Business owners often assume that once they’re handling PAYG withholding correctly, they’ve covered their payroll-related tax obligations. However, payroll tax is a completely separate obligation. State and territory governments administer it, rather than the ATO. Many growing businesses don’t realise they’ve become liable for it until it’s already overdue.
PAYG withholding is the amount an employer withholds from an employee’s wages and remits to the ATO on the employee’s behalf. This effectively prepays the employee’s income tax throughout the year. Consequently, this is a federal obligation. Employers report it through BAS or IAS, and it applies to virtually every employer with staff, regardless of size.
Payroll tax, on the other hand, is a state and territory tax on the total wages a business pays. It applies once those wages exceed a specific threshold, which varies by state. Therefore, unlike PAYG withholding, which comes out of the employee’s pay, payroll tax is a genuine additional cost the employer bears. It’s calculated on the total wage bill, rather than deducted from individual employees.
Both obligations relate to paying wages, and both involve reporting to a government body. This leads many business owners to assume they’re the same thing, or that meeting one obligation covers the other. Consequently, this confusion is one of the more common — and costly — misunderstandings among growing small businesses, particularly those expanding their workforce for the first time.
Each state and territory sets its own payroll tax threshold and rate. Businesses only become liable once their total Australian wages exceed that threshold — including, in many cases, wages paid across related entities. Therefore, monitor your total wage bill as your business grows. Crossing the threshold triggers registration and reporting obligations that many businesses don’t anticipate.
Many states have grouping provisions that combine the wages of related businesses — such as businesses under common ownership or control. They use this combined figure when assessing whether you’ve reached the payroll tax threshold. Consequently, a business that appears well under the threshold on its own can still become liable for payroll tax if it’s grouped with related entities. This is a commonly overlooked consideration.
Failing to register for payroll tax once liable can result in backdated liability, along with interest and penalties. This happens once the relevant state revenue office identifies the oversight. Therefore, regularly review your total wage bill against the current threshold, particularly during periods of growth or after acquiring a related business. This helps avoid this kind of retrospective liability.
Track wages across all related entities, not just the business you’re focused on day to day, to correctly assess payroll tax liability.
Register promptly once the threshold is reached, rather than waiting to see if it’s a temporary spike in wages.
Keep PAYG withholding and payroll tax reporting separate in your records, since they’re reported to different government bodies with different rules and deadlines.
EBATS helps growing businesses monitor their payroll tax threshold, manage PAYG withholding correctly, and stay compliant across both state and federal obligations.
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