Managing payroll tax compliance in Australia can be a complex task, particularly for businesses with operations spanning across multiple states. Each state and territory has its own thresholds, tax rates, legislation and guidelines, which can pose challenges for compliance. For businesses that have embraced remote working this could add another layer of complexity as it may impact the payroll tax obligations. Understanding the nuances of multi-state payroll tax obligations is essential for businesses to ensure they meet their legal requirements and avoid penalties.
What is payroll tax?
Payroll tax is a levy imposed on the wages a business pays to its employees and sometimes it contractors. This tax is calculated based on the total wage bill and becomes applicable once these wages surpass a specified threshold, which is calculated differently for businesses that pay wages in multiple states and territories.
This area of taxation often confuses employers, especially when dealing with employees across different states. Each state has its own thresholds and rules, adding complexity to an already widely misunderstood tax system.
Calculating payroll tax for businesses operating in multiple states or territories
Calculating payroll taxes can be challenging for businesses that employ and pay wages in one or more Australian states or territories. Efforts have been made towards streamlining and harmonising payroll tax obligations across states; however, each state maintains its own tax rate, thresholds, exemptions, payment schedules and guidelines, that often require individual calculations for each jurisdiction where employees are paid.
Step 1. Calculate Total Wages Across Australia
Start by calculating the total wage bill for your entire business across all states and territories you operate and pay wages in. Paying special attention to your staff who often work interstate, and your remote and hybrid employees. Usually, payroll tax is payable where your employees principal place of residence is for that month, so if this varies month on month you will need to ensure you are reporting the correct figures for taxable wages in each state and territory.
Step 2. Determine if Total Wages Exceed State Thresholds
Each state has differences in their payroll tax rates and thresholds. It is important to know what these are and be aware of any changes in the rates and thresholds as this could impact your tax obligations. The table below shows an overview of the rates and thresholds across Australia, however for some states there may be additional levies that apply, information on this can be found on your State Revenue Office’s website.
| State / Territory | Rates | Thresholds |
|---|---|---|
| Queensland | 4.75% $6,500,000 or less 4.95% more than $6,500,000 |
Annual $1,300,000 Monthly $108,333 |
| New South Wales | 5.45% | Annual $1,200,000 |
| Victoria | 4.85% 1.2125% for regional employers |
Annual $700,000 Monthly $58,333 |
| South Australia | 0% to 4.95% more than $1,500,000 but less than $1,700,000 4.95% more than $1,700,000 |
Annual $1,500,000 Monthly $125,000 Weekly $28,846 |
| Western Australia | 5.5% | Annual $1,000,000 Monthly $83.333 |
| Tasmania | 4% $1,250,001 to $2,000,00 6.1% $2,000,001 or more |
Annual $1,250,000 Weekly $24,038 |
| Australian Capital Territory | 6.85% | Annual $2,000,000 Monthly $166,666.66 |
| Northern Territory | 5.5% | Annual $1,500,000 Monthly $125,000 Weekly $28,846 |
* Rates and thresholds accurate as of April, 2024
When your business operates in more than one Australian state or territory, you won’t be eligible for the full tax-free threshold in any single jurisdiction. Instead, the tax-free threshold for each state where wages are paid will be determined based on a proportion that reflects the percentage of total Australian wages paid within that particular state.
Navigating payroll tax obligations becomes more complex when your business exceeds the payroll tax thresholds in multiple jurisdictions. Whenever you find that payroll tax calculations are becoming confusing or you are unsure about compliance it is best to consult a payroll tax expert to ensure accurate reporting and prevent costly mistakes and penalties.
Grouped Employers and Payroll Tax Obligations
For businesses that are part of a payroll tax group, the total Australian taxable wages could alter your payroll tax obligations significantly. Managing payroll for grouped employers often requires a nuanced understanding of how wages are aggregated and thresholds are applied. For detailed advice and clarity on payroll tax obligations for group members, it is beneficial to contact a payroll tax specialist. An expert with extensive experience can provide guidance tailored to your specific situation, ensuring compliance and optimising your payroll tax strategy.
Step 3. Calculate Applicable Wages
If the total wages your business pays within any state or territory exceed the relevant payroll tax thresholds, you need to determine the portion of those wages that is subject to payroll tax. This applies whether considering individual state wages or the combined wages of a group that exceeds these thresholds.
This is calculated by pro-rating the tax-free threshold based on the proportion of wages paid in a particular state relative to the total wages paid across Australia. This ensures that businesses operating in multiple states do not receive multiple full thresholds, which would otherwise give them an unfair advantage over businesses operating solely within one state or territory.
For each state you would need to determine the pro-rated threshold, keeping in mind that there are differences in the method of calculation for each state and territory. Refer to the relevant revenue office websites for specific information. As a general rule the prorated threshold can be calculated using the following formula:
Pro-rated Threshold = (State or Territory’s Wages / Total Australian Wages) x Full Threshold
Repeat this calculation for each state where you pay wages to determine your payroll tax obligations in each jurisdiction.
