Payroll tax is a state and territory tax levied on employers whose total Australian wages exceed a jurisdiction-specific threshold. It is entirely separate from the federal PAYG withholding reported through Single Touch Payroll — many bookkeepers encounter clients who don't realise they have a payroll tax obligation until they're already significantly over the threshold.
As of 2026, payroll tax thresholds and rates vary substantially across jurisdictions. A bookkeeper who exclusively deals with small clients may rarely encounter it, but practices servicing mid-size businesses — or any business growing rapidly — need to know when to flag a potential payroll tax liability.
How payroll tax works
Payroll tax is assessed on the total taxable wages an employer pays in a calendar month (in some states) or financial year. The tax applies when total wages exceed the jurisdiction's threshold. Once the threshold is exceeded, the employer registers with the relevant state revenue office and pays tax on the excess above the threshold (in most states).
Taxable wages include:
- Gross salaries and wages
- Superannuation contributions (in most states)
- Director fees
- Fringe benefits (grossed-up value in some states)
- Termination payments (beyond certain exempt amounts)
- Contractor payments (where the contractor is deemed an employee under the relevant state legislation)
Taxable wages typically do not include (though varies by state):
- Genuine employee reimbursements
- Apprentice and trainee wages (often exempt or reduced)
- Workers' compensation payments
2026 payroll tax thresholds and rates by state
Confirm current thresholds and rates with the relevant state revenue office before applying to a specific client. Thresholds are indexed in some states.
| State/Territory | Annual threshold (approx.) | Rate |
|---|---|---|
| New South Wales | $1,200,000 | 5.45% |
| Victoria | $900,000 | 4.85% (regional rate available) |
| Queensland | $1,300,000 | 4.75%–4.95% (rate bands apply) |
| Western Australia | $1,000,000 | 5.50% (diminishing threshold) |
| South Australia | $1,500,000 | 4.95% |
| Tasmania | $1,250,000 | 4.00% |
| ACT | $2,000,000 | 6.85% |
| Northern Territory | $1,500,000 | 5.50% |
Victoria applies a regional employer rate of 1.2125% for wages paid to employees who work primarily in regional Victoria — a significant concession for practices servicing regional clients.
Western Australia applies a diminishing threshold: employers with wages between $1,000,000 and $7,500,000 pay at a reduced rate on a sliding scale; over $7,500,000 the full rate applies with no threshold offset.
Queensland applies rate bands: businesses with wages under $6.5M pay 4.75%; those above pay 4.95%.
Grouped employers
One of the most significant payroll tax concepts for bookkeepers is grouping. Under most state legislation, related employers are grouped for payroll tax purposes — their combined wages are assessed as if they were a single employer.
Employers can be grouped when they:
- Share common ownership (e.g., two companies owned by the same individual or family trust)
- Are affiliated (one controls the other, or both are under common control)
- Share employees (an employee works for multiple entities in the group)
The practical consequence: A client who operates three entities, each with $600,000 in annual wages, may believe they're below the New South Wales threshold of $1.2M. But if the entities are grouped, their combined wages of $1.8M exceed the threshold — and the threshold deduction is allocated across the group.
Bookkeepers who act for multiple entities owned by the same principal must assess grouping on each client's circumstances. Failure to register when grouped can result in backdated payroll tax assessments, penalty tax, and interest.
Contractor payments and payroll tax
This is one of the most commonly misunderstood areas. In most Australian states, payments to contractors are included in payable wages unless the contractor falls within an exemption. The broad test is whether the contractor is engaged to provide the labour of an individual, regardless of the contractual form.
Common contractor exemptions (which vary by state):
- The contractor provides services of a kind not ordinarily required by the employer
- The contract is for a result (a specific deliverable), not for time
- The contractor is engaged for fewer than 90 days in the financial year
- The contractor uses their own plant and equipment to perform the work
- The contractor engages others to perform the work (genuine business structure)
Where contractor payments are caught by payroll tax provisions, the employer (your client) is liable — not the contractor. This can create significant unexpected liabilities for clients using gig-economy workers, freelancers, or labour-hire arrangements.
