Payroll tax in Australia

NATIONAL

The federal government introduced a payroll tax in 1941 to finance a national scheme for child endowment.

The tax applied as a 2.5 per cent levy on payrolls. With the federal government assuming control of the income tax base, the states lobbied for access to the payroll tax, and in 1971 the federal government handed over payroll taxes to the states, acknowledging that this tax represented the sole possible growth tax available to the states. During the following three years, the states uniformly increased the rate from 2.5 per cent to 5 per cent.

Over time, the uniformity of state payroll tax rates has been eroded, as has the base to which they are applied. State payroll taxes are now levied at rates ranging between 4.75 per cent and 6.85 per cent.

Tax competition between states and lobbying by individual employers and employer groups such as MGA TMA for exemptions has reduced the payroll tax base to less than half of the comprehensive labour income tax base.

Nevertheless, payroll taxes are still an important source of tax revenue for the states, accounting for between 24 and 36 per cent of each state’s total revenue. Across Australia, members are subject to a variety of local, state and federal taxes, including payroll tax.

Payroll tax essentially serves as a state tax on employment. It is a blunt and senseless tax and acts as a disincentive to employ staff. The following table indicates the differing rates and thresholds across each State and Territory in Australia as of 1 July 2021. MGA is advocating for Payroll Tax Thresholds to be increased with CPI each year at the very least!

Queensland

Threshold: $1.3M –6.5M – Rate 4.75%

Over $6.4M – Rate 4.95% Country/regional: from 1 July 2019 $1.3M –6.5M – Rate 3.75%

Over $6.4M – Rate 3.95%

Victoria

Threshold: $700,000 (annually) $58,333 (monthly, divide 12) Rate: 4.85% in non-regional Victoria 1.62% Regional

South Australia

Threshold: $0 – 1.5M – Rate: Nil $1.5M – 1.7M – Rate Variable 0% to 4.95%

Over $1.7M – Rate 4.95%

NSW

Threshold: $1,200,000 (annually) –from 1 July 2020 Rate: 4.85%

Western Australia

Threshold: $1,000,000 (annually) $83,833 (monthly) Rate: $1M –$100M – 5.5% from 1 July 20

Northern Territory

Threshold: $1,500,000 (annually) $125,000 (monthly) Rate: 5.5%

Unchanged as of 1 July 2016

Tasmania

Threshold: $1,250,00 (annually) Rate: Nil $1,250,001 (annually) Rate: 4% $102,740 (30-day month) Subsequent threshold 2,000,001 (annually) Rate: 6.1% $164,384 (30-day month)

Unchanged as of 1 July 2018

ACT

Threshold: $2,000,000 (annually) $166,166.66 (monthly)

Rate: 6.85%

Unchanged as of 1 July 2016