Payroll tax is one of the most significant and most misunderstood business taxes in Australia. It is levied by each state and territory government, not the ATO — meaning rates, thresholds and administrative rules vary considerably depending on where your employees work. For growing businesses approaching the threshold in any state, the tax can arrive as a surprise if payroll records haven't been tracking towards it.
What Is Payroll Tax and Who Pays It?
Payroll tax is a state and territory tax levied on employers whose total Australian taxable wages exceed the threshold in their state. Critically, it is paid by the employer — it is not deducted from employee wages. The tax is based on total wages including salaries, wages, superannuation contributions, fringe benefits and — in many states — contractor payments meeting certain criteria.
The calculation is simple in principle: if your total taxable Australian wages exceed the threshold, you pay the applicable rate on the amount above the threshold. The complexity lies in what counts as taxable wages, how the threshold is apportioned across states, and how grouping provisions aggregate related entities.
State Thresholds Comparison Table 2026–27
| State / Territory | Annual Threshold | Tax Rate | Monthly Threshold |
|---|---|---|---|
| Victoria (VIC) | $700,000 | 4.85% (regional 1.2125%) | $58,333 |
| Tasmania (TAS) | $750,000 | 4.00% | $62,500 |
| South Australia (SA) | $1,000,000 | 4.95% | $83,333 |
| ACT | $1,000,000 | 6.85% | $83,333 |
| Western Australia (WA) | $1,100,000 | 5.50% (tapering scale) | $91,667 |
| New South Wales (NSW) | $1,200,000 | 5.45% | $100,000 |
| Queensland (QLD) | $1,300,000 | 4.75%–4.95% (tapering) | $108,333 |
| Northern Territory (NT) | $1,500,000 | 5.50% | $125,000 |
One important point on the wages base: superannuation contributions count as taxable wages in most states. With the superannuation rate in 2026 sitting at 12% — the final rate under the Superannuation Guarantee schedule — this adds materially to your taxable wages figure. A business paying $1,000,000 in salaries effectively has $1,120,000 in taxable wages once SG contributions are included.
Note: Rates and thresholds are indicative for 2026–27. Always verify with the relevant state revenue office — rates are subject to annual review. The VIC row is highlighted as the lowest threshold in Australia.
New South Wales — $1.2 Million Threshold
Annual threshold: $1,200,000 · Rate: 5.45%
NSW businesses pay 5.45% on wages above the $1.2M threshold. The threshold is not reduced for part-year registration. Revenue NSW administers payroll tax; annual reconciliation is lodged in July each year. Sydney's high average wages mean growing professional services, legal and financial advisory firms approach the threshold with relatively few employees.
For a Sydney professional services firm with 10 staff at an average $120,000 salary, total wages of $1.2M hit the threshold exactly at that headcount. An 11th employee at average salary puts the firm above the threshold by $120,000 — triggering a payroll tax liability of approximately $6,540 per year. The tax itself is manageable; the surprise is not. Accurate monthly bookkeeping tracking cumulative wages against the threshold eliminates the surprise.
See how bookkeeping services for Sydney businesses keep your records threshold-ready.
Victoria — $700,000 Threshold (Australia's Lowest)
Annual threshold: $700,000 · Rate: 4.85% (regional 1.2125%)
Victoria's $700,000 threshold is the lowest in Australia — less than half Queensland's. Melbourne businesses hit the payroll tax threshold faster than any other major city. The regional rate of 1.2125% applies to employers with 85%+ of their Victorian wages paid to regional employees.
For Melbourne hospitality, retail and care businesses with high casual headcount, the $700,000 threshold can be reached with as few as 15–20 employees at average award wages. Many Melbourne small business owners don't realise they have crossed the threshold until an SRO (State Revenue Office Victoria) audit or their accountant raises it at EOFY — by which time the liability has accrued for months.
The fix is simple: monthly payroll records that track cumulative wages clearly, so the threshold crossing is visible in advance, not retrospectively. Melbourne bookkeeping services that include payroll tracking give business owners this visibility as standard.
Queensland — $1.3 Million Threshold
Annual threshold: $1,300,000 · Rate: 4.75%–4.95% (tapering)
QLD has Australia's highest threshold among the major eastern states. The tapering rate structure means businesses just above the threshold pay a lower effective rate than those well above it. The threshold reduces by $1 for every $1 of wages above $6.5M, phasing out entirely at $6.5M.
Brisbane's construction and trades sector — with its heavy use of subcontractors — needs careful records to distinguish which contractor payments attract payroll tax. Queensland's rules on contractor wages are complex; bookkeeping that correctly classifies contractor payments protects against unexpected payroll tax liabilities. See Brisbane bookkeeping services for construction and trades businesses.
