Taxation & your employees

Ensuring that your tax and superannuation obligations are being met may not be the most glamorous task for business owners, but as it is a common cause of business failure, it is essential that you comply.

If your business has employees or contractors, then you'll need to understand your tax and superannuation obligations. You can find out more on your employer requirements on our superannuation page.

To ensure the needs of your workers are being met, consider the following:

Determine the status of workers

The status of your workers for tax purposes is important, as employees and contract workers involve different obligations.

An employee is a worker you employ in your business - you generally have to withhold tax from payments you make to them.

A contract worker is a worker who is self-employed and has a contract with you to provide services. You don't have to withhold tax from payments to them, unless you enter into a voluntary agreement with them. Visit our Independent contractors topic.

Pay As You Go (PAYG) withholding

Pay As You Go (PAYG) withholding is a legal requirement to withhold amounts for income tax purposes.

If you have employees, you're required to withhold tax from payments you make to them. You may have to withhold tax from payments to other workers, such as contract workers. As a new employer, you must register with the Australian Taxation Office (ATO) before you withhold from payments to your employees.

You may also need to withhold an amount from payments to other businesses if they don't quote their ABN to you on an invoice or other document if required. You must send all withheld amounts to the ATO.

Payroll tax

Payroll tax is a state tax on the wages paid by employers. It is calculated on the amount of wages you pay per month. You must pay payroll tax if your total Australian wages exceed the exemption threshold that applies in your state or territory - exemption thresholds vary between states.

You must register for payroll tax in your state or territory. Check with the Revenue Office in your state or territory for the payroll tax rate and threshold that applies to you.

Fringe Tax Benefits for employees

Fringe benefits are an important part of business and can be a useful way of attracting quality staff. When providing fringe benefits, you need to be aware of taxation obligations.

FBT is a tax payable by employers for benefits paid to an employee, or an employee's associate, in place of salary or wages. For example, an employee may receive fringe benefits in the form of:

  • a car
  • car parking
  • low interest loans
  • payment of private expenses.

If you provide fringe benefits to your employees, the Australian Taxation Office (ATO) recommends that you register for FBT.

What to do...

  • Visit the Inspector-General of Taxation’s Making a complaint page to learn how to make a complaint about tax decisions.

Visit the ATO website to:

To register for PAYG withholding:

  • use the same form that the you use when you apply for an ABN
  • phone 13 28 66 (you will need to have your ABN or tax file number to register over the phone)
  • order the Add a new business account form to complete.

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