Preparing your 2025 Payroll Tax Annual Return

It is now time for employers to lodge their 2025 payroll tax annual returns.

This article will guide you through the major changes for payroll tax preparation and compliance for the 2025 year, as well as any common errors. 

The payroll tax annual returns are due for lodgment on 28 July each year to the New South Wales (NSW), Australian Capital Territory (ACT) and South Australia State Revenue Offices and 21 July each year to the Queensland (QLD), Victoria, Northern Territory, Western Australia and Tasmania State Revenue Offices.

Note that for any monthly payroll tax lodgers, there is no separate lodgment for the month of June, as the relevant payroll tax data for that month will be captured in the annual return.

In general, employers show good awareness of payroll tax-relevant payments that have been made via payroll. However, we commonly see errors made in relation to the non-disclosure of payments made outside of payroll, as well as grouping issues. Common errors include: 

• Employee Share Schemes (ESS): Taxable wages include any share or options granted that constitute an ESS interest under section 83A-10 of the Income Tax Assessment Act 1997. Employers have the ability to elect to disclose an ESS at grant or vest. Where a disclosure is not made at grant, the employer is deemed to have elected vesting as the taxing date. Common payroll tax errors include not being aware of ESS offered by parent companies, applying the wrong taxing date for valuing indeterminate rights, using incorrect valuation methodologies (given the Australian Taxation Office’s start-up concessions are not available in certain jurisdictions), or failing to identify certain awards that are not an ESS interest, but nonetheless may be categorised and valued as a fringe benefit. 
• Fringe Benefits Tax (FBT): Fringe benefits should be grossed up by the Type 2 rate and allocated across each state. We often see fringe benefits be inadvertently omitted in full or incorrectly grossed up. 
• Directors: The harmonised payroll tax legislations specify that taxable wages include ‘an amount paid or payable by a company by way of remuneration to or in relation to a director of that company’. Payroll tax obligations may still arise even if the payment of director’s fees has been redirected to the director’s private company, where the true nature of the payment is for the director’s services personally. 
• Contractors: A common myth is that the payroll tax obligations do not apply to contractors, despite significant activity by regulators and courts regarding the ‘relevant contractor’ provisions. Payments made under a ‘relevant contractor’ are deemed wages for payroll tax purposes, unless one of the six payroll tax contractor exemptions apply. The onus on substantiating exemptions lies with the employer. 
• Employment agency arrangements: Recent court cases have expanded the remit of the ‘employment agency contract’ provisions to look beyond traditional ‘labour hire’ arrangements. These are relevant for businesses that procure the services of workers for other businesses. 
• Grouping: The grouping provisions are broad and extend beyond conventional ‘related bodies corporate’ arrangements to businesses that have common control or shared employees. It is important to identify the payroll tax group to correctly disclose Group Australian Wages and to correctly nominate the Designated Group Employer (DGE). A failure to correctly nominate a DGE often leads to multiple entities within the group claiming the payroll tax threshold and, subsequently, underpaying their payroll tax liability. 

Revenue NSW has also published certain industry specific guidance (including for building/construction, cleaning, direct selling, gig economy, IT, medical services, mining industry, real estate and security) which may be of interest to certain employers. 

In recent years, the States have introduced additional payroll tax surcharges for large employers beyond the standard payroll tax rate. Victoria was the first to start the trend in 2022, with QLD and the ACT following suit in 2023 and 2025 respectively. This makes it crucial to accurately determine payroll tax obligations for both compliance and budgeting purposes, as what was typically around a 5.5% average tax rate now includes additional surcharges of up to 2%. 

Additionally, this year, Victoria has introduced a diminishing threshold akin to that of Western Australia and QLD. For the 2025 payroll tax year, Victorian employers with Australian taxable wages exceeding $5 million will lose eligibility for any payroll tax deductions. These changes are anticipated to increase payroll tax liabilities for larger employers. 

As part of the 2025 payroll tax lodgment process, Revenue NSW has announced the following key reporting changes: 

• Contractor engagement and exclusions: Businesses will need to disclose their use of contractors; the specific exemptions applied to the payments made and the exempt amount of contractor payments made.
• Employment agency provisions: The new return process will include questions regarding employment agency arrangements, which will allow Revenue NSW to ascertain compliance by those taxpayers who are regarded as an ‘employment agent’ (and noting the continuously expanded interpretation of that definition by the courts). Additionally, for an ‘employment agent’, if there are non-taxable payments, employers must confirm the reasoning for the same (e.g. due to the position of the agent in a chain of on-hire arrangement) and the amount of non-taxable labour hire payments. 
• Bulk billing support initiative: To the extent you are entitled to a rebate of payroll tax for contractor payments made to general practitioners, you must disclose whether the general practitioner services were provided to Department of Veteran Affairs patients and if services were provided in a regional area, metropolitan area or both.

Employers are now required to provide detailed information regarding ‘excluded’ items in the self-assessment of taxable wages. We believe this signals an effort by Revenue NSW to establish a system that promotes data-driven compliance, enabling them to conduct targeted investigations and inquiries more effectively. 

These changes will likely increase the time taken to prepare the payroll tax return for the preparer, as they will need to more precisely assess and calculate exempt contractor and employment agency amount. In light of these developments, it is increasingly clear that employers need to implement strong processes and controls to ensure accurate assessment of payroll tax payments for compliance purposes, particularly for payments made outside of payroll. Additionally, employers should maintain appropriate substantiation where necessary to support their payroll tax assessments. 

If you encounter any uncertainties or have any further questions about Payroll Tax or employment taxes more generally, including particular technical developments occurring throughout the year, please do not hesitate to reach out to your PwC representative.