Getting On Top Of The Dreaded Payroll Tax

On average, it costs you around AU$4,000 in payroll tax for each person you employ. This earns an extraordinary $23.7 billion in revenue for the states and territories each year, and comprises up to 11 per cent of their total tax revenues – so you can see why they like it.1 

For many years, there have been calls for this ‘tax on job creation’ to be abandoned. This is unlikely to happen in the short term (though in NSW, the threshold for payment will be increased over the next four years), so to avoid hefty penalties, its best to remain compliant.

Confused about who to pay for and how much?

Payroll tax is complicated, especially if you’re trading across different states of Australia. That’s because it is calculated on the amount of wages you pay each month and payable in the state or territory of Australia where the services were performed. Every state has different legislation, different payroll tax rates, different thresholds… and they all want as much of the pie as they can get.

Essentially, wages liable for payroll tax include:

  • Employee wages
  • Contractor payments
  • Directors’ remuneration
  • Superannuation
  • Allowances
  • Fringe benefits
  • Bonuses and commissions
  • Termination payments

You need to register if the total wages you pay in your state or territory are approaching or have surpassed its threshold. You can check out the different thresholds and different rates of payroll tax payable here.

To avoid penalties:

Be sure to register any related entity including holding or subsidiary relationships, where two businesses are controlled by the same person or persons, and where employees are used across entities.

When calculating payroll tax, be sure to include all liable wages in the total wages calculation (i.e. director’s fees; superannuation payments; taxable fringe benefits and benefits under employee share schemes).

Include wages paid for people working in other states and territories when your Australia-wide wages exceed the threshold applicable in that state or territory.

Be honest – don’t try to pass employees off as independent contractors and don’t try to falsely claim exemptions.

Be timely – monthly returns are due by the 7th day of following month; annual returns by the 21st day of July)

Single Touch Payroll

This year the Government introduced the Single Touch Payroll (STP). From 1 July 2018 it was mandatory for businesses employing over 20 or more people to use the STP to calculate and pay their instalments. From 1 July 2019, businesses with up to 19 staff will also be required to do the same.

For the purposes of payroll tax, your staff headcount must include:

  • Full-time employees
  • Part-time employees
  • Casual employees and seasonal workers who were on your payroll on 1 April 2018 and worked any time during March
  • Employees based overseas
  • Any employee absent or on leave (paid or unpaid).

Don’t include:

  • Any employees who ceased work before 1 April
  • Casual employees who did not work in March
  • Independent contractors
  • Staff provided by a third-party labour hire organisation
  • Company directors
  • Office holders
  • Religious practitioners.

How To Report

To manage the STP you can either have your current payroll solution adapted by your software provider, adopt a new payroll solution that is STP ready or engage a third party, such as your registered agent, to report through STP on your behalf.