Payroll Tax in New South Wales
An individual employer or a group of related businesses may be liable for payroll tax if the total liable wages throughout Australia, including NSW, exceeds the payroll tax threshold. From 1 July 2018 to 30 June 2019, the payroll tax threshold increased to $850,000 ($750,000 in 2017 financial year), and the payroll tax is payable on the balance of the wages at a rate of 5.45%.
WHAT wages are liable?
Payroll tax is imposed on an employer’s liable NSW wages minus any threshold entitlement. Wages include any remuneration paid by an employer to an employee. Payments made to certain contractors are also deemed to be wages.
In detail, the liable wages include:
- salaries, commissions, director fees, bonuses, allowances and any ordinary earnings, penalty rates, overtime and leave payments;
- wages, including superannuation, allowances and fringe benefits, paid to apprentices and new entrant trainees;
- termination payments include the value of
- an Employment Termination Payment (ETP) declarable as income for the Australian Taxation Office (ATO); and
- all paid out annual and long service leave irrespective of when it was accrued;
- certain contractor payments.
The amount of the ETP or similar payment that is liable is the amount that would be included in the assessable income of an employee, director or deemed employee, if the whole of the ETP had been paid to that employee, director or deemed employee.
Moreover, there are some payments which are not liable for payroll tax, including
- jury duty payments made by the court system to an employee;
- workers compensation payments, except for make-up pay;
- reimbursement of the exact amount of an employee’s receipted or documented business expenses; and
- GST component of a wage or relevant contract payment.
WHERE wages are taxable?
Employers are required to pay payroll tax based on wages that are taxable in NSW. A wage paid to any employee is taxable in one State or another on a per employee and per month basis. A wage paid to an employee cannot be taxable in two or more jurisdictions.
Situation 1 – Work wholly in NSW
If in any month an employee works wholly in NSW, then the wages for that months’ work are taxable in NSW.
Situation 2 – Work not wholly in NSW
If in any month an employee works wholly in NSW there are three alternatives:
- worked in NSW and in one or more other states or territories in Australia
- worked in NSW and worked outside of Australia
- worked in two or more states or territories other than NSW.
If any of the above applies, then a tiered test is applied to determine where a wage is taxable for a month. As soon as one of these tests is applicable the sequence ends and the wage is taxable as indicated in that test.
The tiered tests are:
- The jurisdiction in which the employee’s principal place of residence is located.
- The jurisdiction in which the principal place of business of the employer is located if the employee has no principal place of residence in Australia.
- The jurisdiction in which the employee is paid if the employee does not reside in Australia and the employer does not have a principal place of business in Australia.
- The jurisdiction in which the work is mainly performed if above three points all do not apply.
Please note that the ‘mainly performed’ mentioned above is applied if an employee performs more than 50 per cent of their working time for that month a single jurisdiction.
Situation 3 – Working overseas and paid in Australia
An employer who pays wages to a person working in another country has an exemption on those wages if the period overseas is six consecutive months or more. The six month period is not broken by returning to Australia for non-work related breaks or to attend meetings or updates relating to the overseas work.
If the overseas work period is less than six months the wages are taxable in the State or Territory in which the employee is paid their wage.
EXEMPTIONS for payroll tax
There are two types of payroll tax exemptions:
- some or all of the wages paid by an organisation are exempt due to the nature of the organisation (e.g. religious institutions, public hospital and other benevolent or charitable organisations may qualify for exemption); and
- some wages are exempt when paid for a specific purpose. (e.g. maternity, paternity or adoption leave).
Please note that failure to lodge payments on time will result in the imposition of interest and, in some cases, penalty tax. If you would like any further information on payroll tax, please do not hesitate to contact our tax accountants at The Quinn Group on (02) 9223 9166 or fill out an online enquiry form today.