Employment Tax in Australia

Understanding Employment Taxes in Australia

Income Tax

Employees must continue to declare their income tax each year on the myGov portal. Tax rates vary between Australian residents and non-residents. Who is classified as a ‘resident’ depends on various factors such as:

• where they are domiciled (permanently live)
• whether they live in the country for at least 183 days (50% of the year)
• if they are an Australian working at an Australian post overseas and a member of a government superannuation scheme

Residents will need to declare income they earn all over the world, while non-residents only have to declare income earned in Australia. The income tax rates for 2025-2026 for both residents and non-residents are as follows:

Resident:

Non-Resident:

Pay As You Go (PAYG)

Pay As You Go (PAYG) Withholding Tax

Income tax is withheld at source, rather than relying on employees to pay their taxes, at the end of the financial year.

Under this system, employers must hold an amount from employees for tax purposes and submit it to the Australian Tax Office. The amount must cover the employees’ income tax, any Study and training support loans (STSL) payments and the Medicare (healthcare) levy.

• An employee, you generally have to withhold amounts from payments you make to them.
• A contractor, you generally do not withhold amounts from payments you make to them (unless they request withholding by entering into a voluntary agreement with you). As a note, withholding tax may apply to non-resident contractors too.

Payroll Tax

Payroll tax is a tax that businesses pay to state and territory governments. It is calculated on the total wages that a business pays to its employees each month. The state or territory where the employees are located collects the tax.

Not all businesses have to pay payroll tax. A business only has to pay payroll tax if its total Australian wages are over the tax-free threshold for the relevant state or territory. The tax-free threshold and tax rate vary between states and territories.

How to check if you need to register for payroll tax?

Register for payroll tax if your total Australian wages are over the threshold for the state or territory where your employees are located. You can find the threshold on the website of the relevant revenue office.

There are exemptions from payroll tax. Check with your revenue office to see if you qualify. Notify the revenue office if you close your business.

Payroll Tax (For NSW)

Payroll tax threshold reduced for (for NSW):

• Businesses that start or stop employing in NSW within a financial year.
• Businesses that pay wages in another Australian state or territory.
• Businesses that are part of a group.
• The threshold is reduced by a proportion equal to the number of days a business employs in a financial year, the ratio of NSW wages to total Australian wages, or the ratio of total group NSW wages to total group Australian wages.

Payroll tax threshold and tax rate for New South Wales:

The monthly threshold amounts are:

Fringe Benefit Tax

Fringe benefits tax (FBT) is a tax paid by employers on certain benefits provided to their employees, or to their employees’ family or other associates.

FBT is separate to income tax. It’s calculated on the taxable value of the fringe benefit.

As an employer, you must self-assess your FBT liability for the FBT year (1 April to 31 March). If you have an FBT liability, you must lodge an FBT return and pay the FBT you owe.

A fringe benefit is like a payment to an employee, but in a different form to salary or wages.

There are different types of fringe benefits. Examples include:

• Allowing an employee to use a work car for private purposes
• Car parking
• Paying an employee’s gym membership
• Providing entertainment by way of free tickets to concerts
• Reimbursing an expense incurred by an employee, such as school fees
• Giving an employee a discounted loan
• Giving benefits under a salary sacrifice arrangement with an employee.

How its related to payroll:

1. Single Touch Payroll (STP): If the total value of benefits provided to an employee exceeds $2000
   • The reportable fringe benefits amount must be reported via STP on employee income statements. (reportable FBT – RFBT)

2. Payroll tax: Use the formula below to calculate the fringe benefit taxable value for your payroll tax returns.

• • (Type 1 aggregate amount + Type 2 aggregate amount)* x Type 2 gross-up rate
  • Type 1 and Type 2 fringe benefits are defined in your fringe benefits tax (FBT) return.

*Tax exempt bodies should exclude their entertainment fringe benefits from this calculation.

• Gross-up rate: The Type 2 gross-up rate for the period 1 July 2021 to 30 June 2026 is 1.8868.

Compliance and Penalties

Failure to comply with tax regulations can result in significant penalties, including:

• Late Filing Penalties: Fines for not filing tax returns on time.
• Underpayment Penalties: Interest charges on underpaid tax amounts.
• Audit Penalties: Additional fines and penalties from tax audits.

Best Practices for Tax Planning

Effective tax planning involves keeping accurate records, seeking professional advice, and staying informed about changes in tax laws. These practices help optimize tax positions and ensure compliance with Australian tax laws.

Please note that all the information listed below are to be used as a general guideline. For more detailed accounts of Australia employment laws and regulations, please visit the official governmental websites.

Updated on: June 2026