Australia Payroll Tax: A Business Owner’s Guide to Thresholds, Rates and How to Reduce Your Liability

Payroll tax can be an unexpected cost for growing businesses. You may start with a small team, then add employees, contractors, bonuses, superannuation and interstate staff, only to find that your payroll tax position is more complex than simply comparing salaries against a threshold.

The key point is that payroll tax is a state and territory tax, not a federal tax administered by the ATO. Each jurisdiction has its own threshold, rate, deductions, surcharges, registration rules and exemptions. While the systems share many common features, a rule that applies in one state may not apply in another.

This guide provides a practical overview of payroll tax for the 2026–27 financial year, including current thresholds and rates as at 25 September 2026, common traps and legitimate ways to manage your exposure.

What payroll tax is and when it applies

Payroll tax is generally payable by an employer when its taxable wages exceed the relevant jurisdiction’s threshold. For many businesses, the test looks at total Australian taxable wages, including wages paid outside the state or territory where the payroll tax return is lodged.

This means a business with employees in more than one jurisdiction cannot assess its payroll tax liability by looking only at the wages paid in that state. Interstate wages can reduce the amount of threshold available in a particular jurisdiction, even where the business has only a modest local payroll.

Taxable wages commonly include:

• • salaries and wages;

• • bonuses, commissions and incentive payments;

• • employer superannuation contributions;

• • some termination payments;

• • certain allowances;

• • fringe benefits;

• • director fees and payments to directors in some circumstances;

• • payments made through employment agencies; and

• • contractor payments that are treated as wages under the relevant payroll tax legislation.

A sole trader who does not employ staff will often have no payroll tax liability. However, hiring employees, engaging regular contractors or operating through multiple related entities can quickly change the position.

Payroll tax is generally self-assessed. Once your business, or your payroll tax group, exceeds the registration threshold, you may need to register, lodge periodic returns and complete an annual reconciliation.

Payroll tax thresholds and rates across Australia

The following table summarises the principal payroll tax thresholds and rates for the 2026–27 financial year. It is a starting point only, because deductions, phase-outs, regional concessions and surcharges can materially affect the final liability.

The table does not include every possible surcharge, concession or special rate. For example, Victoria has additional payroll tax surcharges for larger employers, while Queensland has a mental health levy for employers above relevant wage thresholds.

New South Wales

For the financial year from 1 July 2026 to 30 June 2027, the New South Wales annual tax-free threshold is $1.2 million and the payroll tax rate is 5.45%.

If a business pays wages only in New South Wales for the entire year and is not grouped with another employer, the threshold is generally available in full. However, it can be reduced where the business employs staff for only part of the year or pays taxable wages in other states or territories.

Victoria

Victoria provides a maximum annual payroll tax deduction of $1 million. The standard payroll tax rate is 4.85%.

The full deduction is generally available where total annual Australian wages are below $3 million, subject to interstate wages, grouping and part-year adjustments. The deduction phases out for employers and groups with annual Australian wages between $3 million and $5 million. No deduction is available once annual Australian wages exceed $5 million.

Eligible regional Victorian employers may qualify for a lower rate of 1.2125%, subject to meeting the relevant regional employee requirements.

Victoria also imposes combined payroll tax surcharges for larger employers. Where Australian wages exceed $10 million, the combined surcharge is 1% of relevant Victorian taxable wages above the threshold. For employers with Australian wages above $100 million, the combined surcharge is 2%.

Queensland

Queensland’s annual threshold is $1.3 million of Australian taxable wages. The general rate is 4.75% where annual Australian taxable wages are $6.5 million or less, increasing to 4.95% where they exceed $6.5 million.

A regional employer may be entitled to a 1% discount on the payroll tax rate, provided the relevant eligibility conditions are met. This concession is scheduled to remain available until 30 June 2030.

Queensland also applies a mental health levy to the Queensland taxable wages of larger employers. This means that businesses with substantial national payrolls should model their payroll tax position carefully rather than relying on the headline rate alone.