Please Note: For businesses that are part of a payroll tax group, only the Designated Group Employer (DGE) or the Single Lodger (SL) is entitled to the tax-free threshold.
For example:
If your business paid a total of $5,000,000 in wages nationwide. If $1,000,000 of those wages were paid to employees in New South Wales, the steps for calculating your payroll tax in New South Wales would be:
1. Calculate your tax-free threshold
Proportionate NSW tax-free threshold = (total NSW wages / total Australian wages) x NSW payroll tax threshold
($1,000,000 / $5,000,000) x $1,200,000 = $240,000
2. Calculate wages applicable for payroll tax
NSW wages – Proportionate NSW tax-free threshold = Applicable wages
$1,000,000 – $240,000 = $760,000
3. Calculate your payroll tax obligation
Applicable wages x NSW payroll tax rate = payroll tax obligation
$760,000 x 5.45% = $41,420
This process becomes increasingly more complex with each additional state in which you pay wages, as each calculation must be done separately to comply with the specific tax laws and thresholds of that state. Additionally, each state or territory may have different calculations and payment schedules which will impact how these figures are calculated.
For more information and resources on payroll tax rulings and state legislation visit the Payroll Tax Australia website.
Differences in Payroll Tax Legislation Between States
While the specifics of payroll tax can vary from state to state, there have been efforts towards harmonisation to simplify compliance for businesses operating across multiple jurisdictions. These efforts aim to standardise definitions, exemptions, and administrative processes to a certain degree. However, significant differences remain, and businesses must navigate these carefully to avoid costly mistakes.
Key Differences:
- Tax-free Thresholds: Each state and territory sets its own tax-free threshold, which can vary in amounts annually, monthly and weekly.
- Interstate Wages: How interstate wages are treated can differ because of the varying payroll tax thresholds, legislation, exemptions and payment schedules.
- Payroll Tax Rates: Payroll tax rates vary across states and territories and need to be calculated separately.
- Grouping Provisions: Businesses that are grouped for payroll tax purposes will affect how thresholds and rates are applied to members of the group.
Unified Principles Applicable to All States and Territories
Despite the differences in thresholds and rates, there are underlying principles and definitions that apply uniformly across all Australian states and territories. These include:
- Definition of Wages: Generally, wages encompass salaries, commissions, bonuses, and allowances. It also includes termination payments, employer superannuation contributions (including the superannuation guarantee and additional contributions), and fringe benefits.
- Grouping Provisions: Businesses that are related or interconnected through directors, shareholders, or beneficiaries may be grouped for payroll tax purposes. This means their total Australian wages are aggregated to assess the payroll tax liability, impacting the application of the tax-free threshold.
- Contractor Provisions: In many instances (excluding WA), payments to contractors are deemed wages for payroll tax purposes, especially if the contractor primarily provides labour and performs work that is a usual part of the business’s operations.
Common Payroll Tax Compliance Mistakes
Each of these mistakes has broader implications that could potentially affect a business’s financial health, reputation, and legal standing. Compliance issues can trigger tax audits, leading to penalties, additional tax payments, and the potential for legal consequences. Resolving these issues may require legal intervention, which can be costly and time-consuming.
1. Inaccurate Record Keeping
Inaccurate records can lead to incorrect payroll tax calculations and filings. This could result in underpayments or overpayments of tax. Underpayments, in particular, can attract interest and penalties, leaving the business liable for additional costs.
2. Multi-State Businesses Claiming the Full Tax-Free Threshold
This can lead to an understatement of payroll tax liability, as the tax-free threshold should be reduced based on the proportion of wages paid within each state. Misapplying thresholds can result in substantial penalties and interest on underpaid taxes once discrepancies are discovered during audits.
3. Failing To Include All Group Members' Wages Paid Across States And Territories
For grouped entities, failing to include all wages paid across states can distort the payroll tax liability calculation. This not only breaches compliance requirements but also risks penalties and interest and back payments when corrections are made.
4. Failing To Update Wage Figures After Changes In Other States
Payroll tax obligations are dynamic and they change as wage figures are updated. Not adjusting these figures can lead to incorrect tax calculations, resulting in either overpayment or underpayment of taxes.
5. Misclassification Of Employees
Misclassifying employees, for example, as independent contractors, can lead to non-compliance with payroll tax laws, as different tax rules may apply to different types of workers. Misclassification can lead to significant financial penalties and legal complications.
6. Ignoring Modern Awards
Modern awards dictate certain pay rates and conditions of employment. Ignoring these can lead to payroll errors, underpayment of employees, and subsequent payroll tax discrepancies. Compliance issues could also trigger audits and further penalties.
What do I do if I have made a mistake with my payroll tax?
