An introduction to payroll tax

Payroll tax is a state-based tax imposed on employers in all states and territories. The payroll tax system is found in the following legislation:

• • Payroll Tax Act 2007 (NSW);
• • Payroll Tax Act 2007 (Vic);
• • Payroll Tax Act 1971 (Qld);
• • Pay-roll Tax Assessment Act 2002 (WA);
• • Payroll Tax Act 2009 (SA);
• • Payroll Tax Act 2008 (Tas);
• • Payroll Tax Act 2009 (NT); and
• • Payroll Tax Act 2011 (ACT).

Since 2007, there has been a process to harmonise payroll tax law and administration though some differences continue to exist, such as those relating to thresholds, rates and other minor differences. Accordingly, recourse should be had to the legislation of each particular state.

Employer payroll tax obligations

Payroll tax is a tax imposed on employers or deemed employers in each jurisdiction, on the wages that they pay or are liable to pay, that are taxable in the relevant jurisdiction. The term “wages” is broadly defined. In all jurisdictions there is a general deduction threshold. Payroll tax is payable only if the employer’s or deemed employer’s total Australian wages exceed the payroll tax deduction threshold.

Grouping

The legislation in all jurisdictions provides for “grouping” of employers in certain situations. The wages of all employers in a group are aggregated for the purposes of calculating payroll tax, and the group can only claim one payroll tax deduction threshold, however, the group members remain primarily responsible for paying payroll taxes on their own wages.

See What is an employer’s payroll tax obligation?

Jurisdictional issues

As payroll tax is a state-based taxation regime, it is necessary to determine in which state or territory payroll tax is to be paid with respect to particular payments. Where services are performed wholly in one jurisdiction in a relevant month, payroll tax is payable in that jurisdiction. If services are performed in in more than one jurisdiction in a given month, a tiered test is applied for determining the jurisdiction in which payroll tax is payable.

Where an employer pays wages in one jurisdiction only, payroll tax is generally calculated at the relevant rate on the amount by which the wages exceed the prescribed threshold. Where an employer pays wages in a number of jurisdictions, payroll tax is payable in each jurisdiction on only those wages which are taxable in that jurisdiction.

See What are the payroll tax requirements of each State/Territory?

Other employer obligations

Employers that are registered for payroll tax have obligations regarding registration and returns in each jurisdiction in which they are required to be registered.

See What are an employer’s registration and lodgment obligations?