
A number of employers in some of the States are exempt from payroll tax such as:
- religious institutions
- public benevolent institutions
- public or non-profit hospitals
- primary and secondary schools or colleges
- municipal councils
- charitable organisations
Genuine Independent Contractor or an Employee
This is one area a lot of businesses have trouble understanding. It is not helped by there being no definition of “employee” in the Payroll Tax legislation. That means you must apply common law principles to define “employee”.
Most businesses think that if they engage a person who has their own ABN then that person is an independent contractor and not an employee. However, that is often not the case. And it doesn’t matter if the person concerned is invoicing you through their own company or family trust.
There are a number of indicators to consider when trying to ascertain the real status of a person as a genuine independent contractor or an employee. Each case turns on its own facts.
However, the most compelling indicator is where the person has the ability to delegate their work. That is not something you would normally expect an employee to be entitled to do.
Grouping of businesses
The grouping provisions were introduced to stop companies from artificially splitting up their businesses to avoid paying payroll tax. It was not intended to include businesses that are not substantially connected with, or dependent on, each other.
However, the grouping provisions are so wide that some businesses fall within the grouping provisions even though they shouldn’t be. Fortunately, the legislature has provided a mechanism to be excluded from the grouping provisions which includes an application to the Commissioner of State Revenue for exemption.
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
