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Breaking down payroll tax

8 October 2014

Payroll tax can be a murky topic. The Journal decided to find the facts so you don’t find yourself on the wrong side of tax law.

Payroll tax is a state tax paid by employers or groups of employers who pay annual wages in excess of the threshold applying in each state and territory.

In NSW, the threshold for the 2014 financial year is $750,000 and the rate of tax is 5.45 per cent for each dollar of wages above the threshold. If a NSW employer also pays wages in another state or territory, the NSW threshold is reduced to a proportion of the full threshold based on the proportion of Australian wages paid in NSW. For example, if 50 per cent of an employer’s wages are liable for NSW payroll tax, the employer’s NSW threshold is reduced to $375,000, which is 50 per cent of the total NSW threshold.

Taxable wages include all forms of remuneration for services, including commissions, most allowances, fringe benefits, employer superannuation contributions, and employee share scheme benefits. Real estate agents must comply with the same requirements that apply to other employers. If a NSW real estate business or a
group of related businesses pays annual wages that exceed the NSW threshold in a financial year, there is a liability to lodge monthly returns and pay NSW payroll tax.

Contractor or employee?

An employee is typically subject to stringent control on how, where and when work is performed. Even if a worker has an ABN and calls themselves a contractor, an employer/employee relationship may exist, in which case the wages are liable to payroll tax.

A contractor is usually subject to less control by the employer about how work is performed, and in some cases may be contracted to produce a specified result for an agreed price rather be paid an hourly rate. A contractor may be free to accept or refuse work, and may be able to delegate work to other contractors without requiring
approval of the employer.

All forms of wages paid to all employees are subject to payroll tax.

All forms of wages paid to contractors are also liable to payroll tax, unless one of the exclusions apply. These exclusions are explained in a number of Revenue Rulings published on OSR’s website.

The main exclusions that may apply in the real estate industry are for contractors who also provide similar services to other real estate agents, and contractors who employ two or more workers (employees or sub-contractors) to perform the work required under the contract.

For more information regarding payroll tax and the exceptions, head to the Office of State Revenue website at