The majority of business owners budget for company tax, GST, and superannuation. The numbers who plan to pay payroll tax in Australia is very small, and that is why it is not expected. Payroll tax is not paid to the ATO, as is income tax. It is administered on a state and territory basis rather than nationally; self-assessed by the employer; and applies only when your wages bill first reaches a threshold, which varies by state and territory.
It’s not the tax; it’s the timing. Payroll tax is seldom a consideration for a business until it is in a position of growth: a new employee, promotion round, bonus payment, or growing to a second state. The time for overpaid tax often has passed by the time the finance teams realise there is a liability. Often, months of underpaid tax have already occurred, with interest. Payroll tax planning should not be done after hiring decisions are made, and cash flow forecasting is done.
What is Payroll Tax in Australia?
Payroll tax is a tax levied by a state or territory on wages paid by an employer. Wages above the threshold are only taxable, and the tax itself is self-assessed, meaning your business (not the revenue office) is responsible for calculating, registering and lodging correctly.
Many businesses never even think to check, since it is self-assessed. This can happen particularly when a company is growing quickly: a business that was comfortably under the threshold can hit it in one of the financial quarters following a hiring frenzy, a merger or a big bonus round, and not detect the problem until the annual reconciliation process shows a deficit.
Understanding Taxable Wages and What's Subject to Payroll Tax
Wages are not limited to basic salary and are taxable. They typically include:
- Salaries and wages
- Bonuses and commissions
- Allowances
- Superannuation contributions
- Fringe benefits (grossed-up FBT values)
- Termination payments
The amount of shares that are transferred to employees through the employee share scheme.
The Contractor Trap
This is where most Australian payroll tax mistakes are made. The “relevant contractor” provisions are intended to result in payments to contractors being regarded as wage payments where the contract for their services is “primarily for labour”, and they are not provided with their own equipment, or they do not make a contract with multiple clients for the same work. In recent years, revenue offices have dramatically stepped up contractor audits, especially in the construction, IT services, and health care sectors, where so many “contractors” work on a long-term basis that their job descriptions resemble those of employees.
For example, a logistics firm has 5 drivers who are contractors, billing on a monthly basis, driving its own vehicles, and only working for the logistics company. The result of the payroll tax audit is that all five are reclassified as employees for payroll tax purposes, and the business is audited over the past three years for paying no payroll tax despite the business being under the contractor structure; the business is subject to payroll tax and penalties as if it had always been under the contractor structure.
The Interstate Wages Threshold Effect
Where wages are paid in more than one state, the threshold in each state is divided in accordance with the ratio of the wages paid in the state to the total Australian wages paid; not the ratio of the threshold in the state to the total Australian threshold.
For example, a company pays $900,000 in NSW wages and $2,100,000 in total Australian wages. Its NSW threshold isn’t the full $1.2 million; it’s $1,200,000 × ($900,000 ÷ $3,000,000) = $360,000. A lot of businesses assume that they are liable under the threshold in every state they do business in, and underestimate their liability.
Understanding Payroll Tax Grouping Rules
Grouping provisions have been introduced to make sure that a business does not establish a number of entities to secure several thresholds. Common control, common directors, sharing of employees between different business entities, or a parent-subsidiary relationship are the bases for grouping businesses. A grouped structure has just one threshold, not one for each entity.
The example below illustrates this.
For example, a founder has two separate businesses, each paying $700,000 in wages. None are at levels exceeding most state thresholds individually. The companies, however, share the same directors and administrative staff, which is why they are grouped, and the total wage bill of the combined companies, at $1,400,000, creates a liability. Once an existing grouping determination has been made, the only times it is undone are when re-organising after the fact, moving staff between entities or changing directorships.
Payroll Tax State and Territory Breakdown (2026)
The State of New South Wales (NSW)
Threshold: $1.2 million. Rate: 5.45%. NSW does not impose a mental health or COVID levy, but interstate apportionment and grouping are tightly managed, and annual reconciliation of apportionment and grouping is due on 28 July.
Victoria (VIC)
Threshold: $1 million (up from $900,000 from 1 July 2025). Rate: 4.85%, or 1.2125% for qualified regional employers who agree to the same wage rate for their regional employees that they pay their office-based employees. The Mental Health and Wellbeing Surcharge combined with the COVID-19 Debt Temporary Surcharge equals 2% of Victorian wages for employers earning more than $10 million (national wages above $100 million).
Queensland (QLD)
Threshold: $1.3 million. Rate: 4.75% (wages up to $6.5 million) or 4.95% above that. There is also an additional Mental Health Levy for large employers (those with wages over $10 million but not over $100 million) and a higher tier for those with Australian wages over $100 million. Wages under the bulk-billed arrangements are exempt.
Western Australia (WA)
Threshold: $1 million. WA takes the approach of a diminishing threshold that levels off at 5.5% if a person’s income increases over a specific amount to $7.5 million.
South Australia (SA)
Threshold: $1.5 million. SA charges a variable rate which increases as salaries increase up to 4.95% (not a flat rate).
Tasmania (TAS)
Threshold: $1.25 million. There is a two-tiered system where wages between $1.25 million to $2 million are taxed at 4% and over $2 million at 6.1%.