Annual reconciliation and monthly returns
Employers registered for payroll tax must lodge:
Monthly returns: Most states require a monthly return and payment by the 7th or 21st of the following month (varies by jurisdiction). The monthly amount is typically calculated as an estimate based on the prior year or actual monthly wages.
Annual reconciliation: At the end of each financial year, the employer reconciles total wages paid against total monthly payments made. If the actual liability exceeds amounts paid, the balance is payable with the annual return. Refunds apply if overpaid.
For bookkeepers managing the payroll tax compliance for clients, key dates are:
| State | Monthly return due | Annual reconciliation due |
|---|---|---|
| NSW | 7th of following month | 21 July |
| Victoria | 7th of following month | 21 July |
| Queensland | 7th of following month | 21 July |
| WA | 7th of following month | 21 July |
| SA | 15th of following month | 28 July |
These dates apply to the 2025–26 financial year. Confirm current dates with the relevant state revenue office.
How bookkeepers should flag payroll tax risk
Most bookkeeping engagements don't explicitly include payroll tax compliance — that typically sits with the client's tax agent or accountant. However, bookkeepers are often the first professional to see payroll data across all of a client's entities. This creates a duty of care to flag when a client may be approaching or exceeding the threshold.
Proactive monitoring: For clients with payroll, maintain a simple YTD wages tracker. When gross wages approach 80% of the relevant state threshold, raise it with the client and recommend they discuss payroll tax registration with their tax agent.
Multi-entity clients: Where you act for multiple entities under common ownership, calculate combined wages annually. Flag grouping risk before the client inadvertently accumulates a multi-year payroll tax liability.
New hires: Rapid growth through new hires is the most common trigger for unexpected payroll tax liability. When a client hires their 10th or 15th employee, check whether the cumulative wages trajectory will breach the threshold by year-end.
Payroll tax in Reconlink
Reconlink codes payroll tax payments from the client's bank feed as a tax expense. The standard account code mapping for Australian practices is:
- Account: Payroll Tax Expense (e.g., 6-1100)
- GST code: N-T (payroll tax is not subject to GST)
- Entity: State revenue office (NSW Revenue, VRO, etc.)
Payroll tax is not reported on the BAS — it's a separate state return lodged directly with the state revenue office. The bank reconciliation in Reconlink will show the payment as a business expense, but the lodgement itself is outside Reconlink's scope.
For clients requiring automated reconciliation of payroll, bank feeds, and BAS in one workflow, see What is bank reconciliation? A guide for Australian bookkeepers.
Frequently asked questions
Is payroll tax a federal or state tax?
State and territory tax. Each state has its own legislation, registration portal, rates, and thresholds. There is no federal payroll tax in Australia — payroll-related federal obligations are PAYG withholding (income tax) and super guarantee contributions, both of which are separate.
Does payroll tax apply to superannuation contributions?
In most states, yes. Employer super guarantee contributions are included in taxable wages for payroll tax. This is separate from whether super is subject to GST (it is not — super contributions are coded N-T for GST purposes).
My client works across multiple states — which state applies?
Wages are taxable in the state where the employee performs the work. For a client with employees in multiple states, you may need to register in each state separately and report wages attributable to each. Some states have harmonised multi-jurisdictional provisions — check the relevant state revenue offices.
What happens if a client doesn't register when they should have?
Backdated assessment from the date the threshold was first exceeded, plus penalty tax (typically 25–75% of the outstanding liability) and interest on the unpaid amount. Voluntary disclosure before audit detection typically results in reduced penalties.
This article was last reviewed on 27 May 2026. Payroll tax thresholds, rates, and exemptions change annually. Always confirm current figures with the relevant state revenue office. This is general guidance, not legal or tax advice.