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Payroll tax basics for small business owners

Each state has its own payroll tax regime, with differing rates, thresholds and quirks, We'll just focus on the NSW system for today for our small business clients.

In NSW, payroll tax is imposed on an employer if the businesses total liable wages exceed $678,000.00. Any liable wages that exceed this threshold are then taxed at a flat rate of 5.45% commencing from 1 July 2011. In order to determine if you are going to need to register for NSW payroll tax we first need to work out what liable wages are to then see if you exceed the above threshold.

In NSW liable wages includes all salary and wages, allowances, bonuses, fringe benefits, salary sacrificed superannuation amounts, compulsory superannuation amounts and various other infrequent payments to staff. Payments to staff on workers compensation are exempt from payroll tax. Some payments to contractors can also be assessed as wages for payroll tax purposes depending on individual circumstances.

Once you have calculated that your monthly liable wages are going to exceed the minimum threshold you will need to register your business with the NSW Government Office of State Revenue. You will be sent details of how to pay your monthly obligation and the reporting of this amount to the OSR.

As well as this monthly obligation to report and pay within 7 days of the end of month, there is also an annual reconciliation that needs to be done and reported to the OSR. For the small business owner, the extra administrative tasks can be almost as painful as actually paying the payroll tax, so speak to your small business accountant to work out the most efficient way of handling this rather inefficient tax. If you feel that your total wages are getting up towards this threshold then it is imperative that you seek advice and register for payroll tax. The consequences of not doing so and getting caught out at a later date just aren't worth the risk.