Australian Capital Territory (ACT)
Threshold: $1.75 million (reduced from $2 million from the 2025-26 Budget). Base rate: 6.75%. While payroll tax Australian Capital Territory rules may seem straightforward, the ACT has introduced surcharges for very large employers (VLEs) on top of the base rate, such as for group wages in the range of $20 million to $50 million which is in addition to the base rate of 1.9% as of 1 January 2025; and from 1 January 2026, for groups that earn Australia-wide wages over $150 million, the base rate is 1.9% with an additional 8.75%.
Northern Territory (NT)
Threshold: $2.5 million (up from $1.5 million from 1 July 2025 – one of the higher threshold increases of any jurisdiction this cycle). The rate is 5.5%, up from 1 July 2026 to 6.5% for employers or groups with Australia-wide wages of $100 million or more. NT has a progressive reduction, which is zero at wages of $7.5 million, and apprentice/trainee wages have been scrapped.
What Many Business Owners Don't Know
In reality, the payroll tax does not distinguish between the businesses that are doing something wrong and those that are doing something right; it is a growth tax that affects the companies growing the fastest. With just one senior hire or a few bonuses, a business can easily go over the top without anyone realising it until it’s time for recon.
Contractor arrangements are looked at much tougher than most business owners think, and grouping rules can identify businesses that have been set up for entirely valid and proper commercial purposes, but with no thought of avoiding tax. Payroll tax forecasting should be treated as much like super guarantee and STP compliance as an afterthought tacked on to year-end.
Frequent Payroll Tax Errors Leading to Audits and Penalties
- Registration beyond the 7-day window after the monthly cap will cost $100 to renew.
- Misclassifying contractors as employees.
- Not applying the apportioned threshold in each state, but rather the full threshold.
- When calculating combined wages, it's important not to ignore grouped entities.
- Failure to report fringe benefits and superannuation as income on wages
- Update payroll systems for new thresholds and rates each financial year.
Late registration and under-reporting can result in penalty tax between 200% of the amount under-reported, and a back-assessment with interest.
What Wages and Organisations Are Exempted?
Registered charitable organisations, public hospitals, religious institutions and some non-profits are generally exempted, but the specific criteria for exemption differ from state to state, and some states (such as the NT) have recently lifted restrictions on exemption for “commercial or competitive activity”. Typically, parental leave payments, defence force reserve leave, and volunteer emergency service leave are considered exempt wages.
Registration Deadlines and State Revenue Audits – How to Avoid Them
Must be registered within 7 days of exceeding the monthly limit (in each jurisdiction with employees). Most states will require lodgement of the monthly returns with an annual reconciliation (dates are as follows: 21 July QLD, 21 July VIC, 28 July NSW). There are more and more differences between STP data and payroll tax returns and discrepancies are more likely to appear in the Single Touch Payroll data when it is matched with data from State revenue offices or WorkCover and workers’ compensation records. Reconcile your STP data with your payroll tax returns annually, and not only at financial year-end, prior to an audit.
Jurisdiction | Annual Reconciliation Due Date |
NSW | 28 July |
VIC | 21 July |
QLD | 21 July |
ACT | 28 July |
SA | 28 July |
TAS | 21 July |
WAS | 21 July |
NT | 21 July |
Note: Deadlines are moved to the following working day if they fall on a weekend or public holiday. Since July 21 and 28 fall on a Tuesday in the 2026 lodgement cycle, there is no shift this year.
Compliance and Payroll Tax Risk
- Stay on top of thresholds on a monthly basis and not annually — apportioned interstate thresholds shift faster than most finance teams realize.
- Check contractor arrangements annually at regular intervals based on the contractor test.
- Re-evaluate grouping risk when changes in ownership, directorships or sharing of staff take place.
- If you are about to restructure, acquire or have a significant hiring round, conduct a payroll tax health check.
- Set the payroll software for the appropriate state-specific rates and thresholds for each fiscal year.
- Take an Australian payroll tax calculator as an initial calculation and check this with a specialist before lodging.
- Obtain expert guidance on restructuring, a splitting of entities does not mean a splitting of the grouping determination.
Conclusion
There’s nothing complicated about the Australian payroll tax, it’s just that there are eight different jurisdictions, eight different thresholds, rates and rules for the same wage bill. Businesses that don’t get caught out are those that don’t just mark off the Australian payroll tax thresholds box once a year, but monitor them on a monthly basis. It’s not too late to include payroll tax checks as part of your growth plans; otherwise, you’ll end up with those retrospective assessments that surprise many otherwise well-managed businesses.
FAQs
Yes. Regardless of the state or territory where your employees are working, you will need to register in each respective state or territory once your wages are above their threshold in Australia. In the case of this state, if you have only received small wages in this state but it is the only state of issue, you must register no more than 7 days after your wages exceed the monthly limit.
Yes, if the contract is essentially for labour only and the contractor is not providing his/her own equipment or services for other people. Revenue offices are actively auditing contractor arrangements, and reclassification can result in years of backdated liabilities as well as penalties.
Not automatically. Grouping is by common control, common directors or sharing of staff; restructuring once a liability is in place does not reverse the determination unless there is a new liability that has been identified.
Yes — this exemption has been enacted by the NT from 1 July 2025 and other states have similar exemptions. Requires formal apprenticeship or traineeship as required by legislation; check the rules for your state.
Almost all state budget cycles. In 2025, a few states and territories implemented considerable threshold or rate changes, so it’s a common and expensive mistake to use last year’s rates.
