Payroll Tax (Australia)
A state and territory tax levied on employers in Australia when their total wages bill exceeds a threshold amount, with rates and thresholds varying across each of the eight Australian states and territories.
- What Is Payroll Tax in Australia?
- Payroll Tax Rates and Thresholds by State and Territory (2024-25)
- What Counts as Taxable Wages
- Grouping Provisions and Related Employers
- Registration and Lodgement Requirements
- Common Exemptions and Concessions
- Payroll Tax Calculation Examples
- Payroll Tax Revenue and Trends
- Frequently Asked Questions About Payroll Tax in Australia
What Is Payroll Tax in Australia?
Key Takeaways
- ✓Payroll tax is an employer-paid state tax on wages that exceeds a monthly or annual threshold, administered separately by each of Australia's six states and two territories.
- ✓Unlike PAYG withholding (which is deducted from employee pay), payroll tax is an additional cost borne entirely by the employer on top of wages.
- ✓Rates range from 4.85% (Queensland and most other states) to 6.85% (ACT above the second threshold), with thresholds from AUD 700,000 to AUD 1.2 million annually (2024-25).
- ✓Businesses operating across multiple states must register and lodge separately in each jurisdiction where they have employees, even though harmonization efforts have aligned some definitions.
- ✓Payroll tax is the largest source of own-source revenue for Australian state and territory governments, generating approximately AUD 24.8 billion in FY2022-23 (ABS).
Payroll tax is one of the oldest taxes in Australia, first introduced at the federal level in 1941 and transferred to the states in 1971. Every state and territory now runs its own version with different rates, thresholds, and exemptions. For employers, this means the cost of employing people varies by location. An employer with the same wages bill in Queensland pays a different payroll tax amount than one in Victoria or NSW. The tax applies to more than just salaries. It covers wages, superannuation contributions, fringe benefits, contractor payments (in many cases), bonuses, commissions, and allowances. The broad definition of "taxable wages" catches more payments than many employers expect. Small businesses that stay below their state's threshold don't pay. But once you cross it, payroll tax applies to every dollar above the threshold. Growth can trigger sudden and significant new costs. A company that hires three new employees and crosses the threshold doesn't just pay tax on those three salaries. It pays tax on all wages above the threshold, including existing staff.
Payroll Tax Rates and Thresholds by State and Territory (2024-25)
Each state and territory sets its own rate and threshold. These change regularly through state budget announcements, so payroll teams must verify current figures at the start of each financial year.
| State/Territory | Annual Threshold | Rate | Monthly Threshold |
|---|---|---|---|
| New South Wales (NSW) | AUD 1,200,000 | 5.45% | AUD 100,000 |
| Victoria (VIC) | AUD 900,000 | 4.85% (up to AUD 10M wages), 5.45% (wages of AUD 10M-100M), additional surcharges above | AUD 75,000 |
| Queensland (QLD) | AUD 1,300,000 | 4.75% (up to AUD 6.5M), 4.95% (above AUD 6.5M) | AUD 108,333 |
| South Australia (SA) | AUD 1,500,000 | 4.95% | AUD 125,000 |
| Western Australia (WA) | AUD 1,000,000 | 5.5% (up to AUD 100M), 6.5% (above AUD 100M) | AUD 83,333 |
| Tasmania (TAS) | AUD 1,250,000 | 4% (up to AUD 1.25M), 6.1% (above AUD 2M) | AUD 104,167 |
| Northern Territory (NT) | AUD 1,500,000 | 5.5% | AUD 125,000 |
| Australian Capital Territory (ACT) | AUD 2,000,000 | 6.85% | AUD 166,667 |
What Counts as Taxable Wages
The definition of "taxable wages" for payroll tax purposes is much broader than most employers realize. It goes well beyond base salary.
Included in taxable wages
Salaries and wages (including overtime and penalty rates). Commissions. Bonuses and incentive payments. Directors' fees. Fringe benefits (the grossed-up taxable value). Superannuation contributions (employer SG contributions). Allowances (motor vehicle, travel, entertainment, unless exempt). Payments to certain contractors (where the contract is primarily for labor). Termination payments (excluding genuine redundancy amounts up to tax-free limits). Share and option-based payments (value at grant or exercise, depending on the state).
Excluded from taxable wages
Genuine redundancy payments within tax-free limits. Workers' compensation wages (while the worker is on a claim). Some apprentice and trainee wages (state-specific exemptions). Wages paid to employees under certain government-subsidized programs. Maternity and paternity leave payments (varies by state). The specific exclusions differ across states, which is one reason multi-state payroll requires careful configuration.
Grouping Provisions and Related Employers
Australian payroll tax law includes grouping provisions designed to prevent businesses from splitting operations across multiple entities to stay below the threshold.
How grouping works
If two or more businesses are related (through common ownership, shared directors, or other connections), their wages are combined for threshold purposes. Only one threshold applies to the entire group. This means a company can't create three subsidiaries, each with AUD 400,000 in wages, and claim three separate AUD 1.2 million thresholds. The group gets one threshold, and the combined AUD 1.2 million in wages is assessed against it.