WA, SA, TAS, ACT and NT
A brief summary of the remaining jurisdictions for businesses operating across multiple states:
- Western Australia ($1.1M, 5.5%) — WA uses a tapering scale for businesses between $1.1M and $7.5M in wages. Resources sector businesses with FIFO workforces need careful classification of site allowances and FIFO payments that may count as taxable wages.
- South Australia ($1.0M, 4.95%) — SA has a group threshold arrangement meaning related entities are assessed as a group. Adelaide businesses in the defence and advanced manufacturing sectors frequently approach the threshold with relatively modest headcounts due to above-average wages.
- Tasmania ($750,000, 4.0%) — Tasmania's low threshold and low rate reflect the state's smaller business base. The 4.0% rate is among the lowest in Australia but the $750,000 threshold is close to Victoria's.
- ACT ($1.0M, 6.85%) — the ACT has the highest payroll tax rate in Australia at 6.85% — offset somewhat by Canberra's high proportion of Commonwealth government employees who are exempt.
- Northern Territory ($1.5M, 5.5%) — NT has Australia's highest threshold. Most Darwin small businesses do not approach it; the threshold is designed to support the territory's limited private sector base.
Grouping Provisions — The Hidden Risk for Growing Businesses
Grouping provisions are the most commonly misunderstood aspect of payroll tax for growing Australian businesses. Under every state's payroll tax legislation, related entities — companies under common ownership or control, trusts with common beneficiaries, or businesses with common employees — can have their wages aggregated for threshold purposes.
Example: A business owner operates three related entities — a trading company, a holding company and a family trust — each with $400,000 in wages. Individually, none exceeds the NSW threshold of $1.2M. Under grouping provisions, the three entities are assessed together at $1.2M total — right at the threshold, with any additional wages triggering payroll tax. Many owners of multi-entity structures only discover this at audit.
Grouping provisions apply even when the entities have different ABNs, different industries and different staff. Common ownership or control is sufficient. If you operate multiple entities, your accountant or tax agent should be assessing your payroll tax position on a grouped basis — and your bookkeeping records for each entity need to be accurate enough to support that assessment.
How Accurate Bookkeeping Protects You from Payroll Tax Surprises
Payroll tax liability is calculated from your payroll records. Whether you manage this through outsourcing bookkeeping to a managed provider or through an in-house team, the accuracy of the underlying records is what determines whether your payroll tax lodgements are correct. Errors in those records — misclassified contractors, incorrect wage figures, missed allowances — flow directly into errors in your payroll tax lodgements. The consequences of an error discovered by the SRO rather than by you include back-tax, penalty tax and interest.
The protection is straightforward: monthly bookkeeping that tracks cumulative wages against your state threshold, correctly classifies contractor payments according to each state's rules, and maintains clean separation between entity payrolls for grouped threshold assessment.
For businesses using offshore bookkeeping services, this state-by-state wages tracking should be established in your chart of accounts at the outset — before you approach the threshold in any state. For businesses in multiple states, payroll records need to track wages by state so each state's return can be prepared accurately. This is standard in a well-structured Xero or MYOB file — but requires intentional setup from the start.
Payroll Records That Keep You Threshold-Ready
OrtúsPro Global's bookkeeping service tracks cumulative wages, classifies contractors correctly and provides the accurate payroll records your accountant needs for state payroll tax returns.
Frequently Asked Questions
Which Australian state has the lowest payroll tax threshold?
Victoria has the lowest payroll tax threshold in Australia at $700,000 per year for 2026–27. Melbourne businesses become liable for payroll tax at a lower wages level than any other major state — NSW ($1.2M), Queensland ($1.3M) and Western Australia ($1.1M) all have significantly higher thresholds.
What is payroll tax in Australia and who pays it?
Payroll tax is a state and territory tax levied on employers whose total Australian taxable wages exceed the relevant threshold. It is paid by the employer — not deducted from employee wages. Each state sets its own threshold and rate. The tax applies to wages, salaries, superannuation contributions, fringe benefits and some contractor payments.
Do payroll tax thresholds apply to total Australian wages or just wages in each state?
Payroll tax thresholds are assessed against the employer's total Australian wages, but each state taxes only the wages paid in that state. Grouping provisions mean related entities can have their wages aggregated for threshold purposes, significantly reducing the effective threshold for growing groups.
Does Payday Super affect payroll tax obligations?
Payday Super changes the timing of super remittances but does not directly change payroll tax obligations. However, accurate payroll records are the foundation of accurate payroll tax returns — errors in payroll records flow directly into errors in payroll tax lodgements.