Payroll tax is a state and territory tax in Australia imposed on employers whose total wage bill exceeds a specified threshold. 

It’s calculated as a percentage of the total taxable wages paid by an employer, with rates and thresholds varying across different states and territories.

What is payroll tax?

Payroll tax is a self-assessed, general-purpose tax assessed on the wages paid by employers to their employees and certain contractors. Unlike income tax (which is a federal tax), compensation tax is administered and collected by each state and territory government in Australia. 

It’s an important source of revenue for state and territory governments, contributing significantly to funding public services and infrastructure.

Who pays payroll tax?

Employers are liable for payroll tax when their total Australian taxable wages exceed the threshold applicable in their state or territory. This includes:

• Companies
• Partnerships
• Trusts
• Sole traders
• Government departments and authorities
• Not-for-profit organisations (unless specifically exempt)

Small businesses often fall below the threshold and therefore may not need to pay salary tax.

What constitutes taxable wages?

Taxable wages for compensation tax purposes typically include:

• Salaries and wages
• Commissions
• Bonuses and allowances
• Directors’ fees
• Superannuation contributions (including salary sacrifice amounts)
• Fringe benefits (grossed up)
• Termination payments
• Defined benefit contributions
• Share schemes
• Payments to some contractors (depending on the arrangement)

Thresholds and rates

Each state and territory sets its own tax threshold and rate. As of 2024, these are:

State/Territory	Annual Threshold	Rate
New South Wales	$1,200,000	4.85%
Victoria	$700,000	4.85% (metro), 2.425% (regional)
Queensland	$1,300,000	4.75%
South Australia	$1,800,000	5.0%
Western Australia	$950,000	5.5%
Tasmania	$1,250,000	4.0%
Northern Territory	$1,500,000	5.5%
Australian Capital Territory	$2,000,000	6.85%

These thresholds and rates are subject to change in state/territory budgets.

Calculation methods

Generally calculated using the following formula:

Payroll Tax = (Total Taxable Wages – Threshold) × Rate

Some states apply the threshold on a proportional basis for each month or pay period, while others apply it on an annual basis.

Registration and reporting requirements

Employers must:

1. Register for payroll tax once their wages exceed or are likely to exceed the relevant threshold
2. Lodge returns monthly, quarterly, or annually (depending on their size and jurisdiction)
3. Pay the calculated tax by the due date
4. Keep records of all wage payments for at least five years

Most state and territory revenue offices now offer online portals for registration, lodgement, and payment.

Grouping provisions

Businesses may be grouped for salary tax purposes if they are related or connected. Grouped businesses share a single threshold. Grouping can occur when:

• Businesses are related corporations
• Entities have common controlling interests
• Businesses share employees
• Corporations are related through interlocking directorships
• There is an agreement for one business to control another

Exemptions and rebates

Certain types of employers or wage payments may be exempt from tax, including:

• Wages paid to apprentices and trainees (in some states)
• Not-for-profit charitable organisations
• Public hospitals
• Educational institutions
• Wages paid for maternity or adoption leave
• Wages paid to employees working overseas (subject to conditions)

Some states also offer rebates or incentives for regional employers or specific industries.

Harmonisation

While each state and territory administers its own payroll tax, there has been significant harmonisation of administrative provisions across jurisdictions. However, thresholds, rates, and some specific provisions still vary between states and territories.

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