Payroll taxes in Australia
Introduction:
Payroll taxes are a necessary evil for any small business owner, but luckily Australia has made the process more bearable. While some paperwork may still involve getting your head around payroll taxes, understanding how they work can help you save time and money.
This is why it’s important to be aware of your obligations as an employer to manage payroll tax returns properly. So, if you are looking for a guide to Australian payroll taxes, this blog is for you.
This blog post will break down all the basics when it comes time to pay payroll-related taxes in Australia so that you can pay less tax and ensure your finances are in order, allowing you to focus on growing your business.
Key takeaways
Payroll taxes play a vital role in the revenue generation of various state and territory governments.
Employers must understand their obligations and comply with the applicable legislation to avoid penalties and fines.
Payroll taxation rates and thresholds vary across states and territories in Australia.
What is a payroll tax in Australia?
A payroll tax in Australia is a state or territory tax that employers must pay on wages they pay to their employees each month. It applies to employers with a taxable wage above the state or territory threshold. The payroll tax rate, threshold level, and maximum taxable amount vary between states and territories.
The payroll tax administration is managed by the revenue offices in each state or territory. This type of tax aims to help Australian state governments increase their revenue to finance education, road infrastructure, public health systems, public transport initiatives, and housing support services.
All employers must register for this tax if the total annual wages or salaries they pay in twelve months exceed the relevant annual threshold. The wages or salaries are then subject to the relevant tax rate.
Therefore, this taxation works effectively towards obtaining satisfactory funding for essential community services across the nation.
What are taxable wages?
Payments that are considered "taxable wages" are subject to payroll tax. An employer's compensation in exchange for services is considered a taxable wage. The annual Australian taxable wages in the payroll tax act include the following amount:
- remuneration, wages, salary, commission,bonuses, allowances, or other benefits
- payments to contractors
- superannuation contributions
- director's fees
- Payments to employees before or after retirement or termination relate to their employment terms. For example, accrued leave and any other bonuses
- eligible termination payments
- The payments are made in kind where money is not involved, but goods or services are exchanged for other goods or services
- payments to employment agencies
- Fringe benefits
- remuneration paid to sick or injured employees
- employer contributions to employee share schemes.
What are exempted wages?
In addition to the taxable wages, some payments are not considered taxable for payroll tax. These exempted wages help employers to reduce their tax burden. The exempted payments include the following:
- new employees receiving eligible training
- paid maternity, adoption, and primary carer leave
- Paid Parental Leave (PPL)
- the tax-free part of genuine redundancy payments
- workers' compensation payments are made in accordance with workers' compensation schemes.
Do all businesses have to pay payroll tax?
No, all businesses do not have to pay payroll tax. The payroll tax rate and threshold vary from the states and territories, so many small businesses may be exempt from paying the tax.
However, it is important to remember that all businesses should register for payroll tax once the total salaries received in a financial year exceed the relevant threshold.
Example of when employers need to register for payroll tax in Australia
Let us understand when to register for payroll tax in Australia with an example below:
For example,
in the financial year 2021 to 2022, Queensland (QLD) and New South Wales (NSW) had a 31 days threshold of $1.3 million and $1.2 million, respectively.
If you recruit staff in QLD and NSW and your total Australian-wide wage bill for those 31 days is:
$1,500,000 in QLD: You must register for this tax in both states. It is because your total taxable wages exceed the threshold of $1.3 million in QLD, and your total wages also exceed the threshold of $1.2 million in NSW.or state.
$1,250,000 in NSW: You only need to register in NSW. It is because your total taxable wages exceed the threshold of $1.2 million in NSW but not the threshold of $1.3 million in QLD.
Note: You don't have to pay tax if your total Australian wages bill is under the maximum payroll tax threshold for your territory
How to lodge for payroll tax?
To lodge payroll tax in Australia, employers must register with the state or territory revenue office in which they are liable for payroll tax.
They must submit the payroll tax returns to the revenue office where payments are paid. This can be done through the online portal or by completing and submitting a paper lodgement.
Payroll tax payments must be made according to the relevant payment time frame. The employers are also required to keep records of all wages paid and other information related to payroll-related activities.
The revenue office may send the employer an assessment notice demanding tax payment if it finds the employer has failed to pay or has underpaid the relevant amount. Penalty rates may also apply for late or non-payment of taxes.
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Payroll tax australia lodgement due dates: Monthly & annually
The deadline for submitting lodgement and paying tax depends on the states or territories in which you are liable. Generally, employers must submit a monthly return to their respective revenue office by the 7th day of the following month.
For example, a return for February needs to be lodged by the 7th day of March. If the seventh day falls on a weekend or public holiday, the due date is postponed to the next working day.