If you’ve made a mistake with your payroll tax, it’s advisable to make a voluntary disclosure to the relevant state revenue office, as this can lead to reduced penalties and is generally viewed more favourably than errors found during an audit. Check the specific guidelines for voluntary disclosure on the state revenue office’s website, gather all relevant payroll records, and submit your disclosure according to their procedures. Correct any errors by submitting amended returns and paying any owed amounts. For complex situations, consider consulting a tax professional to ensure that your disclosure is properly managed and future mistakes are avoided.
Managing Multi-State Payroll Tax Compliance & Obligations
Managing payroll tax obligations across multiple states requires a proactive approach to prevent compliance issues. By registering for payroll tax where necessary and adopting a systematic strategy, businesses can be better prepared to handle the complexities of multi-state operations effectively.
- Regular assessments of total wages: Regularly review total wage expenditure to determine if it exceeds the threshold in any state.
- Understanding nexus provisions: Nexus provisions determine how payroll tax obligations are triggered across states. Businesses must understand these provisions to allocate payroll tax liabilities accurately.
- Leveraging technology: Technology can help simplify the management of payroll and tax compliance, particularly when dealing with multi-state operations. Advanced tools and software solutions can provide support in this area.
- Detailed Record-Keeping: Maintain thorough records of all wages paid, including superannuation, allowances, and fringe benefits. This is essential not only for compliance but also for accurate payroll processing.
- State-Specific Reporting: Adhere to the specific reporting periods and formats required by each state’s revenue office. This ensures that all payroll tax obligations are met timely and accurately.
- Record Retention: Keep these records for at least five years to comply with state regulations and to facilitate any potential audits.
- Stay Informed: Keep up-to-date with the latest changes in payroll tax laws and rates in each state where your business operates. This knowledge is essential for anticipating adjustments in tax obligations.
- Conduct Regular Audits: Regular internal audits can help identify discrepancies early, ensuring ongoing compliance and preventing penalties.
- Seek Professional Advice: Consult with a payroll tax expert or legal advisor who specialises in multi-state compliance. Their expertise can provide tailored advice and strategic insights, helping you navigate the complexities of state-specific payroll tax laws.
Nationwide Initiatives and Exemptions
Across Australia, several payroll tax initiatives and exemptions have been implemented to support various sectors and encourage specific business practices. While these benefits can significantly reduce payroll tax obligations, they vary by state and come with their own set of eligibility criteria. Here’s an overview of some key nationwide initiatives and how they can impact your business:
- Charitable Exemptions: Charitable and non-profit organisations may be eligible for payroll tax exemptions in certain states, provided they meet specific criteria and their activities are not-for-profit.
- Apprentices and Trainees: Payments to apprentices and trainees are often exempt from payroll tax, encouraging businesses to invest in training and development. The specifics of these exemptions can vary, so it’s important to review the conditions in each state.
- Research and Development (R&D): Some states offer payroll tax exemptions or reductions for businesses engaged in qualifying R&D activities. These incentives are intended to foster innovation and technological advancement within local industries.
- Indigenous Employees: Certain states provide payroll tax exemptions for wages paid to Indigenous employees as a way to promote employment opportunities for Indigenous Australians.
- Small Business Concessions: Some regions offer payroll tax concessions or reduced rates for small businesses. This helps alleviate the financial burden on smaller enterprises, making it easier for them to grow and hire more staff.
- Wage Subsidy Programs: Various states participate in wage subsidy programs where businesses receive subsidies for employing people from certain groups, such as long-term unemployed, youth, or people with disabilities. These subsidies are generally exempt from payroll tax.
- Disaster Recovery Support: In response to natural disasters, some states may offer temporary payroll tax reliefs to affected businesses. This helps businesses recover by reducing their tax burden during the recovery period. A recent example of this were the reductions in payroll tax obligations for businesses experiencing hardship during the COVID-19 pandemic.
Getting Payroll Tax Compliance Under Control
Managing multi-state payroll tax obligations in Australia can become quite complex depending on your situation. Maintaining accurate records and adopting a proactive approach to compliance can help businesses meet their obligations and avoid costly penalties. For further guidance, businesses should consult the revenue office websites of each state and territory they operate in, and consider seeking professional advice tailored to their specific situation.
Quick Links to Payroll Tax Resources:
- New South Wales: Revenue NSW
- Victoria: State Revenue Office Victoria (SRO)
- Queensland: Queensland Treasury – Office of State Revenue
- South Australia: RevenueSA
- Western Australia: Department of Finance, Western Australia
- Tasmania: State Revenue Office of Tasmania
- Australian Capital Territory: ACT Revenue Office
- Northern Territory: Territory Revenue Office (TRO)
- Payroll Tax Australia
These resources provide detailed information on payroll tax rates, thresholds, exemptions, and relief measures. Additionally, they offer tools, calculators, and guides to assist businesses in complying with their payroll tax obligations.
