Payroll tax in New South Wales (NSW) is administered by Revenue NSW and applies to businesses whose total Australian taxable wages exceed specific thresholds. This article explores how payroll tax works in NSW, from registration, making payments and payroll tax rulings that you should be aware of and comply with.
Recommended Reads
- Understand Payroll Tax Basics Across Australia
- Payroll Tax in the Australian Capital Territory (ACT)
What is Payroll Tax?
Payroll tax is a state or territory tax charged on the wages paid to your employees. It depends on the total taxable wages you pay. Payroll tax is a responsibility of the employer, and it is self-assessed, which means that you are responsible for calculating, lodging returns and paying your own tax. Therefore, it is essential to be informed about the correct information and rulings regarding payroll tax in your area.
In 2007, efforts were made to harmonise payroll tax rulings across Australia and most rulings generally apply to all states. However, since the state government administers payroll tax, there are differences and state-specific rulings, which should be studied and adhered to.
Who Needs to Register?
Employers are required to register for payroll tax if their total Australian wages exceed the threshold in any given month. The monthly threshold for a month with
- 28 days is $92,055
- 30 days is $98,630
- 31 days is $101,918
If you pay above these amounts in any month, you must register within seven days after the end of that month. Business details, employee details and your grouped status are necessary for payroll tax registration. You can register your business using the following online form - Payroll tax - Revenue NSW
- Non-grouped business → Register as a non-grouped employer
- Grouped business → Register as a grouped employer
- One business must be chosen as the Designated Group Employer (DGE). Only the DGE can claim the threshold.
- If no one qualifies as DGE, the group must pick a Group Single Lodger (GSL) to lodge and pay payroll tax for the whole group.
Rate and Threshold
- In New South Wales,
- The annual tax-free threshold is $1,200,00
- The tax rate is 5.45%.
- The payroll tax rate only applies to the wages above the threshold.
Deduction Entitlement
Your entitlement depends on your business status, wage period, and where wages are paid. There are three instances in which a business cannot claim the full threshold entitlement:
- In a group of businesses, only one business in the group (DGE) can claim the threshold.
- If your business only pays wages for part of the year, you only get part of the threshold.
- If you pay wages in another state/territory, the threshold is shared based on the proportion of NSW wages.
Lodgement and Payment Obligations
All registered businesses must generally lodge an annual return every year. However, if your annual payroll tax bill is over $20,000, you must also pay payroll tax every month. The due date for the annual return is 28 July every year. In the instance that 28 falls on a weekend or is a public holiday, the annual return can be lodged on the next business day. The annual return covers the whole financial year, including June. Therefore, monthly payers are not required to make a separate June payment.
Monthly payers must clear tax payments within seven days of the end of each month. If the due date falls on a weekend or public holiday, payment is due on the next business day. If no payroll tax is payable for the month, you must still lodge a ‘nil return’ by the due date. If you miss the deadline, you may have to pay interest and a penalty tax. You need to log in to Payroll Tax Online to lodge returns and make payments - Log in to Payroll Tax Online
Taxable Wages
Taxable wages in NSW include:
- Gross salaries and wages
- Superannuation contributions
- Bonuses and Commissions
- Allowances
- Fringe benefits
- Director fees
- Termination payments
- Shares or options provided to employees
- Contractor payments
- Payments to apprentices and trainees
Payments to contractors and agencies may also be taxable under certain conditions. From 2025, employment agency payments must be reported under a new wage category separate from contractor payments.
Refer to this link for the A-Z list of liable, exempt and non-liable payments for payroll tax in NSW - A-Z list of liable, exempt and non-liable payments | Revenue NSW
Grouping Rules
If multiple businesses are related through common ownership, control, or shared employees, they may be grouped for payroll tax purposes. Grouping affects how payroll tax thresholds work because:
- All group members’ wages should be added, and only one threshold applies to the whole group.
- The threshold is worked out based on the share of NSW wages compared to total Australian wages.
- Each member of the group is responsible for any unpaid payroll tax owed by other members.
Contractors
In NSW, payments to contractors may be subject to payroll tax if they are engaged under a “relevant contract.” A relevant contract is any agreement, arrangement, or undertaking where a contractor provides services to a business, either personally or through another worker. In these cases, the contractor is treated as the employee and the business as the deemed employer. Payments by the deemed employer that relate to the contractor’s work are liable for payroll tax unless an exemption applies. However, amounts that cover materials, tools, or equipment used in the work are not taxable. There are 7 exemptions, and if any one applies, all payments to that contractor are exempt from payroll tax.
- Services ancillary to the supply of goods
- Services not ordinarily required by your business
- Services required for 180 days or less in a financial year
- Services provided for 90 days or less in a financial year
- Services provided by a contractor to the public during the financial year
- Services performed by 2 or more people
- Services provided by an owner-driver
To know further about Contractors vs Employees and exempt types for payroll tax, refer to our article on Payroll Tax: Employees vs Contractors
Methods of Calculating Monthly Tax
There are two methods used to calculate payroll tax in NSW.
- Estimated wages method
- Actual wages method
Employers whose annual payroll tax liability exceeds $20,000 must lodge monthly returns using either the actual wages method or the estimated wages method.
Businesses with annual liabilities below $150,000 can either use the estimate method or the actual wages method. The estimate method involves calculating based on an estimated monthly figure. However, employers with annual liabilities higher than $150,000 should report based on actual wages paid, meaning actual wages methods must be used to calculate the monthly payments.
Conclusion
Payroll tax in NSW applies when an employer’s Australian taxable wages exceed the $1.2 million annual threshold or its monthly equivalent. The tax is levied at a rate of 5.45% and includes a wide range of employee and contractor payments. Employers must register once the threshold is met, comply with monthly and annual lodgement requirements, understand grouping obligations, and ensure all eligible exemptions and rebates are applied correctly. With careful management and awareness of state-specific rules, businesses can remain compliant and avoid unnecessary penalties.