In addition to monthly returns, they must also submit an annual return at the end of each financial. The annual returns must be lodged by the 21st of July of the following year, except Australian Capital Territory, New South Wales, and South Australia, where the due date for annual lodging returns is the 28th of July.
If the due date falls on a weekend or public holiday, the due date is postponed to the next working day.
Penalties apply to employers who fail to lodge or pay tax within the stipulated time. Therefore, they must ensure they comply with their payroll tax obligation to avoid hefty fines and penalties from revenue offices.
Payroll tax rates and thresholds for the annual year 2022-23
The payroll tax rates and thresholds for Australian states and territories for the year 2022-23 are as follows:
| States/Territory | Rates | Thresholds |
|---|---|---|
| Australian capital territory | 6.85% |
Annual $2 000 000 Monthly $166 666.66 |
| New south wales | 5.45% | Annual $1 200 000 |
| Northern territory | 5.5% | Annual $1 500 000 Monthly $125 000 Weekly $28 846 |
| South australia |
0% to 4.95% Exceeds
$1 500 000 but not $1 700 000
4.95% Exceeds $1 700 000 |
Annual $1 500 000 Monthly $125 000 Weekly $28 846 |
| Tasmania |
4% $1 250 001 -
$2 000 000
6.1% $2 000 001 or more |
Annual $1 250 000 Weekly $24 038 |
| Victoria | 4.85% 1.2125% for regional employers | Annual $700 000 Monthly $58 333 |
| Western Australia | 5.5% - 6.5% | Annual $1 000 000 Monthly $83 333 |
How are payroll taxes calculated in Australia?
The payroll tax amount is calculated based on the wages paid to all employees working in a business. Generally, the payroll tax liability is calculated by multiplying the total amount of wages paid during a specific period (e.g., monthly) by the applicable tax rates set by each territory or state.
For example,
In NSW, the payroll tax rate is 5.45%. This means that if an employer pays $50,000 in wages during a particular month, the employer needs to pay $2,725 as payroll tax ($50,000 x 0.0545 = $2,725).
Commonly identified mistakes in payroll tax lodgement
The Australian state and territory revenue offices regularly conduct audits and investigations to ensure employers comply with their obligations under payroll tax legislation.
Employers often find issues while lodging tax returns. Some of the most commonly identified areas include the following:
- Failing to include a few taxable wages while calculating the total wage amount. For example, director’s fees and other remuneration, superannuation payments, and taxable fringe benefits);
- Not disclosing fringe benefits and benefits under employee share schemes;
- Not able to claim an exemption for certain wages correctly;
- Disclosing wages in the wrong state or territory;
- Classifying employees as contractors inaccurately;
- Lodging the payroll tax return under the incorrect grouping status;
- Not disclosing payments made to portable long service leave and redundancy programs. This is applicable only in Western Australia and the Australian Capital Territory.
Note: The Australian government may impose a fine in case it is identified that the employer has provided incorrect or misleading information in lodged payroll tax returns or response to the information requested by the revenue office.
Tips to get payroll tax lodgement accurately.
To help employers in lodging tax returns accurately, here are some tips to get it right:
- Ensure the business is registered for payroll tax in each state that applies.
- Ensure to maintain accurate records of wages and allowances and declare them correctly on return lodgements.
- Ensure to check all details thoroughly before submitting and double-check that all required information is included
- Disclosing wages in the wrong state or territory;
- Classifying employees as contractors inaccurately;
- Lodging the payroll tax return under the incorrect grouping status;
- Ensure check with the relevant revenue office if unsure of the requirements.
- Ensure returns are lodged timely to avoid any penalties for late lodgements.
- Ensure that all employees are classified correctly to avoid penalties for incorrect classifications.
- Ensure to declare any fringe benefits, superannuation payments, and other employee remuneration.
- Ensure that wages declared in the tax return align with the actual wages incurred during the month.
- Finally, keep updated with changes in payroll tax rules and regulations by regularly reviewing information on the Australian Tax Office website.
These tips will help them comply with payroll tax regulations and ensure that employer does not face penalties or fines from revenue offices. You can also outsource your payroll process to ensure compliance.
A professional outsourced payroll service provider can help you understand the payroll tax requirements in each state and provide timely advice on how to obey applicable legislation.
Conclusion
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However, you can narrow down the field to find the perfect fit for the organization by keeping an eye out for key features like ease of use, various report types, and payroll integrations.
By getting the best time and attendance system for your business, you can improve employee productivity, boost morale, streamline workforce management processes, reduce costs, and ensure accuracy in payroll processing. With the right system in place, you can ensure that your business runs as efficiently and accurately as possible.
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