As we sit well and truly in the thick of tax season, there’s not only a lot to do, but also a lot of terms to process, especially as a business owner. One of the terms we get asked about a lot is ‘payroll tax’; it’s not quite what many assume it is, and it’s worth your while to be aware of what it is, and when you have to pay it, to ensure you’re not caught up in any unnecessary red tape down the line.
Payroll tax is a self-assessed state-based tax that is levied on wages paid by an employer to its employees. Payroll tax is self-assessed and lodged by the employer.
Each state has a different payroll tax regime but there has been an effort in recent years to harmonise the various rates and thresholds between the states.
Employers are liable for payroll tax when the total taxable wages of an employer (or group of employers) exceed a threshold amount.
The payroll tax rates and thresholds vary between states and territories.
In NSW, an employer is liable for payroll tax when their total wages (including superannuation and fringe benefits) are more than $1,200,000. Payments to contractors may also be included as wages for payroll tax purposes
In NSW employers are currently liable for payroll tax at 5.45% of their total wages over $1,200,000. Employers that are commonly controlled or share employees may be grouped together to calculate their total wages and will only be entitled to one tax free threshold (as opposed to $1.2m per employer)
Generally, every employer who is registered must lodge a return in relation to each month (except June) within seven days after the end of that month. Employers must also lodge by 28 July a return relating to June and a reconciliation of total wages paid during the year. This may result in the payment of additional tax or a refund where too much tax was paid.
To ensure you comply, we suggest consideration to the following: -
If your salary costs are approaching $1.2m p.a. ($100,000 per month), seek advice.
If your business structure includes separate entities, confirm the combined salary levels do not exceed the threshold.
If there are separate entities, confirm whether grouping does apply. This may require a review of directorship and ownership.
If you are paying Payroll Tax, confirm what you are paying is correct. For example, are you capturing all assessable costs and/or are there wages or costs included where Payroll Tax does not apply.
Payroll Tax can be quite complex. Maxim can help you navigate through this while ensuring your obligations are met. Please contact us.