Understanding Payroll Tax in Australia: A Simple Guide for Small Business Owners
As a business owner, you’ve likely come across the term "payroll tax" and wondered what it means and how it applies to you. Payroll tax can seem confusing at first, especially since it varies across Australia’s states and territories.
Our job is to make bookkeeping easy to understand, so let’s break it down in simple terms.
What is Payroll Tax?
Payroll tax is a tax that businesses pay based on the total wages they pay their employees. However, it’s important to know that not all businesses are required to pay this tax.
Payroll tax is applied only if your business wages exceed a certain threshold, which differs depending on the state or territory where your business operates.
In other words, payroll tax isn’t a tax that employees pay. It’s a tax levied on businesses with higher wage bills. Think of it as a contribution businesses make based on their overall payroll size.
Why Does Payroll Tax Vary Across Australia?
When it comes to payroll tax, the rules differ across the states and territories.
Each state and territory sets its own payroll tax threshold (the minimum amount of wages at which payroll tax becomes payable) and its own tax rate (the percentage of wages paid as payroll tax once you exceed the threshold).
This means that if your business operates in multiple states, you’ll need to be aware of the specific payroll tax requirements in each state/territory.
Payroll Tax Thresholds and Rates: A Snapshot
Here’s a general overview of how payroll tax can differ between states and territories in Australia:
- New South Wales (NSW): In NSW, the payroll tax threshold is currently $1.2 million. This means that if your total wages exceed $1.2 million per year, you’ll need to pay payroll tax at a rate of 5.45% on the amount over the threshold.
- Victoria (VIC): In Victoria, the threshold is $700,000, with a payroll tax rate of 4.85%. For regional businesses, a reduced rate of 1.2125% applies.
- Queensland (QLD): Queensland has a threshold of $1.3 million, with a standard rate of 4.75%. However, if your payroll exceeds $6.5 million, a higher rate of 4.95% applies.
- Western Australia (WA): In WA, the payroll tax threshold is $1 million, with a rate of 5.5%.
- South Australia (SA): SA has a threshold of $1.5 million, with a payroll tax rate of 4.95%.
- Tasmania (TAS): Tasmania’s threshold is $1.25 million, with a tax rate of 4% for businesses over that threshold.
- Australian Capital Territory (ACT): In the ACT, the threshold is $2 million, with a tax rate of 6.85%.
- Northern Territory (NT): The Northern Territory has a lower threshold of $1.5 million, with a tax rate of 5.5%.
These thresholds and rates can change over time, so it’s important to stay informed about the latest updates or consult with a bookkeeping expert to ensure compliance. (rates current at time of writing October 2024)
Do You Need to Pay Payroll Tax?
The first step is determining if your business exceeds the payroll tax threshold in the state or territory where you operate. If your total annual wages (including salaries, superannuation, and certain fringe benefits) are below the threshold, you don’t need to report or pay payroll tax.
If your wages are above the threshold, you’ll need to register for payroll tax and start making regular payments.
This may sound complicated, but that’s where a professional bookkeeper comes in—we can help you stay on top of payroll tax obligations, ensuring you remain compliant while freeing you up to focus on growing your business.
