Payroll tax is one of the most misunderstood obligations for growing Australian businesses. Many employers only discover they are liable once their wage bill has already crossed the threshold, which can mean back payments, interest, and penalties if the liability has gone unregistered.
Unlike income tax or GST, payroll tax is administered at the state and territory level, not federally. This means thresholds, rates, and rules vary depending on where your employees are based. With the new financial year underway, this guide covers the updated payroll tax thresholds and rates for every Australian state and territory for 2026–27, along with the key rules employers need to understand.
What is Payroll Tax?
Payroll tax is a state and territory tax levied on the total wages paid by an employer above a set threshold. It applies to businesses whose total Australian wages exceed the relevant state or territory threshold during a financial year.
The tax is calculated on wages above the threshold, not on total wages. For example, if a business in New South Wales pays $1.5 million in total wages and the threshold is $1.2 million, payroll tax is calculated on the $300,000 excess, not on the full $1.5 million.
Wages for payroll tax purposes include a broader range of payments than just base salary. Depending on the state, liable wages typically include:
- Gross salaries and wages
- Director’s fees
- Bonuses, commissions, and allowances
- Employer superannuation contributions
- Fringe benefits (grossed up in most states)
- Contractor payments in certain circumstances (see below)
2026–27 Payroll Tax Thresholds and Rates by State
The table below sets out the annual payroll tax threshold and standard rate for each Australian state and territory for the 2026–27 financial year. Note that some states apply a tiered or tapering rate structure for businesses near the threshold; the rates shown are the standard rates applicable above the threshold.
Important: Rates and thresholds are subject to state budget announcements. Always verify the current figures directly with the relevant state revenue authority before registering or calculating a liability.
State / Territory | Annual Threshold | Standard Rate | Revenue Authority |
New South Wales (NSW) | $1,200,000 | 5.45% | Revenue NSW |
Victoria (VIC) | $900,000 | 4.85% | State Revenue Office VIC |
Queensland (QLD) | $1,300,000 | 4.75% | Queensland Revenue Office |
Western Australia (WA) | $1,000,000 | 5.50% | Revenue WA |
South Australia (SA) | $1,500,000 | 4.95% | RevenueSA |
Tasmania (TAS) | $1,250,000 | 4.00% | State Revenue Office TAS |
Australian Capital Territory (ACT) | $2,000,000 | 6.85% | ACT Revenue Office |
Northern Territory (NT) | $1,500,000 | 5.50% | NT Revenue Office |
Note: In Victoria, the $900,000 payroll tax threshold phases out for employers with national wages between $3 million and $5 million, reducing by $1 for every $2 of wages above $3 million. Employers with national wages above $5 million do not receive any threshold. Victoria also offers a reduced regional employer payroll tax rate of 1.2125% compared to the standard metropolitan rate of 4.85%.
How the Threshold Works for Multi-State Employers
For businesses operating across more than one state or territory, payroll tax thresholds work differently. The threshold is not applied separately in each state. Instead:
- Total Australian wages from all states are combined to determine whether the threshold is exceeded
- The threshold is then apportioned to each state based on the proportion of wages paid there
- Payroll tax is paid separately to each state in which the employer has a liability
This means a business with $600,000 in wages in New South Wales and $600,000 in Victoria, a total of $1.2 million, may still have a payroll tax liability in both states, even though neither state’s wages alone exceed the local threshold, because total Australian wages exceed the relevant thresholds when assessed under the grouping and apportionment rules.
Grouping Provisions
Most states have grouping provisions that aggregate the wages of related entities when determining payroll tax liability. Companies that are related through common ownership or control, such as a holding company and its subsidiaries, or multiple franchises under common control, may be grouped together, meaning their combined wages count towards a single threshold.
Grouping provisions catch many businesses that believe they are under the threshold when assessed entity by entity. If your business is part of a corporate group or franchise network, it is important to assess payroll tax exposure on a grouped basis. For businesses in the franchise sector, understanding how grouping rules apply is particularly relevant. The way franchise structures are treated for payroll tax purposes is a nuanced area.
Payroll Tax and Contractors: What Employers Must Know
One of the most frequently misunderstood aspects of payroll tax is its treatment of contractor payments. In most Australian states, payments to certain contractors are treated as ‘deemed wages’ and are included in the payroll tax calculation, even though the contractor is not a direct employee.
The contractor provisions apply broadly where:
- The contractor provides services mainly to the business (not to the public generally)
- The contractor uses equipment supplied by the business
- The contractor is integrated into the business’s operations
- The arrangement is one of personal labour rather than the delivery of a result
Exemptions exist for contractors who provide services to multiple clients, use their own tools and equipment, or are genuinely running an independent business. However, the burden generally falls on the employer to establish that an exemption applies.
This is particularly relevant in construction, labour hire, and professional services, where contractor arrangements are common. For businesses managing complex contractor and employee arrangements, specialist outsourced payroll support can help correctly classify payments and ensure payroll tax obligations are calculated accurately.
