In the recent months, we have been asked about payroll tax and what it is? Although Employment Innovations does not offer tax advice, it is still worthwhile to include it in our blog.
Payroll tax is an Australian State and Territory based taxation scheme imposed on businesses, which operate services in Australia. The calculation is self assessed and is calculated on wages, superannuation and fringe benefits paid to employees. Each Territory and State have a target threshold of when taxation is payable, along with a set percentage value used for the calculation. This percentage rate and threshold may be indexed annually or bi-annually. Payment is generally made to the various offices monthly by employers with an annual reconciliation performed in July of each for the preceding financial year.
Payroll tax was introduced by the federal government in 1941 to finance a national scheme for child endowment. To fund this scheme, a levy of 2.5% was applied to payrolls. With the federal government assuming control of the income tax base, the state governments lobbied for access to payroll tax, and in 1971 the federal government handed the payroll tax over to the state governments, acknowledging that this tax represented the sole possible growth tax available to the states.
During the following three years, the state governments uniformly increased the rate to 5 per cent.
Over time, the uniformity of state payroll tax rates have eroded, as has the base to which they are applied, however, in 2007 a decision was made to overhaul payroll tax arrangements to achieve greater legislative and administrative harmonisation.