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Navigating Payroll Tax Exemptions: A Concise Overview

Payroll tax is a a State tax on all remuneration (wages, salary, bonuses, allowances etc) at the rate of 5.45% on total remuneration paid by a business to all its employees and contractors that exceeds $1,200,000 (the 2024-2025 payroll tax threshold).

Under the Payroll Tax Act 2007 (NSW) there are 7 exemptions which remove what are otherwise genuine contractors or non wages staff from the payroll tax net. The exemptions are applied strictly by Revenue NSW. A summary of the exemptions is set out in the Table below.

Payroll tax exemptions

No.	Nature of Exemption	Comments (PTA references are to Payroll Tax Rulings)
1	The work performed by the contractor is ancillary to the provision of materials/equipment to the Business.	Under PTA033, the materials/equipment as a component of the total contract price the Business pays the contractor is 50% or more of the contract price.
2	Services are of a kind not ordinarily required by the Business and the contractor provides such services to the public at large	Under PTA022, the services are not of a kind ordinarily required by the Business AND the contractor provides such services to the public at large. The latter is satisfied if the contractor derives less than 40% of its income from provision of services to the Business.
3	The services provided are of a kind ordinarily required by the Business for no more than 180 days in a financial year.	Under PTA020, the days counted are days the contractor or any other contractor providing a similar service provides such services during a financial year. Services carried out for part of a day is considered as 1 full day.
4	The contractor’s services provided to the Business do not exceed 90 days in a financial year for that contractor.	Under PTA035, the time counted is that of a specific contractor when working out the 90 days unlike the 180 test which applies to services of the same kind that are provided by 1 or more contractors. Again, any work performed on a day even if for 1 hour counts as 1 day.
5	Services of the contractor do not satisfy 2, 3 or 4 above, but the Commissioner is satisfied such services are ordinarily provided to the public at large.	Under PTA021, a determination must be issued by the Commissioner regarding the application of this exemption to the Business.
6	The contractor providing the services engages 2 or more persons.	Under PTA023, the contractor must be carrying on a business, has responsibility for the job, and the contractor must employ or engage 2 or more persons performing substantive work (not merely administrative work).
7	Where the owner of a vehicle is engaged by the Business for the purpose of carriage of goods.	Under PTA006, the Business does not own or lease the vehicle to the contractor and does not make any contribution to the running costs of the vehicle.

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Are contractors engaged by my business assessable under the Payroll Tax Act 2007 (NSW) ("Act")?
Under the Payroll Tax Act 2007 (NSW) (the "Act"), various exemptions exist to remove the imposition of payroll tax in cases where a person or entity providing services to a business is genuinely detached from the business. The threshold issue is whether there is a "relevant contract" as defined in the Act. That definition broadly encompasses all contracts: service contracts as well as employment contracts. So the real question is, what suppliers to my business can I apply a payroll tax exemption to ?
What action can I take to identify contracts that may be assessed under the Act ?
Firstly, do you have in a financial year gross wages exceeding the threshold ($1.2 million, 2023-24) ? If yes, then you need to identify other suppliers to your business and work out the total amount paid to these suppliers. You may need to examine your ledger accounts under such headings as: "Commissions", "Consultancy Fees", "Repairs and Maintenance". If your gross wages are less than the threshold, you may still need to examine your ledger accounts if your business is in an industry that commonly engages contractors (eg pool sales and installation). Each review should be undertaken annually because payroll tax is assessed an an annual basis. You may fall under the threshold one year and exceed the threshold the next year.
How far back can Revenue NSW undertake a payroll tax review and audit ?
There is no limitation in time, although ordinarily audits are carried out over a 4 to 5 year period as records under the Tax Administration Act 1996 (NSW) must be kept for not less than 5 years unless there is suspected tax evasion or an alleged tax avoidance scheme.
What are the consequences of non compliance with the Act ?
Following an investigation and audit, Revenue NSW will usually issue a Payroll Tax Assessment for unpaid payroll tax plus interest (12.38%, from 1/1/24 to 31/3/24), plus a penalty depending on the gravity of the non compliance. If you took reasonable care (Nil%); if you failed to take reasonable care (up to 30%); if you intentionally disregarded the law (between 15% and 90%). The penalty tax is assessed on the unpaid payroll tax exclusive of any interest for late payment.If you are a director of a company that has failed to make a payment for payroll tax in accordance with a notice of assessment, Revenue NSW may issue you personally with a notice to pay that amount.

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Navigating Payroll Tax Exemptions: A Concise Overview

Payroll tax exemptions

Tax Lawyer FAQs: Your Guide to Tax Query Solutions

Are contractors engaged by my business assessable under the Payroll Tax Act 2007 (NSW) ("Act")?

What action can I take to identify contracts that may be assessed under the Act ?

How far back can Revenue NSW undertake a payroll tax review and audit ?

What are the consequences of non compliance with the Act ?

Seeking Expert Tax Guidance for Exemptions? Consult with Top Tax Lawyers!

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