Payroll tax for many family-owned businesses in Perth is often a forgotten sleeper. Too often many tax accountants and business owners are so fixated on the cost of income tax that the payroll tax cost in a business is forgotten.
However the question of how is payroll tax calculated in WA is important to ensure that your total cost of doing business and the cost of human resources is understood as part of your ongoing operations and future expansion plans.
What exactly is payroll tax?
Payroll tax is a state based tax that taxes the cost of employment for people in that state. So it applies to your taxable Australian wages paid in Western Australia and it is then adjusted for the total wages paid in other states to achieve some overall fairness?
How is the payroll tax adjusted for small businesses?
While payroll and HR laws changes regularly: every small business operator has a tax advantage through payroll tax. The first $1m of taxable wages paid by a Western Australian business is free of payroll tax. And as the total taxable payroll of a business increases the payroll tax threshold is reduced to recognise that the business is slowly becoming something other than a small business.
The small business payroll tax threshold is then reduced by $15.38 for every $100 that exceeds the threshold (2/13th). So, the threshold for a $1.4m business, with an excess of $400k, will be reduced by $61,538. So that business will have a small business threshold of $938,462 ($1m less $61,538).
If you employ staff across multiple states the small business payroll tax threshold is apportioned across the states so that every state enjoys its “fair share” of the threshold without allowing a business operator to access multiple thresholds.
What are taxable wages?
The total taxable Australian wages for payroll tax includes the employees superannuation contributions (including super guarantee levy), salary, wages, commissions, directors fees, bonuses, allowances, termination payrments, reportable fringe benefits
The definition of taxable Australian wages also includes payments made as part of an employee share acquisition scheme and payments to contractors that are “wage-like”.
Are any types of wages exempt?
If you are paying allowances that are a reasonable repayment of costs these are not wages. So a danger allowance will be taxable wages however a reasonable travel allowance is not wages. Further, payments that are made under paid parental, workers compensation payments and some government subsidies are not part of taxable wages (like JobKeeper).
Wages paid to apprentices are also exempt. And there is an opportunity to exempt wges paid to indigenous wages. However, the traineeship exemption has been removed (from 1 July 2019).
There are some type of organisations that can apply for an exemptions – this includes religious groups, government departments, some hospitals and some charitable organisations.
The impact of multiple businesses
If you operate multiple businesses there are grouping provisions that will look at the total taxable wages paid across your group to determine the amount of payroll tax. This includes situation where staff work across business units, where there is common control of business entities or if there is common ownership.
There is opportunity to stop the group in certain circumstances. For example – if a person ran a medical practice and their spouse operated a farm – and a bookkeeper worked for the medical practice 3 days a week and the farm 2 days a week it might be possible to exclude the total wages for the farm and medical practice together.
How do I register for WA Payroll Tax?
If your total Australalian taxable wages exceeds $83,333 in a month you will need to register for Payroll Tax with RevenueWA. Getting registration done is important to comply with tax law – even if the excess is a one off event.
This registration can be done with your local business accountant or it can be directly through Revenue Online.
How is payroll tax calculated?
The amount of payroll tax you pay is tiered depending on the level of wages you pay. At the top end of the scale the maximum you will incur is a tax of 6.5% of your wages paid where they exceed 6.5% of the wages. Of course at Westcourt we are focussed on the private sector where none of our clients (and not many private business in WA at all) will exceed this level of wages.
The small business payroll tax threshold of $1m is then reduced by $15.30 for every $100 that exceeds the $1m threshold.
For example – Sarah owns a commercial cleaning business with a total payroll (including superannuation, directors fees and allowances) of $1.2m.
As the total wages exceed $1m the $200k excess will incur payroll tax at the annualised rate of 5.5%. However the excess wages over the threshold will also reduce the threshold by $30,769 ($200,000 x 15.38%).
So, the total taxable wages will be $230,769 multipled by the rate of 5.5% with a resultant liability of $12,692.30.
Is it difficult to calculate WA payroll tax?
Like anything if you know what you are doing it can be done relatively quickly. However in our experience Revenue WA are one of the most aggressive tax authorities in terms of auditing clients. So many clients engage Westcourt to manage their payroll including Single Touch Reporting, PAYG Withholding, leave entitlements and payroll tax calculations (including staff who are located in the Eastern States).
Alternatively, if your finance team and CFO has the capacity, and they want to prepare your own payroll (including senior management) we can assist them by preparing systems and process so that you can have a clear audit trail when the payroll tax auditors approach your business. As a firm committed to independent advisory we can assist you manage your businesses payroll solutions – so why not call us today?
