Is Your Company at Risk? The Payroll Tax Pitfall Growing Businesses Often Overlook

ByPAG


Many business owners mistakenly believe, “Isn’t Payroll Tax just for large corporations?” and consequently overlook it.

However, we often see unfortunate cases where, in the process of scaling—especially during a sudden increase in staff or business expansion—companies unknowingly become liable. This can lead to significant back-taxes and penalties down the line.

To prevent this risk, PAG has systematically outlined the key compliance points that leaders of ‘growing businesses’ must check regarding Payroll Tax.

1. What is Payroll Tax?

Payroll Tax is entirely separate from federal taxes like Income Tax or GST, which are managed by the ATO. It is a state-based tax levied by each respective state and territory government, calculated on the Total Wages an employer pays.

Liability doesn’t apply to all businesses; it only affects employers whose wage bill exceeds a specific ‘threshold’ set by that state.

2. When Do You Become Liable? – State-by-State Thresholds

The most common misconception is, “We have a small team, so we’re exempt.”

Payroll Tax liability is based on the total wages paid, not the number of employees.

This threshold differs significantly by state.

  • NSW: $1,200,000 (Annual)
  • VIC: $1,000,000 (Annual)
  • QLD: $1,300,000 (Annual)
  • WA: $1,000,000 (Annual)
  • SA: $1,500,000 (Annual)
  • NT, ACT, and TAS also have their own distinct thresholds and rules. You must visit the official revenue page for your specific state to confirm the regulations.

Note: The thresholds above are based on the 2025-26 financial year and are subject to change annually. Always verify the latest information on the respective state government’s official website.

The Pitfall: If your business is growing rapidly and your total monthly wages exceed this threshold (even for just one month), you may be required to immediately register with the relevant state revenue office (e.g., Revenue NSW) and start lodging returns. This is precisely why PAG utilises a checklist in our client management—to monitor these easily missed ‘growth inflection points’.

3. The Hidden Traps in ‘Total Wages’

The second pitfall lies in the definition of ‘Total Wages.’ Many owners assume this simply means the net salary (take-home pay) deposited into an employee’s bank account.

However, state revenue offices take a much broader view. ‘Total Wages’ often includes:

  • Salaries and Bonuses
  • Employer Superannuation Contributions: Yes, the compulsory Superannuation Guarantee (SG) amount you pay is included in total wages for payroll tax purposes.
  • Fringe Benefits Tax (FBT): The ‘grossed-up value’ of fringe benefits provided to employees may also be included in the total wage calculation.

The Result: You might feel safe believing your salary bill is just below the threshold, only to find that once Super and FBT values are added, you have unknowingly crossed it.

4. The Most Dangerous Trap: ‘Grouping’

“What if we split wages across two separate companies?”

This is, without question, the most dangerous payroll tax trap.

To prevent tax avoidance, state revenue offices apply ‘Grouping’ provisions very strictly. If multiple businesses are deemed to be ‘related’ or ‘controlled’ by the same interest, all their wage bills are combined as one to calculate the threshold.

Key Grouping Factors:

  • Related Corporations (e.g., holding company-subsidiary)
  • Common Control (e.g., overlapping directors or shareholders across entities)
  • Inter-use of Resources (e.g., sharing the same facilities, employees, or management systems)

Example: One Director controls two companies in WA

  • Company A (WA): Annual wages $700,000 (Below threshold, looks safe)
  • Company B (WA): Annual wages $600,000 (Below threshold, looks safe)
  • Grouping Applied: Because both companies are controlled by the same director, they are ‘grouped.’
  • Combined Wages: $1,300,000 -> This exceeds the WA threshold ($1,000,000)!

In this scenario, both companies become liable for payroll tax, and they could be hit with years of unpaid taxes and penalties.

5. How is it Calculated? (Where it Gets Complex)

The basic formula looks simple: (Total Wages – Threshold) x State Tax Rate.

However, there are two major complexities:

  1. Interstate Employees: If you have employees in both NSW and WA, you absolutely do not get the full threshold deduction in both states. Your threshold is calculated on a pro-rata basis, based on the proportion of your wages in that state versus your total Australian wages. This significantly reduces the threshold for each state.
  2. Grouped Entities: When grouping applies, the threshold deduction is applied only once to the entire group, not to each individual company.

For business owners, accurately collating all wage components (including super, FBT gross-ups, etc.) and lodging them correctly with the state systems is extremely difficult.

While you can ‘estimate’ the tax before lodging, the final liability is only confirmed after all data is entered into the state revenue portal (e.g., Revenue NSW). Our experts assist in this exact process. We ensure all information is reported accurately according to the regulations and liaise directly with state revenue officers if needed, ensuring our clients remain compliant.

6. PAG’s Advice: If You Feel ‘At Risk’, Check Now.

Payroll Tax is a ‘hidden landmine’ for growing businesses. If overlooked, it can result in years of back-taxes and penalties in one hit.

PAG goes beyond simple tax lodging; we act as your ‘growth partner,’ monitoring your business scale and proactively managing these compliance risks.

If any of the following apply to you, contact a PAG expert immediately:

  • Your total monthly wages (including super) are approaching your state’s monthly threshold (e.g., around $80,000 – $90,000 in NSW).
  • You have recently hired many new employees or significantly increased salaries.
  • You operate two or more companies or business entities.
  • You have acquired another company or plan to establish a new one.

The deadline is approaching. Check your status now to avoid unnecessary risk.

Reference Links (Key States):

Have questions about how this applies to your business?

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Disclaimer: The information provided in this article is for general informational purposes only and should not be considered as legal or tax advice for any specific situation. You must consult with a qualified professional regarding your individual circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

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