Common Payroll Tax Exemptions
Certain wages and employers may be exempt from payroll tax, depending on the state. Common exemptions include:
Exemption Type | Details |
Charitable organisations | Wages paid by registered charities are exempt in most states |
Parental leave payments | Government-funded parental leave is generally exempt |
Apprentice and trainee wages | Wages for approved apprentices and trainees are exempt in most states |
Wages below the threshold | No liability arises unless total Australian wages exceed the threshold |
Emergency workers | Wages for volunteer emergency workers are generally exempt |
Certain not-for-profit bodies | Some states provide a full or partial exemption for NFP entities |
Exemptions vary by state and are subject to specific conditions. An exemption that applies in one state may not apply in another. Always confirm applicable exemptions with the relevant state revenue authority or a qualified adviser.
When and How to Register for Payroll Tax
Employers are required to register for payroll tax in each state where they have a liability, that is, where their wages (including grouped wages) exceed the relevant threshold. Registration should occur before or at the time the liability arises, not after.
Most states require monthly payroll tax returns, with an annual reconciliation at year-end. The annual reconciliation adjusts the total liability to account for the actual wages paid across the full year, compared to the estimates made in monthly returns.
Penalties for Late Registration
Failing to register for payroll tax when required can result in:
- Back assessment of payroll tax for all years where the liability existed
- Interest charges on unpaid amounts, calculated from the date the liability arose
- Penalties for failure to register, which can be significant depending on the state
- Additional audit scrutiny from the state revenue authority
If a business has grown past the payroll tax threshold but has not yet registered, the right approach is to come forward voluntarily rather than wait to be identified. Most states have voluntary disclosure processes that can reduce penalties.
Payroll Tax Planning for Growing Businesses
As a business grows and its wage bill increases, payroll tax can become a meaningful cost. Some strategies businesses use to manage payroll tax exposure include:
- Monitoring total wages monthly to identify when the threshold is approaching
- Reviewing contractor arrangements to confirm correct classification
- Assessing the payroll tax impact of new hires, particularly in high-rate states
- Considering the state-by-state allocation of staff for multi-state businesses
- Reviewing grouping provisions when restructuring or acquiring new entities
Payroll tax planning should be part of the broader conversation around business structure, hiring decisions, and compliance. Befree works with businesses across Australia to manage payroll compliance, including payroll tax registration, returns, and reconciliations, ensuring obligations are met accurately in every state where a liability exists.
For a broader picture of how payroll costs interact with your overall tax position, reviewing the current company and business tax rates in Australia provides useful context for financial planning in the new financial year.
Businesses that are unsure whether their contractor payments are subject to payroll tax may also find it helpful to review the specific rules around payroll tax and contractors in Australia before lodging their annual reconciliation.
Frequently Asked Questions (FAQ)
What is the payroll tax threshold in Australia for 2026–27?
The threshold varies by state. Key thresholds for 2026–27 include:
- NSW: $1,200,000
- VIC: $900,000
- QLD: $1,300,000
- WA: $1,000,000
- SA: $1,500,000
- ACT: $2,000,000
- TAS: $1,250,000
- NT: $1,500,000
Is payroll tax calculated on total wages or only wages above the threshold?
Payroll tax is calculated only on wages above the threshold, not on the total wage bill. For example, if total wages are $1.4 million and the threshold is $1.2 million, payroll tax applies to the $200,000 excess. However, the exact calculation method varies between states, particularly where tapering provisions apply.
Do superannuation contributions count as wages for payroll tax?
Yes. Employer superannuation contributions, including Superannuation Guarantee contributions, are included in wages for payroll tax purposes in most Australian states and territories. This is an important factor when calculating total liable wages, particularly as the SG rate increases to 12% from 1 July 2026.
Are small businesses exempt from payroll tax?
There is no specific small business exemption for payroll tax. The exemption is threshold-based; if total Australian wages (including grouped entities) remain below the applicable state threshold, no payroll tax liability arises. Once wages exceed the threshold, the payroll tax applies regardless of business size.
Does payroll tax apply to contractors?
In most states, payments to certain contractors are treated as deemed wages and are included in payroll tax calculations. The contractor provisions apply where the arrangement is essentially one of personal labour rather than a genuinely independent business relationship. Exemptions exist but must be actively established by the employer.
Can I be liable for payroll tax in multiple states?
Yes. If a business pays wages in more than one state and its total Australian wages exceed the relevant thresholds, it may be liable to register and pay payroll tax in each of those states. The threshold is apportioned across states based on the proportion of wages paid in each jurisdiction.
What happens if I register for payroll tax late?
Late registration can result in a back assessment of payroll tax for all years the liability existed, plus interest and penalties. If your business has grown past the threshold and has not yet registered, voluntary disclosure is strongly recommended; most states offer reduced penalties for businesses that come forward proactively.