There will also be a phasing of the threshold for every dollar of wages above $3,000,000, and businesses with Australian wages above $5,000,000 will not receive any payroll tax-free threshold.

If your Australia-wide wages exceed the state thresholds, and you employ in one of these states or territories, you must register with the applicable state.  Some states require you to register if you hit their weekly or monthly thresholds, even if you don’t necessarily reach their annual thresholds.

These rates and thresholds are subject to change, so it's important for employers to verify the current rates and thresholds from the respective state or territory revenue office websites.

Smart Pty Ltd provides estimates of its 2022-23 wages in the prior year's annual reconciliation:
Victoria $500,000
Queensland $400,000
TOTAL $900,000

Though the Victorian wages were under the threshold, the Australia-wide total wages for SMART Pty Ltd were above the VIC threshold therefore Smart Pty Ltd is obligated to register for payroll tax.

The most common 'wages' include regular salaries and wages, allowances, bonuses, commissions, director’s fees, superannuation and payments to contractors*.

Other not so common 'wages' that are included are fringe benefits, termination payments and accrued leave, the value of shares and options granted to employees.

The total of all of the above is what is reported in either your monthly or annual reconciliation.

Some contractor payments are included in calculating the wages amount, particularly where the contractor is deemed to provide predominantly labour services and work exclusively or primarily for one designated person in a financial year. Contractors can include consultants, freelancers, and independent contractors who work for the employer but are not considered employees.

Even though you may consider someone to be a contractor, the State Revenue Office may consider them a regular employee. For example, only a living breathing person can be an employee, so generally if you engage someone though a trust or company structure, these are not considered employees by normal measures. However, the State Revenue Office may include them.

This means that if the contractor's work meets certain criteria, their payments may be included in your payroll tax calculations. The criteria can vary but often include factors such as:

1. Nature of Work: The work performed by the contractor is similar to the work done by regular employees.
2. Regularity: The contractor works for the employer on a regular or ongoing basis.
3. Control: The employer has a significant degree of control over how the contractor performs their work.
4. Exclusivity: The contractor works exclusively or predominantly for the employer.

Each state and territory in Australia has specific rules and exemptions regarding contractors and payroll tax, so it's essential to review the relevant guidelines to determine if contractor payments are taxable under payroll tax legislation.

It is important to note that If contractor fees are deemed to form part of wages, they are included as GST exclusive.

MORE INFORMATION: https://www.sro.vic.gov.au/contractors

Contracts involving services supplied by the following people are specifically excluded from being relevant contracts:

•       Owner-drivers
•       Insurance agents
•       Door-to-door sellers

Other exclusions may be:

• The contractor provides services to one principal for 90 days or less in a financial year.
• The contractor engages others to do all or part of the work pursuant to the contract subject to certain conditions being met.
• The provision of labour is ancillary or secondary to the supply of materials or equipment by the contractor.
• The services provided under the contract are of a type not ordinarily required in the principal’s ongoing business and the contractor usually provides those services to a range of clients.
• The services are of a type ordinarily required by the principal for less than 180 days in a financial year.

Businesses may be grouped together for payroll tax purposes. This means that if two or more businesses are related in certain ways, they are treated as a single entity for calculating payroll tax. Grouping rules ensure that businesses cannot split their operations to stay below the payroll tax threshold. Here’s a summary of what happens under grouping:

• Combined Wages: The total taxable wages of all grouped entities are combined to determine if the payroll tax threshold is exceeded.
• Single Threshold: Only one threshold amount is applied to the combined wages of the group, not individually for each business.
• Joint and Several Liability: All members of the group are jointly and severally liable for the payroll tax. This means each business in the group can be held responsible for the total payroll tax liability of the group.
• Common Control: Businesses can be grouped if they share common control, such as having the same owners, directors, or shareholders.
• Shared Resources: Businesses that share resources, such as employees, premises, or equipment, can also be grouped.
• Relevant Contracts: If businesses have relevant contracts or arrangements that demonstrate they operate together or are dependent on each other, they may be grouped.
• Notification and Registration: Employers must notify the relevant state or territory revenue office if they are part of a group and provide details of the other group members.

