What is payroll tax?
Payroll tax is a state tax on wages. In Victoria if a business pays gross wages over $550,000 per year there is an obligation to register and pay payroll tax monthly at a rate of 4.85%. Please note that payroll tax laws vary across the different states within Australia.
Common mistakes in relation to payroll tax
- Not registered when required to be
Many businesses may not realise when the requirement to register for payroll tax is triggered. The current wages threshold as mentioned above is $550,000 gross wages per year. However, what you need to consider is what makes up gross wages and which businesses/entities are counted towards the threshold (i.e. grouping provisions).
Registration itself is electronic via the SRO website and only takes a few minutes.
- Grouping
When the same person has control of multiple entities that employ people, these entities are required to be grouped for payroll tax. This means that even if one business is below the $550,000 threshold, when multiple businesses are considered because there is common control a requirement to register for and pay payroll tax arises. It is common for clients not to realise that their connection to multiple businesses may trigger payroll tax obligations.
- Omitting certain payments from gross wages calculation
One of the most common mistakes businesses make is not understanding what items need to be included in the gross wages figure for purposes of payroll tax. Consequently they forget to include certain items, which get picked up by the State Revenue Office during an audit and end up with extra tax to pay with penalties and interest.
Some examples of what you need to include are:
- Superannuation payments including salary sacrificed and reportable super
- Some payments to contractors
- Fringe benefits provided to employees
- Director payments
- Allowances, bonuses and termination payments
Please note that the above is not a complete list, there may be other payments which are relevantly required to be included as gross wages.
- Including exempt payments
Certain payments, such as paid parental leave and some motor vehicle allowances are exempt from payroll tax. Why pay tax when you don’t have to? A checklist of exempt items is a great tool to ensure you are not overpaying tax.
If you would like a review of your payroll obligations or you are not sure whether this applies to your business please contact our friendly staff at Rubiix for further advice.
Submitted by: Julia Katrich – Assistant Manager
Email Julia