Payroll tax

Calculating payroll tax

You have two options for calculating the payroll tax you owe, depending on whether you want to claim the ACT proportion of the tax-free threshold. Steps for calculating your tax-free threshold amount are shown below.

Once you know the proportion of the tax-free threshold you can claim, you can deduct this amount from your taxable wages, effectively reducing the amount of payroll tax you owe.

The tax-free threshold also decreases proportionally if you pay wages in other Australian states or territories.

Not claiming the tax-free threshold

Employers or approved designated group employers (DGEs) may choose not to claim the ACT tax-free threshold in each of their monthly returns. However, they may want to keep the option open to claim the threshold in their annual reconciliation return.

In the ACT, a member of a business group that is not an approved DGE pays a flat payroll tax rate of 6.85% of the total ACT wages for all returns.

Claiming the tax-free threshold

Employers or approved DGEs can claim the tax-free threshold in any of their monthly returns or their annual reconciliation returns. To claim the tax-free threshold, you must declare the total ACT wages, ACT group wages (where applicable) and Australia-wide wages for your entire business in each reporting period.

When submitting your return online, the tax you owe will be automatically calculated based on the wages figures you enter and your employer status. To calculate the amount of payroll tax you owe for a given reporting period, use steps 1, 2 and 3 below for the annual reconciliation return and steps 2 and 3 for a monthly return.

Step 1 
Proportion the annual tax-free threshold ($2 million) based on the number of days in the financial year that you paid or owed ACT or interstate wages. This is your initial annual threshold adjustment.

Step 2
Divide the total ACT taxable wages by the total Australia-wide wages. Multiply the result by the initial annual threshold adjustment or monthly threshold (if applicable) to get your final tax-free threshold amount.

Step 3
Subtract the final tax-free threshold amount from the total ACT taxable wages. Multiply the remainder by 6.85% to determine the tax you owe.

Penalties and interest

Defaulting on your taxes can result in penalty tax. The amount of this penalty tax varies depending on the circumstances surrounding the tax default. You’ll also have to pay interest charges on any overdue tax payments.

However, if you can show that extenuating circumstances contributed to the tax default, the Commissioner may reduce the penalty tax and interest.

If you’re having difficulty meeting your payroll tax payments, please contact us to discuss alternative arrangements.

Learn more about penalties and interest.