Successful entrepreneurs beware! The easiest way to manage Australian payroll tax is simply not to mismanage it in the first place. Like all taxes, ignorance is no defence, and you will ultimately end up paying your dues, probably plus a penalty and interest.
Small businesses that are growing rapidly and medium sized businesses need to work closely with their business advisors. MYOB has Australia’s biggest network of accountants, bookkeepers and consultants, ready to help you and your business succeed. As small operations ride high on success, it need not be a ‘dangerous’ time for business compliance.
Prepare for growth
The transition from a start-up, micro or small business to a medium sized enterprise is exhilarating. During rapid growth, success follows success; you’re running on adrenalin; cash flow is the key concern to fund your expansion; and you can’t hire people quickly enough to meet demand. This is the ultimate rush of success that drives many innovators, but it also creates an environment prime for legal and administrative oversights. It can also lead to tax and other issues (often employee-related) that have potential to cause major business disruption or worse. Having the right tools in place will have you well prepared for growth.
Learn about payroll tax now
Australian payroll tax is simple, yet complex. Like fringe benefits tax or the superannuation guarantee charge (SGC) tax, you often find out about it the hard way: once you have breached the law and are hit with a substantial accounting and tax bill. If you do not know already, most employers are required to self-assess their liability on a monthly basis, and there is an ultimate catch. In Victoria, for instance:
“Employers must register and pay tax by the seventh day of the month following the month in which their wages exceeded the deduction threshold level. Penalty tax and interest may be payable on any unpaid tax if an employer who is liable for payroll tax fails to register.”
On the seventh day
Yes, seven days. If you thought the SGC was harsh in compliant payments, try seven days. Unlike SGC, payroll tax is a general-purpose tax raised by each state and territory at different rates, thresholds and collected more aggressively than PAYG and SGC obligations.
In Victoria, if your weekly ‘wages’ exceeds $10,500, you are right at the point of incurring Victorian payroll tax. If you are unaware of that and get to the end of the financial year having paid over $550,000 in wages (which for payroll tax generally includes superannuation and fringe benefits), this is where shock therapy comes in — you are faced with a payroll tax bill starting at about $26,675 (4.85 percent) due immediately, because it is late. The first payment was due on seven days from the end of month one of the year!
The simple part
Memorise your state’s threshold. You can minimise your payroll tax by simply not exceeding the threshold. If you do exceed the threshold, do so knowingly in a well-planned, well-financed and well thought-out strategy. Ensure you calculate payroll tax correctly. There is a wide definition of wages, and be sure to deduct the maximum allowable wage deductions. If you have flexibility, you could consider more staff in lower tax rate jurisdictions, but remember payroll tax is triggered based on total Australian wages, not wages in a particular jurisdiction.
The complex part (made easy!)
If you do have employees in multiple states, every state has different rules. Fortunately, much of the hard work can be done by accounting software. MYOB’s AccountRight Plus and Premier, for example, have payroll functionality to help you not only meet your employee taxes (PAYG), superannuation and leave entitlements, it also takes the heartache out of payroll taxes. Unless you have previously paid payroll tax, you may not have even known about the state or territory “Revenue Offices” and that certain entities are required to lodge state-based tax returns (for example payroll tax). Payroll taxes are easily calculated using MYOB accounting software.
It’s your responsibility
Employers have to register with the relevant state or territory revenue office at the correct time. It is your responsibility, as it is a self-assessment process, to register and calculate payroll tax is payable on assessed on wages paid or payable to employees, when the total wage bill of an employer hits a threshold amount.
Although pledges of harminisation have been made, we are still left with a very complex situation when Australia-wide wages exceed the threshold applicable to that state or territory. A useful site on the topic is payrolltax.gov.au that has links to each revenue office and provides the following data:
- ACT – From 1 July 2014, threshold: $1,850,000 (annually) $154,166.66 (monthly) rate: 6.85 percent
- New South Wales – From 1 July 2013, threshold: $750,000 (annually) $57,534 (28 day month) $61,644 (30 day month) $63,699 (31 day month) rate: 5.45 percent
- Northern Territory – From 1 July 2012 threshold: $1,500,000 (annually) $125,000 (monthly) rate: 5.50 percent
- Queensland – From 1 July 2012 threshold: $1,100,000 (annually) $91,666 (monthly) rate: 4.75 percent
- South Australia – From 1 July 2012 threshold: $600,000 (annually) $50,000 (monthly) rate: 4.95 percent
- Tasmania – From 1 July 2013 threshold: $1,250,000 (annually) $95,890 (28 day month) $102,740 (30 day month) $106,164 (31 day month) rate: 6.1 percent
- Victoria – From 1 July 2014 threshold: $550,000 (annually) $45,833 (monthly) rate: 4.85 percent
- Western Australia – From 1 July 2014 threshold: $800,000 (annually) $66,667 (monthly) rate: 5.5 percent
If you are an existing payroll taxpayer, compare the functionality of your current software to that of MYOB, a solid accounting package can take the heartache out of payroll tax. If your business is growing and you have a strong business plan with cash flow under control, online accounting software like MYOB AccountRight can help you sleep easy at night.
This information is general in nature and is subject to change without notice. No representation is made as to how accurate, current or complete the information is, even though every effort has been taken to ensure this is the case. This general information is not a substitute for independent professional advice and users should obtain any appropriate accounting, legal or other professional advice relevant to their particular circumstances.