Managing costs

What will the changes in the NSW payroll tax threshold mean for you?

Payroll tax is a state and territory tax calculated based on the total wages an employer pays employees in a month. It has a significant impact on employers, particularly small and medium businesses. This is because the high tax administration expenses and red tape presents a financial barrier to jobs growth.

However, there is good news for SMEs. From 1 July 2021, the payroll tax threshold in New South Wales will be increased to $1 million. This will be a significant increase on the existing payroll tax threshold of $900,000 for the 2019-20 tax year.

How will this affect you? Read on to find out.

 

What is payroll tax?

Payroll tax is a state tax calculated based on an employer or group’s total amount of wages paid or payable. Wages paid include director, management and employee salaries, contractor payments and superannuation payments. In addition, employers must factor in fringe benefits, bonuses, commissions and termination payments.

Not all employers need to pay payroll tax — only those that exceed the payroll tax threshold.

Payroll tax: how to calculate it

Payroll tax in New South Wales is calculated at a rate of 5.45% on all wages paid. It only applies once an employer or group exceeds the payroll tax threshold. The state government has a payroll tax calculator on the Revenue New South Wales website.

Progressive increases to the payroll tax threshold

In line with the state budget, the New South Wales government is introducing progressive lifts to the payroll tax threshold. The current threshold for the financial year from 1 July 2019 to 30 June 2020 is $900,000. This will be increased to $950,000 for the 2020-21 financial year.

In the subsequent financial year from 1 July 2021 to 30 June 2022, the payroll tax threshold will be lifted to $1 million.

Why will there be an increase in the payroll tax threshold?

New South Wales currently has one of the lowest payroll tax thresholds of all the states and territories in Australia. This includes thresholds for the payroll tax in Queensland and payroll tax in South Australia, as well as the Northern Territory and Tasmania.

The only states that have lower payroll tax thresholds than New South Wales are Western Australia and Victoria. The threshold for payroll tax in Western Australia is $850,000 and the tax rate is 5.5%. Meanwhile, the threshold for payroll tax in Victoria is lower than New South Wales at $650,000. However, the tax rate of 4.85% is also lower.

Payroll tax is a significant and prohibitive administration cost for SMEs in New South Wales. The cost of payroll tax for SMEs often comes at the expense of other opportunities. These range from expanding business operations to hiring a much-needed employee.

Benefits of increasing the threshold for payroll tax in NSW

Increasing the threshold to $1 million reduces the payroll tax and administration costs for over 20,000 businesses in New South Wales.

As a result of increasing the threshold, businesses in New South Wales will save up to $40 million in tax administration costs. Approximately 85% of these savings will be used by SMEs to expand their operations. This stimulates job growth, creating new employment and business opportunities across the state.

In addition, of the 20,000 businesses who will benefit from the increased threshold, 7,000 are based in regional New South Wales. The increased payroll tax threshold will boost regional employment and stimulate business growth.

All of this means employers in New South Wales will remain competitive with other states that have higher payroll tax thresholds.

What’s next?

The increase to the payroll tax threshold will affect thousands of employers in New South Wales. If you’d like to stay informed on the latest updates to payroll tax, subscribe to our newsletter here.

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