Payroll Tax in WA: The Threshold That Catches Growing Businesses

Payroll tax is the tax most Perth business owners do not think about until they are already paying it. It is a state tax, not a federal one, so it works differently from GST or company tax, and Western Australia has its own thresholds and its own rules.

Here is what you actually need to know.

When payroll tax starts

In Western Australia you become liable once your Australian taxable wages go over $1 million a year, or $83,333 in a month. Below that, you pay nothing and you do not need to register.

The rate is 5.5% on wages above the threshold, for employers up to $100 million in annual wages. Higher rates apply above that, which is not most businesses reading this.

Those figures have been in place since 1 July 2023. RevenueWA administers it, not the ATO, which catches people out on its own.

What counts as wages

More than you would expect. Taxable wages include:

• Salaries and wages
• Superannuation contributions
• Bonuses, commissions and allowances
• Fringe benefits
• Directors fees
• Termination payments
• Payments to some contractors, depending on how the arrangement is structured

That last one is the one that trips people up. A business that thinks it has $900,000 of wages can find it has $1.1 million once contractor payments and super are counted properly.

The diminishing threshold

The $1 million is not a clean line. Between $1 million and $7.5 million of annual wages, the deduction you get shrinks as your wages grow.

The formula reduces your deductible amount by $2 for every $13 of wages above the threshold. At $7.5 million it reaches zero, and from there you pay 5.5% on every dollar of WA taxable wages.

The practical effect is that your real marginal rate on each extra dollar of wages between $1 million and $7.5 million is higher than 5.5%. Growing your team costs more than the headline rate suggests, and that is worth modelling before you hire, not after.

Grouping, which catches people out

This is the part worth reading twice.

If you control more than one business, RevenueWA can treat them as a group. A group shares one threshold between all of its members, not one each.

So two companies with $600,000 of wages each are not two businesses safely under the line. They are a group with $1.2 million of wages and a payroll tax bill.

Businesses can be grouped through common directors or shareholders, through one business controlling another, through shared employees, or through a chain of connections where two separate groups are linked by a third entity. You do not have to intend to form a group. If the relationships are there, the group exists.

We see this most often with trades and construction businesses that split operations across entities for asset protection, and with families running more than one business. The structure that protects your assets can quietly create a payroll tax liability.

What it costs to get it wrong

Payroll tax is self assessed. Nobody sends you a notice telling you that you have crossed the threshold. You are expected to register within seven days of the end of the month in which you go over.

If you register late, RevenueWA can go back and assess the unpaid tax for prior years, with interest and penalties on top. A business that has been over the line for three years without realising is not looking at one year of tax. It is looking at three, plus interest.

That is the real risk here. Not the 5.5%, which is manageable and predictable. The backdated assessment, which is neither.

What to do about it

• Know your number. Add up wages, super, fringe benefits and contractor payments, not just what leaves the payroll system.
• Check every month if you are close. The monthly threshold is $83,333. One strong month with bonuses in it can push you over.
• Map your group before you restructure. If you are about to set up a second entity, work out the payroll tax effect first. It is much cheaper than unwinding it later.
• Watch your contractors. Whether a contractor payment is taxable depends on the arrangement, not on what the invoice says.
• Model it into your hiring plan. At $1.2 million of wages, payroll tax is a real line in your budget. Treat it like one.

Getting ahead of it

Payroll tax is not complicated once someone has sat down and worked out where you sit. It is expensive when nobody has.

If your wages bill is heading towards $1 million, or you run more than one entity and have never had the grouping question answered properly, that is a conversation worth having before the end of the financial year rather than after it. Our tax and compliance work covers registration, the grouping analysis and the monthly returns, and our business advisory work covers what it means for your hiring plan.

This article is general information only. It does not take your circumstances into account and it is not tax advice. Thresholds and rates change, so check the current figures with RevenueWA or with us before acting.