With state governments around the country hungry to find some cash, we‘ve seen a significant lift in the amount of audit activity by the various state revenue offices. Particularly in Queensland, we’re seeing a huge focus on real estate businesses and the medical industry, and others where the use of independent contractors is common.

With payroll tax being one of the most hated taxes by business owners [because it essentially discourages growth and employment, especially for services businesses] no one wants to be the subject of a payroll tax review.

To help you navigate this landscape, here are my top 5 myths about payroll tax:

 

video summary:

 

myth 1: you don’t pay payroll tax on contractors

Reality: Payments to contractors can be subject to payroll tax if the contractor is deemed to be an employee under the relevant legislation. Both states have specific rules to determine whether a contractor is considered an employee for payroll tax purposes – and to make things more complicated, these rules are not identical to the rules for super or income tax.

The safest bet is to make sure you are truly operating as an independent business and not in an employer-employee relationship. Having an ABN is not enough.

 

myth 2: only large businesses need to worry about payroll tax

Reality: While it’s true that payroll tax primarily affects larger businesses, smaller businesses can also be liable if their total wages exceed the state threshold. In Queensland, the threshold is $1.3 million per year, while in New South Wales, it’s $1.2 million.

And a word of warning – when you first register, they are likely to review the previous couple of years to ensure compliance, so get your ducks in a row first.

 

myth 3: payroll tax is assessed at the same fixed rate across the country

Reality: Each state has their own thresholds and rates. We’ve summarised these below.

For example, you start paying payroll tax in Queensland from $1.3m at a rate of 4.75% for wages up to $6.5 million, increasing to 4.95% above this threshold.

In contrast, New South Wales has a flat rate of 5.45% from $1.2m in wages.

 

State/Territory Annual Threshold Payroll Tax Rate
Australian Capital Territory $2,000,000 6.85%
New South Wales $1,200,000 5.45%
Northern Territory $1,500,000 5.5%
Queensland $1,300,000 4.75% [up to $6.5 million], 4.95% [above $6.5 million]
South Australia $1,500,000 0% to 4.95% [up to $1.7 million], 4.95% [above $1.7 million]
Tasmania $1,250,000 4% [$1,250,001 to $2,000,000], 6.1% [above $2,000,000]
Victoria $900,000 4.85%, 1.2125% for regional employers
Western Australia $1,000,000 5.5%

Additional notes:

These rates and thresholds are subject to change, so it’s always a good idea to check with the respective state revenue offices for the most current information. If you have any specific questions or need further details about this, feel free to ask!

 

myth 4: each state’s payroll tax is assessed independently

Reality: Although payroll tax rates and thresholds vary between states, you need to apply the thresholds based on the total of all states for all grouped entities.

You need to start by adding all your taxable wages [which includes super and other benefits] across the entire country before then applying the different thresholds and rates.

 

myth 5: grouping is limited to wholly owned related entities

Reality: This is often one of the least accurately applied parts of payroll tax –not only because it’s hard to determine, but also because no one likes the outcome.

If businesses are grouped, all taxable wages of the group will be subject to payroll tax, even if the entities operate in different industries and have a different shareholders.

In Queensland, a group can exist in a wide range of situations, including when:

We’ve seen material impact to businesses when this rule is applied. For example, the owner of a large manufacturing business may also have a small restaurant in which they have invested. Given the businesses are grouped, the restaurant will suffer an increase in wage costs in Queensland of 4.75% – whilst likely already fighting tight margins.

 

we’re here to help

If you are worried about the risk of the state revenue office knocking on your door and wanting to do a review, get ahead of the game and consider your position now.

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If you have any questions, feel free to reach out on 1300 BDEPOT or get in touch via oneplace@businessdepot.com.au.

 

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