South Australia

South Australia has a maximum annual payroll tax threshold of $1.5 million and a maximum annual deduction of $600,000.

Its calculation method is less straightforward than a simple “wages over threshold multiplied by rate” approach. Effective rates vary across wage ranges, with the top payroll tax rate of 4.95% applying at higher payroll levels. Businesses approaching the threshold should use the official calculation tools or obtain advice before assuming their liability.

Western Australia

Western Australia has a $1 million annual threshold and a general payroll tax rate of 5.5%.

The threshold diminishes for employers and groups with annual Australian taxable wages between $1 million and $7.5 million. Once wages reach $7.5 million, no threshold deduction is available and payroll tax is calculated on all relevant Western Australian taxable wages.

This diminishing threshold can create a higher marginal cost of additional wages for businesses in the phase-out range. It is particularly important for growing businesses to include payroll tax in recruitment and remuneration forecasts.

Tasmania

Tasmania has two thresholds. Payroll tax is charged at 4% on annual taxable wages from $1,250,001 to $2 million, and at 6.1% on wages above $2 million.

The two-tier structure means that businesses close to the second threshold should monitor their projected full-year payroll. A business may move into the higher rate band as its staffing levels, bonus payments or contractor arrangements change during the year.

Australian Capital Territory

For the 2026–27 financial year, the ACT annual payroll tax threshold is $1.75 million.

The general rates are:

• • 6.75% for Australia-wide wages above $1.75 million and not more than $20 million;

• • 6.85% for wages above $20 million and not more than $50 million;

• • 7.35% for wages above $50 million and not more than $100 million;

• • 7.85% for wages above $100 million and not more than $150 million; and

• • 8.75% for wages above $150 million.

The ACT threshold and rate changes demonstrate why payroll tax settings should be checked at the start of each financial year rather than assumed from the prior year.

Northern Territory

The Northern Territory’s annual payroll tax threshold is $2.5 million. The general payroll tax rate is 5.5%.

From 1 July 2026, a 6.5% rate applies to employers and payroll tax groups with Australia-wide wages of $100 million or more. The higher rate does not change the $2.5 million threshold or the general rate for other employers.

The payroll tax traps business owners often miss

Payroll tax is not limited to ordinary weekly or monthly wages. The most common issues arise because a business has treated a payment as outside payroll tax without considering the payroll tax rules in the relevant jurisdiction.

Contractor payments

A contractor may have an ABN, issue invoices and operate through a company, but that does not automatically mean payroll tax does not apply.

State and territory payroll tax laws contain contractor provisions that can deem certain relevant contract payments to be wages. There are exemptions, but they are specific and depend on the facts. The result can turn on matters such as the type of service provided, how long the contractor was engaged, whether they used others to perform the work and whether they supplied services to the public generally.

Do not assume that a contractor is exempt merely because they are not on your payroll system.

Superannuation and fringe benefits

Employer superannuation contributions are commonly part of taxable wages for payroll tax purposes. This can catch businesses that only monitor cash salary and contractor invoices.

Fringe benefits can also be taxable for payroll tax. The calculation is not always based on the cash cost to the business, so it is important to identify reportable benefits and include them in payroll tax working papers.

Grouping of related businesses

Payroll tax grouping is one of the highest-risk areas for business owners with companies, trusts or common ownership interests.

Broadly, grouping provisions can apply where there is common control, common ownership, related corporations or certain arrangements between businesses. When businesses are grouped, their wages may be added together for threshold and rate purposes. Usually, only one threshold or deduction is available to the group.

A structure with separate entities does not necessarily create separate payroll tax thresholds. The commercial reality, control arrangements and relationships between the entities matter.

Interstate and remote employees

For businesses with employees across Australia, the payroll tax rules determine where a payment is taxable through nexus provisions. These rules look at matters such as where the employee ordinarily resides, where the employer is based and where the wages are paid.

