What is payroll tax and what changes are coming our way?

Out of all the taxes that Australian businesses have to keep track of… payroll tax is a particularly pesky one. It’s something that trips a lot of people up, and we get frequent questions about it. Here’s what you need to know.

Payroll tax is a state tax levied on wages paid by an employer (or a group of employers) that exceeds the threshold amount. Let’s break that up a bit…

The definition of wages under payroll tax legislation has a broader definition than what most employers are used to. This definition includes wages, superannuation, bonuses, commissions, leave and leave loading, and payments made to certain contractors. Payroll tax is self assessed and lodged by the employer or their representative.

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Who has to pay payroll tax?

This is dependant on which state you operate in.

Here are the payroll tax thresholds for each state in Australia for the 2022/2023 financial year:

Australian Capital Territory:

• $166,666.67 per month for the first $2,000,000 per year of taxable wages
• 6.85% on taxable wages above the threshold

New South Wales:

• $100,000 per month for the first $1,200,000 per year of taxable wages
• 5.45% on taxable wages above the threshold

Northern Territory:

• $125,000 per month for the first $1,500,000 per year of taxable wages
• 5.5% on taxable wages above the threshold

Queensland:

• $25,000 per week for the first $1,300,000 per year of taxable wages
• 4.75% if your group Australian taxable wages are less than $6,500,000 and 4.95% if over

Victoria:

• $58,333.33 per month or $700,000 per year of taxable wages
• 4.85% of taxable wages except for regional Victorian employers

South Australia:

• $125,000 per month for the first $1,500,000 of taxable wages
• 4.95% for taxable wages above $1,500,000

Tasmania:

• $24,038 per week during a month or taxable wages $1,250,001 per year
• 4% for taxable wages above $1,250,001 to $2,000,000 and 6.1% on wages above $2,000,001

Western Australia:

• Monthly wages of more than $83,333
• 5.5% for taxable wages of more than $1,000,000 up to $7,500,000 with a diminishing scale

Important note: the rest of the article will apply to Victoria only. Here’s a great resource for more state-specific information.

How is payroll tax calculated?

The payroll tax rate in Victoria is 4.85%, except for regional Victorian employers. For regional Victorian employers, the rate is 1.2125%. In addition, there’s a mental health and wellbeing surcharge of 0.5% and a temporary payroll tax surcharge of 0.5% applicable to employers with more than $10 million in Australian Taxable Wages. If your wages exceed $100m per year, there is an additional 0.5% applicable too. Lucky you!

What happens if I pay it late or not at all?

If you are not registered, but are required to be, the State Revenue Office (SRO) may open an investigation to assist with their determination of your eligibility. If it is deemed that you should be registered, but have failed to do so, SRO will issue interest and penalties on top of any outstanding payroll tax liability. They will also charge interest on any late payments not made by the due dates. So the message here is… don’t pay it late, and don’t miss the payment altogether. It’s a very costly mistake.

How do I pay payroll tax?

Payroll tax can be lodged and paid either monthly or annually. Monthly lodgements are completed through the SRO online system called PTX Express, and are due to be completed and paid by the 7th of each month. Once you complete the online lodgement, you will be given a payment slip with a reference number for you to make your payment. Payroll tax is a business expense and should be paid for by your business. Payroll tax payments are also tax deductible and should be included in your business tax return. Yes, we can absolutely do all of the above for you.

What changes are happening to payroll tax and when?

The Victorian payroll tax free threshold is increasing from $700k to $900k from 1st July 2024 and from $900k to $1m from 1st July 2025. A business with taxable wages above $5m will see the introduction of the “phase out” of the payroll tax free threshold and will result in an additional payroll tax liability of $43,650 for the year ending 30 June 2025 and an additional payroll tax liability of $48,500 for the year ending 30 June 2026.

We’re not under the illusion that this is a particularly interesting topic… but it’s one that business owners absolutely must know about. We’ll leave it there, but please contact us if you should be paying payroll tax and need a hand with it.