Payroll tax

Payroll tax is a tax paid by employers to the Office of State Revenue based on the total amount paid to employees as wages and salaries. Companies have an obligation to pay payroll tax when their total yearly Australian ‘taxable wages’ exceed $1 million. There is no payroll tax obligation for employers with total taxable wages of less than $1 million.

The current payroll tax rate is 4.75%, which is applied to gross amounts after any allowable deductions are applied. The Office of State Revenue website provides payroll tax calculators that enable companies to calculate their potential payroll tax liability based on their projected taxable wages total.

The below summary is intended as a guide only; members are encouraged to seek professional advice and assistance from their financial adviser about their specific arrangements.

Taxable wages

Taxable wages in Queensland include:

  • Cash wages
  • Commissions
  • Directors’ fees
  • Non-cash wages
  • Bonuses
  • Salaries
  • Fringe benefits
  • Salary sacrifice
  • Employer superannuation contributions
  • Taxable eligible termination payments
  • Payment for an employee’s accrued wages and leave entitlements
  • Payments in lieu of notice
  • Severance or redundancy payments.

Car parking fringe benefits are excluded from payroll tax, unless provided in lieu of a cash component of a salary package.

Apprentice wages are also generally exempt, although certain conditions do apply. The apprentice must have signed a ‘training contract’ with their employer, which has been approved under the Vocational Education, Training and Employment Act 2000.

Generally, all allowances are taxable. However, under certain conditions, accommodation allowances and travelling allowances (motor vehicle allowances) are taxed on only part of the allowance.

Payroll tax & contractors

In 2008, the Queensland Government amended the payroll tax system to include ‘contractor provisions’. These contractor provisions identify ‘relevant contracts’ that are included for the purpose of calculating and paying payroll tax.

What are relevant contracts?

Under certain circumstances, payments to contractors will be taxable as a relevant contract. Generally, those circumstances are where the contractor provides services, and works exclusively or primarily for one or two principals and one of the exemptions do not apply. The term ‘contractors’ is generic and includes subcontractors, consultants and outworkers.

What are not relevant contracts?

Contracts that are not relevant contracts for payroll tax purposes include contracts of service and contracts under which a person, in the course of a business carried on by that person, is supplied with services meeting any of the exemptions outlined below. Note that all contracts may be liable for payroll tax unless the contract can be considered exempt.

ABN contractors

The construction industry engages a large amount of labour under complicated subcontractor arrangements. In general, payments to a trade subcontractor for work performed under a contract for service is not taxable.

However, payments to a contractor/worker or ABN labour-only contractor may be taxable, if the person is in fact an employee at law. Read more about the differences between employees and contractors.

Exempt contracts

All contracts may be liable for payroll tax unless the contract can be considered exempt.

A contract may be exempt if:

  1. The services are incidental to the supply or use of goods by the person who is supplying the services.
  2. The services are of a kind not ordinarily required in the course of the person’s business and which are provided by persons who are genuinely supplying services to the public generally.
  3. The services are of a kind ordinarily required in the course of the person’s business, but are required for less than 180 days in a financial year.
  4. The services are provided by a person for less than 90 days in a financial year.
  5. None of B, C & D criteria are met, but the Commissioner of State Revenue is satisfied that the services are supplied by a person who ordinarily supplied services of that kind to the public generally in the financial year in respect of which a periodic, annual or final liability is being assessed.
  6. A contractor who supplies services to a person, in the course of a business carried on by that person, and uses one or more additional persons to perform the work to which the services relate.
  7. Under the contract, the contractor conveys goods in a vehicle they provide.
  8. Under the contract, the contractor procures persons for insurance coverage.
  9. Under the contract, the contractor sells goods door to door solely for domestic purposes.

Determining your obligations

The steps (and associated chart) outlined below will help you to determine your obligations regarding the payment of payroll tax.

Can't see the steps to help you determine your payroll tax obligations? Please log in using your member details to access this information. 

Subcontractor statement

Master Builders has also developed a 'subcontractor statement' to enable the principal/taxpayer to request information from a subcontractor, in order to identify and assess their tax obligation under the contractor provisions.

Download the Master Builders payroll tax subcontractor statement.