Remote work has made this more relevant. An employee who works from home in another state may affect both the business’s registration position and the allocation of taxable wages between jurisdictions.

Legitimate ways to reduce payroll tax exposure

Payroll tax planning should focus on getting the classification, calculations and available exemptions right. It should not involve artificial arrangements designed only to split payrolls or avoid grouping rules.

Useful steps include the following.

• • Review all wage categories. Reconcile payroll records, superannuation, bonuses, commissions, allowances, fringe benefits, termination payments and contractor expenses to identify what is taxable and what is genuinely exempt.

• • Check contractor arrangements early. Review contracts before engaging long-term consultants, labour hire workers or service providers. A contractor payment that is taxable for payroll tax can be expensive if discovered several years later in an audit.

• • Assess your group position. Map the ownership and control of companies, trusts and partnerships. Consider whether any payroll tax grouping rules apply and whether a designated group employer has been correctly nominated where required.

• • Claim exemptions and concessions properly. Depending on the jurisdiction, exemptions may apply to particular payments, charitable bodies, maternity or adoption leave, workers compensation payments, qualifying allowances or regional employers. Eligibility must be supported by records.

• • Use accurate interstate wage data. Where your business pays wages in several jurisdictions, your threshold entitlement may need to be apportioned. Incomplete interstate wage information can lead to incorrect monthly returns.

• • Forecast before making major hiring decisions. Payroll tax should be included in annual staffing budgets, acquisition due diligence and decisions about new locations. It is easier to budget for a liability than to find it after an annual reconciliation.

• • Keep payroll tax records separate from ordinary payroll records. A payroll system may calculate PAYG withholding and superannuation correctly without producing all information needed for payroll tax. Maintain working papers that show how each taxable wage category was treated.

A practical example for a growing business

Consider a business that operates from Melbourne and begins the year with a payroll below the Victorian threshold. During the year, it hires several senior employees, pays performance bonuses and engages a regular consultant through the consultant’s company.

The business may assume payroll tax applies only to employee wages above the threshold. In reality, it needs to review superannuation contributions, bonuses, the consultant arrangement, any fringe benefits and whether another related entity should be grouped with it.

If the business also opens a small office in New South Wales, it must consider how interstate wages affect its Victorian deduction and whether it needs to register and lodge returns in New South Wales. The issue is no longer just the amount of Victorian salaries paid.

Managing registration, returns and compliance

Payroll tax registration is generally triggered once monthly or annual wages exceed the relevant threshold. The registration deadline, return frequency and payment due date differ between jurisdictions.

Many employers lodge monthly returns and then complete an annual reconciliation after 30 June. The annual reconciliation is important because it adjusts for actual wages, interstate wage proportions, deductions, grouping changes and any payments that were omitted or incorrectly classified during the year.

A good compliance process should include:

1. 1. monthly reconciliation of payroll tax wages to accounting and payroll records;

1. 1. a register of contractor engagements and the reason for their payroll tax treatment;

1. 1. documentation supporting exemptions and concessions;

1. 1. an annual review of group entities and ownership changes;

1. 1. checks for interstate employees and remote working arrangements; and

1. 1. an annual forecast before EOFY, particularly where payroll is close to a threshold or surcharge level.

The key takeaway

Payroll tax is a material cost of employing people, but it is also an area where small errors can build up quickly. The right threshold and rate depend on the state or territory, while the final liability can be affected by grouping, contractor payments, interstate wages, superannuation, fringe benefits and available concessions.

A regular payroll tax review can help your business register on time, make accurate claims and avoid surprises at annual reconciliation. If you would like advice tailored to your business structure, workforce and operating locations, the team at can help you review your payroll tax obligations.

This article is general information only and is not personal financial or tax advice. Payroll tax outcomes depend on your specific circumstances, so you should speak with a registered tax agent or accountant, such as, before acting on the information.