Avoiding a payroll tax surprise: what Queensland business owners need to know

For many Queensland business owners, payroll tax isn’t something they think about until it suddenly appears on their radar. Unlike income tax, payroll tax doesn’t depend on profits. It is a levy on wages and certain contractor payments once your business exceeds the threshold.

The challenge is that payroll tax obligations can creep up as your business grows. Hiring more staff, paying superannuation, or engaging contractors can quickly push you over the line. When that happens, the Queensland Revenue Office (QRO) expects you to be registered and compliant.

Here’s what you need to know to stay ahead and avoid a costly payroll tax surprise.

Understanding payroll tax basics

Payroll tax is governed at the state and territory level. Each jurisdiction sets its own thresholds and rates, and businesses with employees in multiple states must apportion wages accordingly.

It is also not a once-off obligation. Once you are over the threshold, you will need to lodge returns (usually monthly) and complete an annual reconciliation. That means setting up systems to track wages accurately and budgeting for an ongoing liability.

Payroll tax in Queensland

In Queensland, payroll tax applies if your total Australian taxable wages exceed $1.3 million in a financial year.

The current rates are:

• 4.75% if your total annual Australian taxable wages are $6.5 million or less
• 4.95% if your total annual Australian taxable wages are more than $6.5 million
  
  

Employers who pay between $1.3 million and $6.5 million may be entitled to deductions that reduce their liability. These deductions are calculated period by period and, for groups, are only available where combined Australian wages are under $10.4 million.

Two important extras:

• Regional employers may be entitled to a 1% discount on the payroll tax rate, available until 30 June 2030
• A mental health levy applies for employers and groups with annual Australian wages over $10 million, with a higher tier above $100 million
  
  

More than just employee wages

When the QRO talks about “taxable wages”, it is a much broader definition than many expect. It includes:

• salaries and wages
• employer superannuation contributions
• allowances (car, travel, meals, tools, etc.)
• bonuses and commissions
• payments to certain contractors
• fringe benefits (as reported on your FBT return)
• termination payments
  
  

Example: a trades business might pay a modest wage bill of $1.1 million, but when super contributions, vehicle allowances and bonus payments are added, the true figure crosses $1.3 million and triggers payroll tax.

Termination payments are a common area of confusion. Payments such as unused leave, payments in lieu of notice, and ex-gratia amounts are taxable, but the tax-free portion of a genuine redundancy or early retirement scheme, as well as the invalidity segment, are not.

Contractors: the grey area that trips businesses up

In Queensland, contractor payments are one of the biggest traps. Even if someone has an ABN and invoices your business, those payments may still be deemed wages for payroll tax purposes.

Example: a construction firm hires a contractor under a rolling agreement across most of the year. Although the contractor is not on payroll, the payments are likely taxable. If those payments push the total wage bill above the threshold, payroll tax applies.

Industries like construction, IT, and healthcare are particularly exposed to these rules.

Queensland law applies “relevant contract” rules, with nine possible exemptions, including:

• 90-day exemption: services provided for less than 90 days in a financial year
• 180-day exemption: type of service required for less than 180 days in a financial year
• ordinarily to the public: contractor provides services broadly, not just to you
• engages others: contractor hires their own staff to deliver the work

Grouping rules: when two businesses count as one

Payroll tax also includes grouping provisions. If you own or control multiple entities, or there is a connection through related parties, the QRO may group them together.

The wages of all businesses in the group are combined, and only one $1.3 million threshold applies across the group. Each member of the group can be jointly and severally liable.

This is particularly relevant for family groups or business owners who run multiple companies, for example a café business in one company and a catering arm in another.

Failing to recognise grouping can lead to significant underpayment and unexpected assessments.

Compliance and lodgement in Queensland

If your wages exceed the threshold, you must:

• register with the QRO. Registration must occur within 7 days once you (or your group) exceed $25,000 per week in Australian taxable wages
• lodge monthly returns (or half-yearly if eligible) by the 7th of the following month (or the next business day if this falls on a weekend or public holiday)
• complete an annual return by 21 July each year
  
  

The QRO takes non-compliance seriously, with penalties and interest charged for late registration or underpayment. Because payroll tax relies on self-assessment, audits are common, especially in industries with heavy contractor use.

Practical steps for Queensland business owners

1. Track your wages in real time
   Monitor salaries, super, allowances, contractor payments, and fringe benefits monthly.
   
   
2. Review contractor arrangements carefully
   Use QRO’s exemptions framework to determine if a contractor’s payments should be included. Keep documentation for any exemptions claimed.
   
   
3. Watch out for grouping
   If you have multiple entities, review ownership and staffing structures to see whether grouping rules may apply.
   
   
4. Budget for the cash flow impact
   Payroll tax adds 4.75% to 4.95% to your employment costs (less for eligible regional employers). Factor this into forecasts and tender pricing.
   
   
5. Seek professional advice
   Payroll tax rules are detailed, and exemptions vary. An accountant can help you register on time, lodge correctly, and minimise risk.
   
   

Payroll tax is not just a big business issue. In Queensland, once your wage bill hits $1.3 million, you are in the system, and with contractors, grouping, and termination payments in play, you may reach that point sooner than you think.

By understanding how Queensland’s payroll tax works, tracking your wages closely, and getting advice early, you can avoid the stress of a surprise assessment and focus on growing your business with confidence.

If you need any help or advice regarding payroll tax, please feel free to reach out to us. 

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