Payroll tax and the concepts related may seem complex. But if you are here to know what’s behind it all, you are in the right place.
How do you know if your company is liable for payroll tax in Australia, how much the company should pay, or the possibility of claiming the deduction entitlement? Discussed below are the answers to your questions.
Payroll tax in essence is a percentage of a businesses’ total taxable wages paid as tax, if the total taxable wages exceed the established limit. Being aware about the thresholds, rates and reductions is essential when it comes to payroll tax.
As payroll tax in Australia is state-based, most rulings and requirements including thresholds, rates and deductions vary according to the state. Despite this difference, in 2007 efforts were made to harmonize payroll tax which allowed consistency in most elements of payroll tax australia-wide. However, each state has specific rulings related to payroll tax that are separately mentioned on each revenue office’s website.
Threshold refers to the minimum amount of total wages, exceeding which, employers are liable to the payroll tax.
The rate specifies the percentage of your total taxable wages that should be paid as tax if the business is eligible for tax. Generally, this rate ranges from 4.00% to 6.85%.
This tax is imposed on businesses Australia-wide. Both the threshold and tax rate vary according to the state or territory. Your company’s total taxable wages should exceed the set threshold in the relevant state or territory. It is the location where your company operates or where your employees work from.
Let’s look into the rates and thresholds of each state and territory. (Please note that these are the values for the financial year starting from 1 July 2024 to 30 June 2025 and will be subject to change. Please check the relevant revenue office website for updated information or rates for a specific financial year.
The payroll tax threshold in the Australian Capital Territory is $ 2,000,000 annually and $ 166,666.66 monthly with a tax rate of 6.85%.
The payroll tax threshold in New South Wales is $ 1,200,000 annually, with a payroll tax rate of 5.45%.
The Northern Territory has an annual threshold of $ 1,500,000. Further, the monthly and weekly payroll tax thresholds are $ 125,000 and $ 28,846 respectively. The payroll tax rate is 5.5%.
The payroll tax threshold of Queensland is $ 1,300,000 annually and $ 108,333 per month.
The payroll tax threshold in South Australia is $ 1,500,000 annually, $ 125,000 monthly, and $ 28 846 weekly.
The payroll tax threshold in Tasmania is $ 1,250,000, while the weekly threshold is $ 24,038.
The annual threshold for payroll tax in Victoria is $ 900, 000 and the monthly threshold is $ 75,000. The tax rate is 4.85%. However, the tax rate for regional employers is 1.2125%.
The annual tax threshold in Western Australia is $ 1,000,000, while the monthly threshold is $ 83,333. The tax rate is 5.5%.
These set values are usually subjected to change annually, at the start of the financial year on July 1st. The websites of each state give the most recent and updated information related to these. Moreover, it is important to note that the deduction or the threshold may be minimized if an employer does not pay wages for the whole financial year or if employees work in different states or territories.
If the company or a group of employers does not employ for the full financial year, the threshold will be reduced or adjusted.
For example, if your company employs for half of the financial year, then the threshold will be half the usual value; Employing for three quarters of the financial year means a three quarter threshold applies and so on.
The deduction entitlement refers to the amount an employer can deduct from the total taxable wages before calculating the payable tax amount. It can simply be referred to as the tax-free amount. The deduction entitlement can also be called by the following terms: deduction threshold, threshold entitlement, deduction or deductible amount, monthly wage threshold, or annual deduction amount.
This entitlement is also based on the state or territory. It aims to reduce the burden placed on businesses due to payroll tax. The maximum annual deduction entitlement in every state is the same as its annual threshold, except in South Australia, where the deduction is $ 600,000.
For instance, an employer is not required to pay payroll tax at all if their total taxable wages are less than the state's yearly threshold. If the company is liable to tax, the deduction entitlement is still available and can be claimed. Depending on the state, increasing the amount of wages paid may cause a reduction in the threshold entitlement.
Group of Employers
In a group of employees, only one payroll tax deduction applies to the entire group. Hence, only the designated group employer(DGE) is entitled to this deduction. If the DGE’s wages are less than the group’s deduction entitlement, the unused deduction entitlement can be allocated to another employer in the group. This again depends on the state or territory and has to be allocated during the annual return or annual reconciliation.
Employing for a part of the year
If an employer pays wages for a part of the financial year, he/she will not be entitled to the full deduction. Rather, the portion of the year, which is the number of days employed divided by the total days in a year, will be multiplied by the total deduction amount. This calculation gives the reduced deduction entitlement.
Reduced deduction entitlement = (No of days employed / total days in year) * deduction entitlement
Employing in multiple states
An employer that has employees in multiple states is only entitled to a part of the deduction. The deduction entitlement is calculated as a proportion of the wages paid in the relevant state to the total Australia-wide taxable wages, multiplied by the deduction entitlement for each state.
Reduced deduction entitlement = (State or Territory wages / Australian wages) * Deduction entitlement of the relevant state
Thresholds, Rates, and Deductions are important concepts related to payroll tax. Having an awareness about them is important to handle payroll tax properly and fulfill the company’s obligations to the state. These three concepts decide your liability to tax and how much tax you pay. Therefore, being informed and updated about thehsolds, rates and deductions is crucial to ensure accuracy and compliance at every step.
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