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

Most states apply one annual threshold. NSW is the exception — it works from a monthly threshold schedule rather than a single annual figure. Thresholds are also apportioned for part-year employment and for wages paid interstate, so the annual figure is a ceiling, not a flat allowance every employer receives in full.

Some states reduce the threshold as wages increase instead of applying a flat cut-off — this is sometimes called a diminishing threshold or a tapered deduction. NSW uses a single flat threshold that stays fixed regardless of wage level, a point worth stating plainly given how often it is assumed otherwise. WA does taper: the $1M threshold reduces as wages rise and is exhausted entirely at $7.5M, above which employers pay tax on their full WA wages. Queensland tapers too: for every $7 of wages above its $1.3M threshold, $1 of deduction is lost, phasing out at $10.4M. The Northern Territory reduces its deduction most steeply — $1 lost for every $2 of wages above its $2.5M threshold, reaching nil at $7.5M. South Australia applies a transitional band between $1.5M and $1.7M. These reductions 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 and change over time — do not assume a past exemption still applies. Apprentice and trainee wages are a case in point: Queensland's 50% apprentice/trainee rebate expired on 30 June 2026 and is no longer available, while the Northern Territory continues to exempt wages paid to apprentices and trainees under a registered training contract. Other common exemptions include wages for work performed outside Australia and certain primary industry exemptions, but always confirm the current position with the relevant state revenue office rather than treating apprentice/trainee wages as a general concession.

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

• NSW — A flat $1,200,000 threshold applies. It is not reduced as wages rise, but is apportioned for interstate wages and part-year employment.
• VIC — The threshold phases out between $3M and $5M of Australian wages and is nil above $5M. A combined mental health and COVID debt surcharge of 1% applies above $10M and 2% above $100M.
• QLD — 4.75% applies up to $6.5M; 4.95% applies above $6.5M. A mental health levy of 0.25% also applies to Queensland taxable wages above an apportioned $10M threshold, and the combined marginal levy rate rises to 0.75% above an apportioned $100M threshold.
• SA — Transitional band applies between $1.5M and $1.7M.
• WA — The threshold reduces as Australian wages rise between $1M and $7.5M, and is nil above $7.5M.
• TAS — 4.0% applies on Australian wages from $1.25M to $2M; 6.1% applies above $2M. There is no diminishing threshold and no surcharge.
• NT — The threshold reduces by $1 for every $2 of Australian wages above $2.5M and is nil above $7.5M. A 1% surcharge applies from 1 July 2026 on Australian wages above $100M, taking the total rate to 6.5%.
• ACT — 6.75% applies on Australian wages from $1.75M to $20M, 6.85% from $20M to $50M, 7.35% from $50M to $100M, 7.85% from $100M to $150M, and 8.75% above $150M.

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 7th calendar day of the following month, rolling to the next working day when the 7th falls on a weekend or public holiday. NT (the Northern Territory) is the exception, with monthly lodgement due by the 21st of the following month instead.

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.

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