What are my payroll tax obligations?

1st January, 2015

As a business owner, it’s crucial to be on top of your payroll tax obligations.

But what is payroll tax? And how do I know if it applies to my business?

Payroll tax is a state tax imposed on an employer’s liability to pay wages. There are thresholds before this applies, depending on the state in which you employ staff in Australia.

An individual employer or a group of related businesses may be liable for payroll tax if their total liable wages throughout Australia exceeds the set state payroll tax threshold each year.

Payroll tax rates vary in each state and are subject to change. Wages that are subject to payroll tax include total gross wages plus superannuation, bonuses and commissions, allowances and fringe benefits, and termination payments.

Generally, your business will need to start paying payroll tax if the taxable wages in a financial year currently exceed:

  • NSW: $689,000 annually or approximately $57,417 a month

Payroll tax rate: 5.45 percent

  • VIC: $550,000 annually or approximately $45,833 a month

Payroll Tax Rate: 4.90 percent

  • WA: $750,000 annually or approximately $62,500 a month

Payroll tax rate: 5.50 percent

  • TAS: $1.01 million annually or approximately $84,167 a month

Payroll tax rate: 6.1 percent

  • ACT: $1.75 million annually or approximately $145,833 a month

Payroll tax rate: 6.85 percent

  • NT: $1.5 million annually or approximately $125,000 a month

Payroll tax rate: 5.5 percent

  • QLD: $1.1 million annually or approximately $91,667 a month

Payroll tax rate: 4.75 percent

  • SA: $600,000 annually or approximately $50,000 a month

Payroll tax rate: 4.95 percent

Note: Payroll tax may also apply to payments to contractors you use in your business and directors fees.

What happens if you employ staff and pay wages in different states of Australia?

If an employee performs services wholly in one state, then payroll tax is payable in that state — not necessarily in the state where the business is based and pays the wages from.

This can be a bit tricky when you have employees that perform services in more than one state during a month.

The ATO encourages using a tiered test to determine which state the payroll tax applies.

Reporting obligations

Payroll tax reporting requirements vary from state to state.

Generally, payroll tax is payable monthly, and you must complete a monthly payroll tax form and lodge this with the state tax office. You will be required to complete and submit an Annual Reconciliation Form with the state every year, reporting the annual taxable wages and premiums paid over the year.

The Annual Reconciliation Form will help you figure a balancing tax amount — whether you still owe the state, or they owe you a refund if you overpaid. If you employ staff in many states, then you will be required to complete many state Annual Reconciliation Forms.

Grouping provisions

If you have many businesses that are related corporations or use common employees, they may be grouped for payroll tax purposes.

Also, if there is common control of two businesses with a person or set of persons, either as a director, shareholder, partner, or beneficiaries of a trust that has a greater than 50 percent control of each business, or if there is a controlling interest in the corporation, then you may be grouped for payroll tax purposes.

Only one member of the group can claim the group’s state threshold entitlement, and the remaining members in the group pay a flat tax rate. There is also a choice for one member of the group to become the group’s single lodger and include the group wages in their payroll tax return.

Registering for Payroll Tax

There is a self-assessment requirement to register for payroll tax in each state. This means it is up to you to know that you have payroll tax obligations once your payroll approaches the state payroll tax threshold or has gone over it.

The payroll feature in your accounting software can provide a number of reports to assist you with determining your wages levels.

Also, payroll tax reports from your accounting system will help meet your reporting requirements. To register for payroll tax you will need to complete and lodge an application with the relevant state office (most can be done online).

The payroll tax office in each state conducts regular audits of business wages levels, as they have access to Tax Office and Workers Compensation Insurance data.

If you do not register and declare your wages for payroll tax purposes, you will be caught.

Note: Your accountant is an expert in taxes and can assist you in meeting your tax obligations. Find a MYOB Partner near you. It’s imperative to meet all your tax and compliance obligations for EOFY 2013. Check out MYOB’s Tax Time Resources & Tips section, meant to help startups and small businesses stay on top of their game with tax changes.

The information provided here is of a general nature for Australia and should not be your only source of information. Please consult an experienced and registered tax agent as each small business’ circumstance will vary for end of financial year.