Designated group employer (DGE)
Grouped businesses can nominate a Designated Group Employer to lodge and pay payroll tax on behalf of all entities. The DGE claims the single threshold and reports total group wages. Other group members still need to register but report zero taxable wages because the DGE handles the consolidated return. This simplifies administration but requires accurate intercompany wage data sharing.
Interstate wages and nexus provisions
When an employer has employees in multiple states, wages are allocated to the state where the employee performs the work (or, if they work in multiple states, where their principal place of employment is located). The employer must register in each state where allocated wages exist. The threshold is apportioned based on the ratio of local wages to total Australian wages. An employer with AUD 5 million in total wages, AUD 3 million in NSW and AUD 2 million in Victoria, receives 60% of the NSW threshold and 40% of the Victoria threshold.
Registration and Lodgement Requirements
Employers must register for payroll tax within 7 days of their wages exceeding (or being expected to exceed) the monthly threshold in any state.
- Register with each state or territory revenue office where you have employees: Revenue NSW, State Revenue Office Victoria, Queensland Revenue Office, RevenueSA, Department of Finance WA, State Revenue Office Tasmania, Territory Revenue Office NT, ACT Revenue Office.
- Lodge monthly or annual returns depending on the state. Most states require monthly online returns by the 7th of the following month.
- Pay any payroll tax liability by the lodgement due date. Late payments attract interest and penalties.
- Lodge an annual reconciliation by the due date (typically 28 July for the preceding financial year ending 30 June). Overpayments result in refunds, and underpayments result in additional assessments.
- Notify the revenue office of changes including business structure, grouped entities, cessation of employment, or a Designated Group Employer nomination.
- Keep payroll records for at least 5 years (7 years in some states) in case of audit.
Common Exemptions and Concessions
Several categories of employers and payments are fully or partially exempt from payroll tax, though the specifics differ by state.
Charitable and not-for-profit exemptions
Most states exempt registered charities, public benevolent institutions, and religious institutions from payroll tax. The exemption typically requires the organization to hold endorsement from the ATO as a tax concession charity. Not all not-for-profits qualify. Industry associations, trade unions, and sporting clubs generally don't receive the exemption unless they meet the public benevolent institution test.
Apprentice and trainee exemptions
Several states exempt wages paid to approved apprentices and trainees during their training period. Queensland exempts apprentice wages entirely. NSW and Victoria provide partial exemptions. The exemption encourages businesses to invest in training without the additional payroll tax cost. The apprentice must be registered under a formal training contract to qualify.
Small business phase-in
Tasmania has a unique tiered system where the tax rate increases as wages grow beyond the threshold: 4% for wages between AUD 1.25 million and AUD 2 million, scaling to 6.1% above AUD 2 million. This effectively creates a small business concession by applying a lower rate near the threshold. Other states use flat rates above the threshold, meaning the marginal cost of the first dollar above the threshold is the same as the millionth dollar above it.
Payroll Tax Calculation Examples
These examples show how the threshold, rate, and grouping rules interact in practice.
Single employer in NSW
Annual wages: AUD 2,500,000. NSW threshold: AUD 1,200,000. Taxable wages: AUD 2,500,000 - AUD 1,200,000 = AUD 1,300,000. Payroll tax: AUD 1,300,000 x 5.45% = AUD 70,850 per year (approximately AUD 5,904 per month). Effective tax rate on total wages: 2.83%.
Multi-state employer (NSW and Victoria)
Total Australian wages: AUD 4,000,000. NSW wages: AUD 2,400,000 (60%). Victoria wages: AUD 1,600,000 (40%). NSW apportioned threshold: AUD 1,200,000 x 60% = AUD 720,000. VIC apportioned threshold: AUD 900,000 x 40% = AUD 360,000. NSW taxable wages: AUD 2,400,000 - AUD 720,000 = AUD 1,680,000. VIC taxable wages: AUD 1,600,000 - AUD 360,000 = AUD 1,240,000. NSW payroll tax: AUD 1,680,000 x 5.45% = AUD 91,560. VIC payroll tax: AUD 1,240,000 x 4.85% = AUD 60,140. Total payroll tax: AUD 151,700.
Grouped employers
Company A (NSW wages): AUD 800,000. Company B (NSW wages): AUD 600,000. Both companies share the same director and are grouped. Combined wages: AUD 1,400,000. Single NSW threshold: AUD 1,200,000. Taxable wages: AUD 1,400,000 - AUD 1,200,000 = AUD 200,000. Payroll tax: AUD 200,000 x 5.45% = AUD 10,900. Without grouping, neither company would exceed the threshold independently. Grouping prevents this avoidance strategy.
Payroll Tax Revenue and Trends
Payroll tax is the single largest own-source revenue stream for Australian states and territories, making it politically sensitive and subject to frequent adjustments.
Frequently Asked Questions
Is payroll tax the same as PAYG withholding?
Do I need to register for payroll tax if my wages are below the threshold?
Are contractor payments subject to payroll tax?
Can I claim the payroll tax threshold in multiple states?
Is payroll tax a deductible business expense?
What happens if I don't register or pay payroll tax?
Written by Adithyan RK