Australian Payroll Tax: A Complete Guide for Bookkeepers

Payroll tax is a state and territory tax levied on the wages an employer pays. It is not a federal tax — there is no ATO payroll tax return. Instead, each of Australia's eight states and territories administers its own payroll tax with its own threshold, rate, and lodgement schedule. For bookkeepers managing multi-state clients, this creates significant complexity.

This guide explains the fundamentals: who must register, how thresholds work, which wages are taxable, how grouped employers are treated, and how to handle multi-state obligations.

Who Must Pay Payroll Tax

An employer must register for and pay payroll tax in a state or territory when its total Australian wages exceed that jurisdiction's annual threshold. The threshold is applied to all Australian wages, not just wages paid in that state. Once total wages exceed the threshold, the employer is liable on the portion attributable to that state.

Two important points:

1. The threshold test uses total Australian wages, not state-by-state wages. An employer with $1.1M in NSW wages and $200K in VIC wages has $1.3M in total Australian wages, which exceeds the NSW threshold of $1.2M.
2. Related companies can be treated as a group, with a single threshold shared across the group.

How the Threshold Works

Each state provides one annual threshold. Employers whose total Australian wages fall below that threshold pay no payroll tax in that jurisdiction. Above the threshold, tax applies to the taxable wages attributable to that state.

Some states apply a diminishing threshold (sometimes called a tapered deduction). In NSW, for example, the threshold reduces as wages increase above $1.2M and phases out entirely at $6.6M. Employers above that level pay tax on their full NSW wages. South Australia applies a transitional band between $1.5M and $1.7M. These tapers matter in practice and must be calculated correctly.

Which Wages Are Taxable

Taxable wages generally include:

• Salaries, wages, commissions, and bonuses
• Allowances (with some exemptions for expense reimbursements)
• Fringe benefits (grossed up value)
• Superannuation contributions (employer)
• Directors' fees
• Certain contractor payments

Exempt payments vary by state. Common exemptions include wages paid to apprentices and trainees (often exempt or concessionally taxed), wages for work performed outside Australia, and certain primary industry exemptions.

Grouped Employers

If two or more businesses are related (by ownership, control, or common direction), they may be treated as a payroll tax group. The key consequence is that the payroll tax threshold is shared across the group, not allocated to each member separately.

Within a group, one entity is designated the Designated Group Employer (DGE). The DGE claims the threshold. All other group members receive no threshold — they pay payroll tax on their full wages. This is a frequent compliance error. Bookkeepers managing related entities must confirm DGE designation before calculating any member's liability.

State Thresholds and Rates for 2026-27

State/Territory	Annual Threshold	Standard Rate	Revenue Office
NSW	$1,200,000	5.45%	Revenue NSW
VIC	$900,000	4.85%	SRO Victoria
QLD	$1,300,000	4.75% – 4.95%	Queensland Revenue Office
SA	$1,500,000	4.95%	RevenueSA
WA	$1,000,000	5.5%	Department of Finance WA
TAS	$1,250,000	6.1%	Revenue Tasmania
NT	$1,500,000	5.5%	Territory Revenue Office
ACT	$2,000,000	6.85%	ACT Revenue Office

Note: QLD applies 4.75% on taxable wages up to $6.5M and 4.95% above that. VIC applies a mental health and wellbeing surcharge (0.5%) on wages above $10M. Rates are current for 2026-27 and must be verified with the relevant state revenue office before lodgement.

Multi-State Employers

An employer operating in multiple states does not pay tax in every state automatically. The obligation depends on which states' thresholds are exceeded when total Australian wages are considered.

For each state where the employer has taxable wages, the calculation works as follows:

1. Determine total Australian wages.
2. If total wages exceed the state's threshold, calculate the state deduction (or nil if wages exceed the taper).
3. Apply the taxable wages attributable to that state multiplied by the rate.

The tricky part is determining which wages are "attributable" to each state. This requires nexus determination — assigning each employee to the correct state based on where they perform their services. We cover this in detail in our guide on nexus determination.

Monthly Lodgement and Reporting

Most states require monthly lodgement for larger employers and annual lodgement for smaller ones. Monthly obligations are typically due by the seventh business day of the following month.

Annual reconciliation is required in most states after 30 June. The reconciliation compares actual wages paid during the year against the monthly instalments lodged, with a final payment or refund of any difference.

Employers must retain payroll records for a minimum of five years. State revenue offices may audit at any time within the limitation period.

Using Software for Payroll Tax Compliance

Manual spreadsheet calculations work for single-state employers with simple payrolls. For multi-state employers, grouped employers, or practices managing multiple clients, manual methods introduce unacceptable error risk.

Specialist payroll tax software connects directly to payroll systems (Xero, MYOB, Employment Hero), pulls employee and pay run data, determines nexus automatically, applies the correct rates and thresholds per jurisdiction, and generates lodgement-ready reports with full audit trails.

The audit trail matters. State revenue offices can and do audit payroll tax calculations. A calculation that cannot be traced back to a published rate source and a dated ruling is a compliance risk.

If you manage payroll tax for clients across multiple states, the time cost of manual calculations and the risk of missed or incorrect lodgements make specialist software a practical necessity.

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Rates and thresholds in this guide reflect 2026-27 figures. Verify current rates with the relevant state revenue office before lodging.