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Payroll tax is a state-based tax that employers in Australia must pay on wages once their total employee payments exceed a set threshold. Unlike income tax, which employees pay on their earnings, payroll tax is the responsibility of the employer and is calculated as a percentage of the total wages, including salaries, bonuses, superannuation, and other benefits.
This tax applies differently across each Australian state and territory, with varying rates and thresholds. Small business owners need to know when they become liable, how much they need to pay, and what counts as wages to stay compliant. This guide provides a clear, up-to-date overview of payroll tax in Australia, including payroll tax Australia NSW rates, thresholds, and key compliance considerations for the Australian financial year.
So, What Is Payroll Tax?
Payroll tax is a state and territory-based tax that employers pay on the wages they provide to their employees. Unlike income tax, which employees pay from their earnings, payroll tax is an employer’s responsibility and is calculated as a percentage of your total wage bill.
Each Australian state and territory administers its own payroll tax system, which means the rules can vary depending on where your business operates. However, states have worked together to harmonise many aspects of payroll and taxes administration, making it easier for businesses operating across multiple locations.
When Do You Need to Pay Payroll Tax?
Not every business needs to pay payroll tax. You only become liable when your total Australian wages exceed what’s called the payroll tax threshold. This threshold varies by state and represents the tax-free amount you can pay in wages before payroll tax kicks in.
For example, the payroll tax threshold in NSW is $1,200,000 per year for the 2025-26 financial year. If your business pays less than this amount in total wages, you won’t owe any payroll tax. However, if you exceed this threshold, you’ll need to register and start paying tax on the amount above it.
Payroll Tax Australia NSW: Current Rates and Thresholds
Let’s look specifically at payroll tax Australia NSW requirements. The payroll tax rate in NSW is 5.45% for the 2025-2026 financial year. This means you’ll pay 5.45 cents in tax for every dollar of wages above the threshold.
If your annual payroll tax liability for NSW exceeds $20,000, you must lodge and pay monthly. Monthly returns are due within 7 days after the end of each month. If your liability is below this amount, you may be eligible to lodge and pay annually instead.
It’s worth noting that businesses in regional areas of NSW may have a reduced threshold of $900,000, providing some relief for regional employers.
For accurate calculations, you can use our tax return calculator to quickly estimate your payroll tax obligations along with your other tax commitments.
Understanding the Payroll Tax Rate Across Australia
The payroll tax rate isn’t uniform across Australia. Each state and territory sets its own rate, which currently ranges from 4.75% to 6.85%. Here’s a quick snapshot:
- NSW: 5.45%
- Victoria: 4.85% (with regional employers paying just 1.2125%)
- Queensland: 4.75% for wages up to $1.3 million
- South Australia: Up to 4.95%
- Western Australia: 5.5%
These rates can significantly impact your business planning, especially if you’re considering expansion into different states.
What Counts as Wages for Payroll Tax?
When calculating whether you’ve exceeded the payroll tax threshold, “wages” include much more than just base salaries. Wages are a broad term that includes almost everything you pay to an employee, including gross wages and salaries, allowances, bonuses and commissions, superannuation, fringe benefits, and termination payments.
This comprehensive definition means you need to consider your entire compensation package when calculating your payroll tax obligations. Even certain contractor payments may be included, depending on the nature of the arrangement.
Important Changes and Considerations
The payroll tax landscape is constantly evolving. Victoria increased its payroll tax threshold from $900,000 to $1 million from July 1, 2025, providing relief for growing businesses. Meanwhile, the Northern Territory introduced exemptions from 1 July 2025 for wages paid to apprentices and trainees.
If you operate in multiple states, your threshold entitlement may be reduced based on the proportion of wages you pay in each location. This is where understanding payroll and taxes becomes more complex, and professional advice becomes invaluable.
Compliance and Penalties
By law, you must register for payroll tax within seven days after the end of the month you go over the threshold amount. Failing to register or lodge returns on time can result in significant penalties and interest charges.
Revenue offices now work with the ATO, SafeWork, ASIC, and other agencies to cross-check employer data, making it more important than ever to ensure your Tax Compliance obligations are properly managed.
Getting Professional Help
Understanding what is payroll tax and managing your obligations can be challenging, especially as your business grows. The rules around payroll tax thresholds, rates, exemptions, and multi-state operations require careful attention to detail.
At TaxByte Accountants, we help small business owners navigate the complexities of payroll and taxes. Our team stays up-to-date with the latest changes in payroll tax Australia NSW and across all states, ensuring your business remains compliant while minimising your tax burden.
If you’re approaching the payroll tax threshold or operating across multiple states, Payroll Outsourcing services and expert advice can help you manage compliance efficiently. Contact the experienced team at TaxByte Accountants for personalised guidance tailored to your business needs.