ACT lifts payroll tax threshold to $2 million: How the other states and territories stack up

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More small businesses in the Australian Capital Territory will soon be exempt from paying payroll tax, with the ACT Government set to lift the annual payroll tax threshold to $2 million.

The change, which will be included in the territory’s 2016-17 budget on June 7, will mean around 40 ACT businesses will no longer have to pay payroll tax, according to the territory government.

The threshold at which ACT businesses must pay payroll tax currently stands at $1.85 million and is already the highest payroll tax threshold across all Australian states and territories.

It compares to a threshold of $1.5 million in the Northern Territory, $1.25 million in Tasmania and $1.1 million in Queensland. The payroll tax threshold is $800,000 in Western Australia; $750,000 in New South Wales; $600,000 in South Australia; and $550 in Victoria, although this is set to be lifted to $650,000 over a four-year period.

The ACT has progressively lifted the payroll tax threshold, from a level of $1.5 million in 2012.

ACT Chief Minister Andrew Barr said in a statement this week these progressive changes mean there are now between 150 and 200 local businesses that are no longer liable for payroll tax.

However, the ACT does have the highest rate of payroll tax across all states and territories at 6.85%.

In Tasmania, the payroll tax rate is 6.1%, while businesses in the Northern Territory and Western Australia pay payroll tax at 5.5%. The payroll tax rate is 5.45% in NSW; 4.95% in South Australia; 4.85% in Victoria; and 4.75% in Queensland.

Call for other states and territories to follow the ACT’s lead

Australian Small Business and Family Enterprise Ombudsman Kate Carnell told SmartCompany this morning the ACT Government’s decision to continue raising the payroll tax threshold is “a really smart approach”.

Carnell, who served as ACT chief minister between 1995 and 2000, says the higher rate of payroll tax in the territory means “banks and big companies pay a bit more but SMEs don’t pay at all”.

“The states can’t do without payroll tax,” she says.

“The ACT approach to put up the rates for larger companies means it still maintains a chunk of revenue but smaller businesses that can really be affected by payroll tax are not being affected until they are fairly large.”

In her role as Ombudsman, Carnell has spent recent months conducting roundtables with small businesses around the country and she says at every roundtable she’s held, at least one business owner has spoken about payroll tax.

“While really small business don’t pay payroll tax, the threshold in some states is very low,” Carnell says.

At the top of the list of concerns for employers is that as soon as a business’ payroll hits the threshold in its state, the business pays tax on the entire value of its payroll and not just the proportion that is above the threshold.

Carnell says she also spoke to one business owner in Queensland who explained that the three separate businesses in which he holds a controlling share in are effectively combined for the purposes of payroll tax.

“In reality we’re trying to encourage people like [this business owner] to invest in new businesses … in Queensland at least, it [payroll tax] is a disincentive,” she says.

Carnell believes the other states and territories should look seriously at adopting a similar approach to the ACT, which she says would increase the chances of SMEs employing more people.

“It’s a good and practical method,” she says.

“If you’ve got to have payroll tax, let’s have it for the companies that are big enough to absorb the cost.”

The current payroll tax thresholds and rates across Australia:

State or territory Threshold Rate
Australian Capital Territory $1.85 million (to increase to $2 million) 6.85%
New South Wales $750,000 5.45%
Northern Territory $1.5 million 5.5%
Queensland $1.1 million 4.75%
South Australia $600,000 4.95%
Tasmania $1.25 million 6.1%
Victoria $550,000 (to increase to $650,000) 4.85%
Western Australia $800,000 (diminishes for payrolls between $800,000 to $7.5 million) 5.5%

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