By grouping businesses, payroll tax authorities ensure that businesses operating together cannot avoid payroll tax by splitting payrolls across multiple entities.

Under section 72 of the Act, for Payroll Tax, groups employers of commonly controlled businesses in cases where the same person, or set of persons, has a controlling interest in each of the businesses.

What is a controlling interest?

• Under s72(2)(d) of the Act, a person or set of persons, has a controlling interest in a business carried on by a body corporate or unincorporate, if that person or set of persons constitute more than 50 per cent of the board of management of the body or control the composition of that board.
• Under s72(2)(e) of the Act, a person or set of persons, has a controlling interest in a business carried on by a corporation that has a share capital, if that person or set of persons can directly or indirectly, exercise, control the exercise of, or substantially influence the exercise of, more than 50 per cent of the voting power attached to the voting shares, or any class of voting shares, issued by the corporation.

If you are required to group under payroll tax legislation, then you combine the wages and lodge with the State Revenue Office for each entity.

In short, If it is the same person owns two or more businesses, you must group for Payroll Tax purposes.

The same applies to a trustee owning 2 businesses, except where the trustee owns the businesses on behalf of 2 different trusts, in which case the grouping provisions would need to be considered.

The State Revenue Office also has tracing provisions. This is where it may not be the exact same person who owns the business, but can still be shown to have more than 50% of a controlling interest in the questioned business. This could include a spouse or domestic partner or even a related entity.

 https://www.sro.vic.gov.au/payroll-tax/grouping

This is a heavily audited area and is important not to overlook if you have interests in more than one entity.

Do you have a contractor that works in and out of states or even the country? This might be for you.

Services provided wholly in Victoria

When an employee provides services wholly in Victoria in a calendar month, payroll tax is paid in Victoria on the wages of that employee. 

A four-tiered test (the nexus provisions), which must be applied in sequence, is used to determine a payroll tax liability when the employee provides services:

• in more than 1 Australian jurisdiction in a calendar month, or
• in 1 or more Australian jurisdictions and partly overseas in a calendar month.

This test uses the location of the employee’s principal place of residence (PPR) as a starting point and can take into account other factors related to the employer’s business.

https://www.sro.vic.gov.au/nexus-provisions

Payroll tax is calculated based on the total taxable wages an employer pays within a specific state or territory. Here’s a step-by-step guide on how to calculate payroll tax:

Determine Total Taxable Wages: Calculate the total amount of wages paid to employees.

Hot tip, refer to ‘What is considered “wages” for payroll tax purposes.'

• Apply the Threshold: Compare your total taxable wages to the payroll tax threshold for the relevant state or territory. If your total taxable wages are below the threshold, you may not be liable for payroll tax. If they exceed the threshold, you will be liable for payroll tax on the amount over the threshold.

• Calculate the Taxable Amount: Subtract the threshold from your total taxable wages to determine the taxable amount.
  For example, if the threshold is $700,000 and your total taxable wages are $1.5 million, the taxable amount is $1.5 million - $700,000 = $800,000.

This can be a bit more complex if you employ across multiple states.

• Apply the Payroll Tax Rate: Multiply the taxable amount by the payroll tax rate applicable to that state or territory to calculate the payroll tax due.
  Using the example above, if the payroll tax rate is 4.85%, the payroll tax would be $800,000 * 4.85% = $38,800.

• Consider Deductions and Exemptions: Some states or territories allow for certain deductions and exemptions that can reduce the amount of payroll tax payable. Ensure to account for any applicable deductions or exemptions.
  
  
• Lodge and Pay: Employers are required to lodge payroll tax returns (monthly or annually depending on each state or territory) and pay the calculated payroll tax by the due dates specified by the relevant state or territory revenue office.

