Payroll tax is one of those taxes that can slip under the radar of small businesses. Employers don’t need to pay this tax until their wages reaches a threshold, and then the onus is on the business to register and pay the tax.
Payroll tax is a state and territory tax based on the taxable wages you pay as an employer. Types of payments defined as ‘taxable wages’ include salaries and wages, allowances, fringe benefits and super contributions. A common misconception is that contractor payments are not included in taxable wages. However, if there is an employee/employer relationship that exists between a contractor and their client then the contractor payments may be included. Generally, if the contractor is providing predominantly labour only and is being paid an hourly rate, it is likely that these payments will be considered taxable wages and will be assessed for payroll tax.
Not all businesses with employees are required to pay payroll tax. There will only be a payroll tax liability where taxable wages exceed the relevant thresholds in the state or territory you are employing from (or in some cases where your employees perform the work). The current Western Australian threshold is $850,000 per year at which point a tax rate of 5.5% applies. Other states’ thresholds can be lower; for example South Australia’s threshold is $600,000 annually, so it is important to be aware of the different state and territories’ thresholds each year.
Payroll tax is self-assessed which means employers have the responsibility of assessing if they are liable to pay the tax. Employers should check with the revenue office in the state or territory they employ from and assess the threshold that applies. If you are over the threshold you will need to register for payroll tax in the state or territory and lodge a payroll tax return. Payroll tax is generally lodged and paid monthly and then reconciled and adjusted annually based on the full years wages.
Even though it is a self-assessed tax, the state and territory revenue departments conduct regular audits to assess if the correct payroll tax has been paid. They also receive information from other sources which can prompt them to audit a taxpayer such as a large salary and wages or contractors amount reported in an employer’s tax return.
Most types of wages payments are assessable as taxable wages but look out for exemptions for workers compensation receipts, disability wages, certain apprentices and trainees and parental leave.
For more information visit www.payrolltax.gov.au or call us on 93355211 for assistance with any payroll tax queries.
Author: Allan Edmunds