What payroll tax is and how it works
Payroll tax is levied by each Australian state and territory on Australian taxable wages you pay to employees and certain contractors. You’re liable in a jurisdiction when your total wages there (including any grouped entities) exceed that jurisdiction’s threshold. Because rates, thresholds, exemptions and due dates differ by jurisdiction, you must assess your position in each state or territory where you have payroll activity.
At a high level the workflow is: determine your grouping status, register in each relevant state, allocate wages to the correct jurisdiction using nexus rules, calculate tax after applying the local threshold, lodge and pay monthly or as required, then complete the annual reconciliation to true‑up the year.
Key rules and definitions
- Grouping: related entities can be grouped. If the group’s combined wages in a state exceed the threshold, each member may become liable. Review ownership, control and related-party arrangements.
- Nexus rules: wages are taxed in the jurisdiction to which the services have the closest connection (for example, where the work is performed, or where the employee is based). Apply state nexus tests consistently.
- Thresholds and rates: these vary by jurisdiction and can change. Always check the latest guidance from the relevant revenue office before calculating.
- Returns: most jurisdictions require monthly returns and payments when liable, followed by an annual reconciliation that applies the annual threshold and finalises the year.
What counts as wages for payroll tax
While definitions vary, most states and territories generally include the following in taxable wages:
- Salaries and wages, bonuses, commissions and allowances
- Employer superannuation contributions (including super guarantee)
- Leave, termination payments and directors’ fees (jurisdiction rules apply)
- Taxable fringe benefits (grossed‑up amount)
- Payments to contractors where the arrangement is a “relevant contract” and no exemption applies (for example, labour‑only contracts)
Common concessions or exemptions can include certain parental leave, wages for apprentices/trainees, and wages paid by charitable or non‑profit organisations—but these differ by jurisdiction and often require conditions to be met. Always confirm with the relevant state or territory revenue office.
Registration, thresholds and grouping
You should register for payroll tax in a jurisdiction as soon as your wages are close to or likely to exceed that state’s threshold, or when grouping rules mean your combined wages will exceed it. Registration is done with the relevant state or territory revenue office. Because grouping can make you liable even when your own entity is below the threshold, review ownership links, common control and related‑party arrangements across your structure.
When you operate across multiple jurisdictions, you may need to register in more than one. Use the nexus rules to apportion wages by state, keep clear records to support your apportionment, and monitor thresholds throughout the year—not just at year‑end.
How to calculate and lodge payroll tax
1) Allocate wages
Apply nexus rules to allocate wages to each jurisdiction. This can depend on where services are performed, where employees are based or paid, and contract terms.
2) Apply thresholds
Check whether a monthly or annualised threshold applies and how to apportion it across the year. Some states scale thresholds based on the number of months you were liable.
3) Calculate tax
Use the jurisdiction’s rate schedule after applying the threshold. Include taxable wages like employer super and grossed‑up fringe benefits.
4) Lodge and reconcile
Lodge monthly (or as required) and pay by the due date. Complete the annual reconciliation to true‑up, claim eligible exemptions and reconcile any differences.
Common triggers, risks and mistakes
- Growing from below the threshold to above it without registering early enough
- Missing grouping rules when adding a new entity or changing ownership
- Incorrectly treating contractor payments as exempt when they are “relevant contracts”
- Omitting employer super or fringe benefits from taxable wages
- Applying the wrong nexus test and allocating wages to the wrong state
- Falling behind on monthly returns, then facing penalties and interest at year‑end
If you are unsure, it is safer to register and seek a private ruling or written guidance from the relevant revenue office. Professional support can help you set up the right workflows in your payroll and accounting software and reduce compliance risk.
Payroll tax vs PAYG withholding and STP
Payroll tax is a state or territory tax. PAYG withholding and STP are federal obligations administered by the ATO. You may need to meet all three:
- PAYG withholding: withhold tax from employee payments and report via STP
- Single Touch Payroll (STP): report payroll information to the ATO through STP‑enabled software
- Payroll tax: register, calculate and pay in each state/territory where you are liable
Because the data overlaps, well‑structured payroll processes make it easier to meet all obligations. If you need hands‑on help with payroll operations as well as payroll tax, see our Payroll Services or Bookkeeping Services pages.
Where to find official rates and thresholds
Always verify current thresholds, rates, exemptions and due dates with the relevant state or territory revenue office:
Best next steps
Confirm whether you are close to any state threshold, review grouping across all entities, identify contractor arrangements that could be relevant contracts, and check your payroll software setup for accurate nexus allocation and reporting.
If you need action rather than information, use our service hubs to get moving: Payroll Services, BAS Agent Services, Tax Accountant, and Accounting Services. Or, describe your situation below and we’ll point you to the right support.
Frequently asked questions
How does payroll tax work?
It’s a state and territory tax on Australian taxable wages. When your (grouped) wages in a jurisdiction exceed the local threshold, you register with that revenue office, allocate wages using nexus rules, lodge returns (usually monthly) and complete an annual reconciliation.
What should I check before deciding if I’m liable?
Review your grouping status, where employees work, how wages are allocated by state, whether contractor payments are relevant contracts, which items count as wages (including employer super and FBT) and how close you are to each state threshold.
When should I get professional advice?
Seek advice when approaching any threshold, when adding new entities or changing ownership, when paying contractors regularly, operating across states, or if you’ve missed lodgements and need to minimise penalties.
Is payroll tax the same as PAYG or STP?
No. PAYG withholding and STP are federal (ATO). Payroll tax is separate and administered by state and territory revenue offices with different rules, rates and thresholds.