SMART Pty Ltd provides estimates of its 2022-23 wages in the prop year's annual reconciliation:

Victoria: $1,500,00

TOTAL WAGE    -    THRESHOLD    x    RATE    =    PAYABLE
($1,500,000      -   $700,000           x    4.85%   = $38,000

SMART Pty Ltd provides estimates of its 2022-23 wages in the prop year's annual reconciliation:

Victoria: $1,500,00
Queensland: $400,000
Total: $900,000

The monthly deduction is calculated:

MONTHLY THRESHOLD      x       VIC TOTAL WAGE  ÷ TOTAL WAGE   =  DEDUCTION
$58,333     x     $500,000   ÷ $900,000   = $32,407

If the gross taxable Victorian wages for SMART Pty Ltd for March 2023 were $42,000, the tax payable would be as follows:

($42,000 - $32,407) x 4.85% = $465.26

In conclusion, though the Victorian wages were under the threshold, the Australia-wide total wages for SMART Pty Ltd was above the VIC threshold so therefore SMART Pty Ltd is obligated to register and pay payroll tax. Their deduction amount is then pro-rated.

SMART Pty Ltd is grouped with ABC Pty Ltd. SMART Pty Ltd has employees in Victoria and NSW, whilst ABC Pty Ltd only has employees in VIC.

If you have determined you are required to register for payroll tax, follow these steps:

1. Gather Information: Have your business details, including your Australian Business Number (ABN) and wage information, ready
2. Visit the Relevant State or Territory Revenue Office Website: Each state and territory has its own revenue office where you can register online
3. Complete the Registration Form: Fill out the required information about your business and wage details. Some states may require additional documentation, which you can upload during the application process
4. Submit the Application: Submit the registration form online. You should receive confirmation that your registration has been submitted
5. Confirmation: Applications are generally completed within 30 days, but some may take longer if further information is required or there is a high volume or registrations. You will then receive a confirmation letter noting your application has been processed where you will receive your unique customer number and instructions on how to log into the relevant portal.

Payroll tax lodgement deadlines vary by state or territory in Australia and can depend on the size of the employer's payroll. This includes both lodgement and payment. Generally, payroll tax returns can be lodged monthly or annually. Here are typical deadlines for each type of lodgement:

Specific Deadlines by State/Territory
Employers should check the specific requirements for their state or territory to ensure compliance with all lodgement deadlines.

Generally, larger employers with higher payroll amounts are required to lodge monthly, while smaller employers may have the option to lodge annually.

For Victoria, each employer registered for payroll tax must lodge and pay on a monthly basis unless approved to be lodged on an annual basis. In most cases, if your tax payable is, or is estimated to be, less than $100,000 then you can lodge on an annual basis.

If you lodge on an annual basis, it is important to budget for the tax payable.

If you lodge on a monthly basis, you are still required to lodge an annual reconciliation by the annual due date.

Exempt organisations are entities that are not liable to pay payroll tax on their employees' wages due to their specific legal status or the nature of their activities. While the criteria for exemption can vary, common types of exempt organisations typically include:

• Charities and Non-profit Organizations
• Public benevolent institutions
• Religious Institutions
• Healthcare service providers
• Municipalities
• State school councils
• Approved group training organisations

It's important for exempt organisations to understand the eligibility criteria and requirements for exemption from payroll tax in their particular state or territory. They may need to register as exempt organisations and provide documentation to support their status. Additionally, not all wages paid by exempt organisations may be exempt from payroll tax, so it's essential to seek guidance from the relevant revenue authority or a tax professional.

Record-keeping might not be the most exciting part of running your small business, but it's absolutely crucial when it comes to payroll tax. Inaccurate records or any slip-ups can quickly land you in hot water with auditors and lead to hefty penalties.

There is an increase in State Revenue Office audit activity, some of which we have seen firsthand. Some cases the SRO can audit activity up to 5 years and even impose penalties of up to 90% of your liability.

It is always a benefit to be on the forefront. If you are required to register for payroll tax in Australia, but fail to do so, there can be several consequences, including legal penalties and financial repercussions.