We are moving through our Payroll/HR series and this week we move onto the last of the compliance issues that you need to know about when employing staff. We look at Payroll Tax.
Payroll tax is a tax on wages paid by employers. It is a certain percentage of wages you pay per month. And although payroll tax is Australia wide, it is actually a State Tax and payable to the state or territory Government where your staff are located.
Not everyone who employs staff is required to pay Payroll Tax. Employers are only liable for Payroll Tax if their wages exceed the exemption threshold that applies in their state or territory. The exemption threshold varies from state to state so it is really important that you keep on top of your state or territories threshold each year.
As of the date of publishing this blog the following are the thresholds for each state and territory in Australia.
|New South Wales||$750,000||5.45%|
|Australian Capital Territory||$1,850,000||6.85%|
You need to make sure you don’t confuse Payroll Tax with PAYG Withholding tax. PAYG Withholding tax is a tax you withhold from your employees gross wages. Payroll Tax is an additional tax you pay on top of your employees pays if your total payroll is over a certain threshold.
Determining your wages totals
It is really important that you understand that Payroll Tax exists and you monitor your payroll totals each month. Because as soon as your payroll exceed the monthly total of wages you are required to pay Payroll Tax.
The calculation you need to work out your payroll totals each month is:
Gross Wages (as per our payroll records)
Less Exempt Termination Payments
Exempt Workers Compensation Payments
Exempt Maternity/Adoption Payments
Other exempt payments
Plus Allowances (not included in Gross Wages)
Bonuses/Commissions (not included in Gross Wages)
Taxable Termination Payments (not included in Gross Wages)
Taxable contractor/Consultant payments
Employer Superannuation Payments
Employee Share Acquisition Scheme
This calculation gives you the Total Taxable Wages. You need to calculate this figure for each state or territory that your staff are located in. And as stated above, once your Total Taxable Wages (calculated using the above formula) exceeds the threshold in the state or territory that your workers are located in, you must register for and pay your liability
Registering for Payroll Tax
To register for Payroll Tax you need to go to the website of your state or territories Revenue Office. The process to register is really easy, but make sure you have all yoru payroll records handy when you are registering. Also be aware that there are penalties for not registering soon enough. I have included the links below for each state and territories registration page for your convenience.
New South Wales – http://www.osr.nsw.gov.au/taxes/payroll/register
Northern Territory – http://www.treasury.nt.gov.au/TaxesRoyaltiesAndGrants/PayrollTax/Pages/default.aspx
Western Australia – https://www.finance.wa.gov.au/cms/State_Revenue/Payroll_Tax.aspx
Tasmania – http://www.sro.tas.gov.au/payrolltax
Australian Capital Territory – http://www.revenue.act.gov.au/duties-and-taxes/payroll-tax/registration
Paying Payroll Tax
Once you are registered, you log in each month to lodge your monthly return and then pay it either online at the same time or via BPAY.
Another thing you need to be aware of is what the Government calls Grouping. Grouping is where business are ‘grouped’ together and treated as a single entity for Payroll Tax purposes.
A Payroll Tax Group exists where:
- Corporations are related bodies corporate within the meaning of s50 of the Corporations Act 2001
- Employees are shared between businesses
- The same persona has (or the same persons together have), a controlling interst in at least two businesses
- An entity has a controlling interest in a corporation
For example, one of my clients has a company (ABC Pty Ltd). ABC Pty Ltd owns two hotels – Pub 1 and Pub 2. They both operate separately from each other for tax, GST, payroll purposes. But their staff work at both locations as needed. This is classed as grouping for Payroll Tax purposes and therefore they have to combine both locations when calculating their Payroll Tax liabilities.
Organisations Exempt from Payroll Tax
Like many tax there are organisations that maybe exempt from Payroll Tax. Following are some examples:
- Non-profit Organisations
- Public Benevolent Institutions
- Religious Institutions
- Non-profit Non-Government Schools
- Municipalities, other than wages paid or payable in connection with specified business activities such as the supply of water or electricity
- State school councils within the meaning of the Education and Training Reform Act 2005
- Prescribed not-for-profit group training organisations
- Healthcare Service Providers
Payroll Tax Mistakes to Avoid
It is really important to try and avoid making mistakes when it comes to Payroll Tax as there are quite high fines involved if you do. Following are some common Payroll Tax issues most commonly overlooked by employers.
- Not registering – If you are an employer who pays wages you really need to be aware of your Total Taxable Wages and the threshold relevant to the state or territory that your staff are located in and also the threshold relevant to that state or territory. Once your Total Taxable Wages goes over that threshold you need to register.
- Not including all components of wages – Taxable wages for Payroll Tax purposes includes not only wages/salaries, but also employer superannuation contributions, commissions, bonuses, allowances, directors fees, fringe benefits, the taxable component of termination payments and payments to relevant contractors. Grants of shares or options to employees are also taxable. You need to make sure that all these are included in your calculations of Total Taxable Wages
- Not claiming exemptions and exclusions – Most commonly when doing your Total Taxable Wages calculation people forget to deduct Workers Compensation payments and including the income tax exempt component of Eligible Termination payments
- Not including contractor payments – Many businesses have replaced employees with contractors. Payments made to these contractors may also be subject to Payroll Tax.
- Not registering as a group – I have described above what being a group employer is for Payroll Tax benefits. If your company has 2 or more businesses operating under it you really need to seek advice as to whether this is a group employer for Payroll Tax benefits or not.
- Not Including Directors/Board Members Superannuation – employers sometimes fail to include directors’/board members superannuation payments as wages for payroll tax purposes. This is usually because the payroll records for the directors are completely separate from the general payroll records.
- Not including wages sacrificed for superannuation – any remuneration foregone by an employee under a salary sacrifice arrangement is taxable wages ‘payable in cash or in kind’.
- Not declaring the grossed-up taxable value of fringe benefits – employers have been found to declare variously the grossed-up value, the pre-grossed-up taxable value or the tax paid on fringe benefits. The correct amount to include is the grossed-up taxable amount of the fringe benefits provided.
- Making payroll tax payments to another state or territory – there are two tests to determine where payroll tax will be paid on wages where the services are provided in one jurisdiction and the wages are paid by an employer in another jurisdiction.
- The first Test is – where are the services performed in that month. For example, if services are performed by an employee in Victoria for the whole calendar month, Payroll Tax is payable in Victoria on these wages for that period.
- The second Test – is where services are performed in more than on jurisdiction in a month. In these circumstances, payroll tax is payable in the jurisdiction where the employee receives their wages. For example, if an employee spends one week in Victoria and three in Tasmania and their wages are paid to a Victorian bank account, payroll tax is payable in Victoria.
I hope this helps you understand Payroll Tax a bit more. If you have any questions about Payroll Tax or anything else we have talked in the previous blogs, you can email me or contact me on Facebook or Twitter.