What is Payroll Tax?
Payroll tax is a State tax on wages paid or
payable by an employer to its employees (including deemed employees) when the
total wage bill of an employer exceeds a threshold amount.
Since 2007, all States have harmonised their payroll tax legislation to a greater or lesser extent. The payroll tax rate and the thresholds for the FY22 financial year vary between the jurisdictions as summarised in the table below.
What is included in taxable wages?
Taxable wages are wages that are paid or payable by an employer for or in relation to services performed by an employee in the relevant State. More complex requirements will apply if wages are paid in relation to services performed by the employee in two or more States.
Wages are defined broadly as:
·
Remuneration, salary,
commission, bonuses, or allowances, and
·
Amounts under prescribed
classes of contracts to the extent to which payment is attributable to labour
·
Directors’ fees and
remuneration
·
Amounts that are deemed wages
under the contractor provisions (see below).
·
Fringe benefits
· Superannuation contributions
Potential trap 1 – Contractor and deeming provisions
Broadly, the contractor provisions operate to deem an employment relationship for payroll tax purposes where there is a relevant contract with amounts paid or payable to the contractor deemed to be wages for payroll tax purposes.
A relevant contract does not include a contract of service (i.e. an employment contract), as well as certain other contracts, for example:
·
Supply of services by a person
who ordinarily performs services of that kind to the public generally
·
Of a kind ordinarily required
for less than 180 days in the financial year
·
Provided for a period (or
periods) in total that do not exceed 90 days in a financial year, providing
certain other requirements are satisfied
· Where the contractor supplies services which are performed by 2 or more persons employed by the contractor.
Potential trap 2 – Grouping provisions
These are directed at combating a scheme by
employers, being the separation of what is, in reality, one business, into
several businesses so as to multiply the benefits of the payroll tax free
thresholds.
The grouping provisions do this by treating the various businesses as a single economic entity for payroll tax purposes with responsibility for lodging and paying payroll tax on behalf of the group resting with one business.
Grouping provisions cast a wide net in terms of the factual scenario in which businesses will be grouped:
·
Where corporations are related.
For example, if the corporation holds more than 50% of the shares in another
corporation
·
Where employees are shared
between the businesses (e.g. bookkeepers, receptionists)
· Complex provisions also group trading trusts and other business structures
Period of review in the event of audit by State Revenue
States will typically go back up to 5 financial years in terms of issuing reassessments of payroll tax and collecting any payroll tax liability including interest and penalties for prior years. Some States have provisions for reduction of penalties, if a voluntary disclosure is made at the commencement of the audit, or prior to any audit or review.
Table showing payroll tax rates and thresholds for the 2022 financial year
|
State |
Payroll tax rate |
Payroll tax annual threshold |
|
New South Wales |
4.85% |
$1,200,000 |
|
Victoria |
4.85% 2.02% for regional Victorian employers |
$675,000
|
|
Queensland |
4.75% For employers with AU taxable wages less than $6.5million |
$1,300,000 |
|
South Australia |
0%-4.95% scaled rate |
$1,700,000 |
|
Tasmania |
4% |
$1,250,000 to $2,000,000 |
|
Western Australia |
5.5% up to <$7.5 million wages and >$950,000 |
$950,000 |