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Accounting & Taxation
Payroll Tax… the surprise tax

Payroll Tax… the surprise tax

One of the biggest surprises a medical business faces in the Australian taxation compliance regime is payroll tax. The old perception that payroll tax is a tax for business with lots of employees has unfortunately created a dangerous misnomer.

Payroll Tax is not a federal tax such as income tax and GST it is a levy applied against business from the respective state revenue offices. As such the rules and the rate of taxes are different for each tax jurisdiction.

The liability for payroll tax is calculated by assessing the total wages paid in your business, less a tax free threshold then applying the remaining against the tax rate in your state. The problem medical business is facing in recent times is these thresholds have barely moved over the past few decades but the average income for medical professionals has increased.What this means is more and more medical practices are facing payroll tax liabilities despite the number of people in the business not increasing. This is commonly known as tax bracket creeping.

What is also a problem for your business is that the system works on a self assessment, meaning that the obligation to enrol onto the Payroll Tax System is on you. There has been allot of cases where a business is assessed retrospectively for years past where they have without knowing breached the tax free threshold and the significant liabilities have been created.

The other trap is the grouping provisions the Payroll Tax Legislation applies. This is multiple businesses that is run in separate companies or trusts but are owned by a common entity or person will be grouped and the total wages applied against the one tax free threshold. This could mean your separate practices that you own could be facing higher employment costs.

The best strategy is to plan your wages expense in advanced. Understand how you will pay yourself whether it be wages or profit distributions and talk to a MEDIQ tax specialist who can guide you through your respective tax jurisdiction compliance requirements.

Payroll Tax Rates and Thresholds for your state:

State Rate Threshold
VIC 4.90% $550,000
NSW 5.50% $658,000
QLD 4.75% $1,000,000
NT 5.90% $1,250,000
SA 4.95% $600,000
WA 5.50% $750,000
TAS 6.10% $1,010,000

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