In Australia, we have different tax systems that businesses need to be able to navigate to pay taxes: The payroll tax, which is a state or territory-level mandate, and the PAYG system, which is a federal scheme. While employers do not necessarily have to adhere to both systems, they should understand how they work to stay on top of their taxation requirements.
This article details how each system works and how you can use it to avoid sudden costs at tax time or avoid costly penalties. For personalised advice, contact our team at Curve Accountants today.
What is the Payroll Tax System?
The payroll tax is the amount an employer must pay to the government if they meet a certain threshold of wage expenses. Each state and territory has its own threshold and it can often be a deductible expense.
The payroll tax was first introduced in Australia in 1941. Though it has undergone several changes over the years, state and territory governments rely heavily on it. Like many taxes, the payroll tax is used to fund important initiatives such as infrastructure and other public services.
Current State and Territory Thresholds
Depending on the requirements of your state or territory, you may be able to pay your payroll tax yearly, monthly, and in some instances, weekly. Most tax payments occur monthly, and you may be required to seek approval if you would like to pay at different times, such as annually.
If your business’s combined wages exceed the threshold of the state you are in, you will be required to pay payroll tax.
| State or Territory | Annual Threshold |
|---|---|
| Australian Capital Territory | $2,000,000 |
| New South Wales | $1,200,000 |
| Northern Territory | $1,500,000 |
| Queensland | $1,300,000 |
| South Australia | $1,500,000 |
| Tasmania | $1,250,000 |
| Victoria | $900,000 |
| Western Australia | $1,000,000 |
Though these are the current figures at the time of publication, they are often updated and changed yearly.
What is PAYG?
PAYG stands for Pay As You Go. This is a federal scheme that every business must also adhere to. This means that if you exceed the payroll tax threshold, you will have to pay both payroll tax and PAYG withholding.
PAYG is a system where the employer withholds a certain amount of money from their employee’s wages for tax instead. These payments are calculated and then paid to the Australian Taxation Office (ATO) and recorded for your quarterly business activity statement and annual tax return.
This system is designed to help your employees meet their tax obligations at the end of the financial year.
Understanding Payments
PAYG instalments generally need to be paid once a quarter. Most businesses are given 28 days, or close to one month, to make their payment. However, if you meet certain requirements, you may be able to pay in two instalments instead of four.
To pay your PAYG in two instalments instead of four, you must pay using the instalment amount. Along with this, you must either be a special professional or an individual carrying a primary production business. To change between quarterly and bi-annual payments, you must lodge your next instalment at the new date it would be due with the applicable rates.
Likewise, if your business has an instalment income of more than $20 million, you will likely be required to make monthly instalments. If you’re not sure which applies, the due dates of your instalments will be listed on your instalment notice.
Navigating Payroll Tax and PAYG
There are two key differences between payroll tax and the PAYG system. While payroll tax is organised and enforced by each state and territory government, PAYG is a federal scheme that applies nationally. Furthermore, payroll tax is a system of taxation that applies to the employer. Meanwhile, the PAYG system is taken from employee wages to meet their tax obligations.
Every employer in Australia needs a basic understanding of these taxation systems and how they apply to their business. Meeting your taxation obligations and requirements is necessary to avoid costly penalties and keep your business above board.
If you’re not sure if you meet your state’s payroll tax threshold or would like guidance navigating PAYG instalments, reach out to Curve Accountants today. Our experienced and reliable team can help you find the best methods of meeting your taxation requirements and help your business thrive.
