• New Wave Accountants

Learning About the Hidden Risks Found in Payroll Tax

Enterprises that handle payroll on their own, particularly small businesses, are at a significantly higher risk of being harmed by fraud and human error. Each year, small and medium-sized enterprises across the country incur a payroll penalty. Whether you’re a major corporation or a small business, payroll errors can result in fines, penalties, and even legal action.

In the following paragraphs, find out more about some of the crucial hidden risks in the payroll tax.

The Dilemma of Interstate Employees

Knowing when their total salaries exceed the level that requires them to register for payroll tax in the states or territories where a portion of their employees are in is a common trap for expanding firms and those with employees who work interstate.

State revenue offices, like the Australian Taxation Office (ATO), are increasingly using data-matching from a number of sources to assess compliance with the rules, and payroll tax enquiries are on the rise. The system is not always easy to deal with, and it’s even more challenging for interstate employees because each state and territory has a separate payroll tax threshold and charges varying rates.

The Problems with Tax-Free Threshold

Another major risk for a developing company is being registered for payroll tax in their home state but employing one or two interstate workers. The risk of this happening has increased in recent years as a result of the Covid-driven explosion in remote-working.

This is triggered by the realisation that many employees can work from anywhere and that technology makes it easier to work across state and international borders. This new development can have a significant influence on employers’ payroll tax requirements.

Businesses with employees who work in another state or territory must declare their taxable Australian earnings in each state, calculating the applicable tax-free threshold and then allocating the excess over the threshold to each state.

As a result, they will need to register and begin paying tax on wages earned in the second state, and the amount of payroll tax payable in the home state will grow.

The Complications in Grouping of Related Entities

The highly broad grouping regulations, which can apply to organisations within the same state as well as related entities in different states, are a classic payroll tax trap. Only one member will normally claim the tax-free threshold when entities are grouped in the same state, while all other members will be taxed at the appropriate flat rate on all of their wages for the period.

The thresholds are distributed according to the total annual Australian taxable wages when entities are grouped in various states. There are a variety of grouping rules that can be used, such as when one entity controls another or when both are governed by a third entity.

Direct holdings can establish controlling interests, or indirect holdings can be established by tracing through intermediaries. This is where some unexpected outcomes may arise, especially where trusts are used in the structure.

The Importance of Cash Flow Forecasts and Budgets

One of the most critical aspects in determining whether a corporation succeeds or fails is cash flow. Cash is the oxygen that all small businesses require to stay afloat. This service ensures that you are successfully managing your cash flow to increase your prospects of long-term success.

Unfortunately, most business owners are preoccupied with sales and revenue, overlooking the significance of cash in the bank. It forces business owners to proceed by guesswork without appropriate cash flow planning and forecasting. In their business, they are always ducking and weaving cash speed bumps.


Businesses and their payroll unit should always be on the lookout for these hidden risks. One of the ideal solutions to mitigate the problem in the payroll tax is automation. By automating your payroll operations, you can save hours each week and reduce your risk of noncompliance.

If you need a tax accountant in the Gold Coast, you can trust New Wave Accounting to assist you. We can help with end-to-end accounting and bookkeeping services that will help grow your business. Book a consultation with us today.

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