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If you’re a new or existing employer in NSW, you need to come to grips with the ins and outs of state-based payroll tax.
Every state has their own rules and tax rates, so be careful to pay attention to your state when considering payroll tax concerns.
Let’s dive into New South Wales.
Payroll tax NSW fundamentals
So, what is payroll tax and how does it work?
Payroll tax is paid directly to the state government by employers and is based upon employee wages accrued through the financial year.
If you are a smaller employer and do not pay very much in wages, you may be exempt from this tax. To understand if you’re under the threshold, read on…
Payroll tax threshold in NSW
Payroll tax is applicable to businesses with total Australian wages that exceed the threshold set by the state government. This threshold can change from year to year, so it’s essential to check the current rates.
As of the 2023/24 tax year the threshold was:
- $1,200,000 per annum.
- Monthly rates are based on the number of days in a particular month. 29 days is $95,082. 30 days is $98,361. 31 days is $101,639.
As soon as you exceed these thresholds, you must register for payroll tax and begin filing returns.
NSW payroll tax registration and compliance
Registration for payroll tax is required within seven days after the month in which your total Australian wages first exceed the current NSW monthly threshold.
Monthly reporting
Employers are required to report and pay payroll tax liability monthly to the NSW Office of State Revenue (OSR). If your annual payroll tax liability is under $20,000, it’s possible to lodge annually instead.
You can simplify this process by setting up direct debit and using the ‘estimate wages method’ to calculate your liability. Any discrepancy will be worked out when you file your annual return.
Payroll tax annual returns
At the end of each financial year, employers are required to lodge an annual return to reconcile their actual taxable wages with the amounts reported throughout the year. This helps to ensure that the correct amount of payroll tax has been paid.
Penalties for non-compliance
Failure to comply with payroll tax obligations, such as not registering for payroll tax when required or not lodging returns on time, may result in penalties and interest charges.
Payroll tax rate and calculation in NSW
The payroll tax rate in NSW remains at 5.45% of taxable wages, as announced in the 2023 Budget. The payroll tax rate applies to businesses with total Australian wages above the threshold.
Due date for payroll tax payment
The due date for payroll tax payment is the 7th business day of the month following the month in which the wages were paid. A penalty tax will apply if payment is not made by the due date.
Exemptions and deductions
The payroll tax base includes wages and salaries, as well as a range of contractor payments, allowances, and fringe benefits. Payments to third parties for services provided by an employee (or director) to an employer are also included.
There are a number of exemptions and exclusions, including those based on the status of the employer or the nature of the work. For example, certain wages may be exempt from payroll tax, such as wages paid to apprentices and trainees. Additionally, some deductions may apply, reducing the taxable amount.
Payroll tax and contractors
Contractor payments are subject to payroll tax unless they meet certain criteria. Services provided by contractors are considered wages for payroll tax purposes.
