A Sydney SaaS startup — 34 people across NSW and Victoria, Series A closed in late 2025 — takes an email on a Tuesday from Revenue NSW. Subject line: Payroll Tax Registration — Compliance Review. The founder-CEO opens the spreadsheet the finance manager sends across: NSW wages of $780,000 for the 2025-26 financial year, Victorian wages of $610,000, contractor payments of $340,000 to a Melbourne design agency that supplies two full-time-equivalent staff. The CFO’s summary line reads “under NSW threshold ($1.2M), under VIC threshold ($1M), no registration required.” The Revenue NSW notice reads the fact pattern the other way: Australian wages of $1.73 million, contractor payments deemed wages under the relevant contract provisions, the founder’s family trust that owns 62% of the startup is also the sole unitholder in a separate hospitality entity whose wages roll into the same group, and both the NSW and Victorian thresholds are apportioned across group Australia-wide wages — not claimed twice. The registration was due from the month the group first crossed threshold; the assessment covers back-registration, primary tax, penalty tax and unpaid tax interest.
That fact pattern is the ordinary shape of the payroll tax surprise for a growing Australian startup. Founders track PAYG withholding, superannuation guarantee and Single Touch Payroll because those obligations announce themselves at the first hire. Payroll tax announces itself only after the group crosses a threshold that most founders assume is state-by-state generous — and only after the grouping provisions have quietly folded together entities the founder never treated as a single business. Here is how the regime actually works in 2026.
The State-by-State Numbers
Payroll tax is a state and territory tax. Each of the eight jurisdictions runs its own Payroll Tax Act — the 2007 harmonised model in NSW, Victoria, Tasmania, ACT and Northern Territory; separate but broadly aligned statutes in Queensland, South Australia and Western Australia. Thresholds and rates are set locally, but the taxable wages base and the grouping provisions are substantially harmonised across every jurisdiction other than WA on contractors.
The 2026-27 headline figures:
- NSW — 5.45% above an annual threshold of $1,200,000. No mental health surcharge.
- Victoria — 4.85% above an annual threshold of $1,000,000, phased out for national wages between $3 million and $5 million (threshold reduces by $1 for every $2 of wages above $3 million; zero threshold above $5 million). Mental Health and Wellbeing Levy adds 0.5% on wages above $10 million and 1.0% on wages above $100 million.
- Queensland — 4.75% for group Australian wages up to $6.5 million, stepping to 4.95% above; annual threshold $1,300,000, with a further $1 million regional employer discount for qualifying regional Queensland businesses. Mental Health Levy adds 0.25% above $10 million and 0.75% above $100 million of Australian taxable wages.
- Western Australia — 5.5% above an annual threshold of $1,000,000, with a diminishing threshold above $100 million and separate contractor rules that do not fully mirror the harmonised model.
- South Australia — variable rate up to 4.95% above an annual threshold of $1,500,000, with a full exemption up to $1.5 million and a taper across $1.5 million to $1.7 million.
- Tasmania — 4.0% between $1,250,000 and $2,000,000, and 6.1% above $2,000,000.
- ACT — 6.85% above an annual threshold of $2,000,000 — the highest headline rate in Australia.
- Northern Territory — 5.5% above an annual threshold of $2,500,000, with the threshold phasing out on the Payroll changes from 1 July 2026 schedule announced by the NT Treasury.
Interstate wages are not separately taxed on their own thresholds. Under the harmonised interstate wages provisions — section 9A of the Payroll Tax Act 2007 in the harmonised jurisdictions — each state’s threshold is apportioned to the entity’s local wages as a fraction of the entity’s total Australian wages. A startup with $800,000 in NSW wages and $700,000 in Victorian wages does not get a $1.2 million NSW deduction and a $1 million Victorian deduction; it gets each threshold multiplied by the ratio of local wages to national wages, and pays tax in each state on the excess.
The Grouping Provisions — Where Founders Most Reliably Get Caught
Part 5 of the Payroll Tax Act 2007 (and its analogues in QLD, SA and WA) folds related businesses into a single group. One threshold is then apportioned across the whole group’s Australia-wide wages. The three grouping triggers matter to different founder fact patterns:
- Section 71 — Shared or inter-used employees. Two businesses that share, inter-use or supply employees to each other are grouped. The classic startup pattern that trips this is the services company — a founder incorporates Startco Services Pty Ltd to employ engineers, then invoices Startco Operations Pty Ltd for their time. Both entities are grouped from day one, regardless of ownership. The same result follows where a founder’s personal services company on-hires the founder’s time to the operating startup.
- Section 72 — Common control. Two businesses under the controlling interest of the same person or set of persons are grouped. The threshold is more than 50% — voting shares, voting rights at director meetings, partnership capital or profits, or beneficial interest in the trust. A founder who owns 60% of the startup and 55% of a side project is a grouped employer even if the side project is unrelated and never shares staff. Discretionary trusts are the trap. Every beneficiary — named, class member, or default beneficiary — is deemed under section 72 to have a controlling interest in the trust regardless of actual distributions. A founder listed as a named beneficiary in a parent’s family discretionary trust that owns an unrelated hospitality business will find that business grouped with the startup on the shared beneficiary deeming rule.
- Section 74 — Grouping through a third entity. If Entity A is grouped with Entity B, and Entity B is grouped with Entity C, all three are one group. Common in founder portfolios where a holding company sits between two apparently unrelated operating businesses.
Once a group exists, the Chief Commissioner may exclude a member from the group on application under section 79 — the de-grouping discretion — where the businesses are carried on independently and are not connected with any other member. The threshold for exclusion is high, the application is document-intensive, and it must be renewed. It is not a solution founders should assume will be granted.
The Contractor Trap
Payments to contractors are treated as wages under the relevant contract provisions — Division 7 of Part 3 of the Payroll Tax Act 2007. A relevant contract is any contract under which a person supplies the services of workers to another party for a fee. Seven statutory exemptions apply — services provided for fewer than 90 days in a financial year, services genuinely provided to the public generally, contractors engaging their own workers, and narrower categories. If none of the exemptions applies, the contractor’s fee (net of GST and any non-labour component) is deemed wages of the paying entity. Founders who move headcount off-payroll onto contractor arrangements to defer payroll tax typically discover that the deeming provisions capture the payments anyway — with the added exposure that the anti-avoidance provisions in Part 10 do not require intent to apply.
What Founders Should Do Now
The compliance discipline is discrete. First, map the group before it matters — every entity the founders control, every trust they benefit under, every services and holding company, and every jurisdiction in which wages are paid. Second, track group Australia-wide wages monthly, not annually, against the lowest threshold that any group member sits in. Third, appoint a Designated Group Employer in each state where the group has liability — the DGE claims the apportioned threshold and lodges on behalf of the group. Fourth, audit the contractor stack — every recurring contractor invoice against the seven statutory exemptions, and price the deemed-wages exposure into the engagement decision. Fifth, register early — voluntary registration on approach to threshold is materially cheaper than a Revenue NSW back-assessment with penalty tax and unpaid tax interest.
The Bottom Line
Payroll tax is the one tax obligation a growing startup can trip on without noticing. The thresholds look generous state-by-state, and the harmonised interstate wages apportionment and grouping provisions quietly compress them. The section 71, 72 and 74 grouping triggers fold together entities founders do not treat as a single business — services companies, family discretionary trusts, sister startups under common control — and the contractor deeming provisions add wages the founder never issued a payslip for. Founders who map the group and track wages monthly against the lowest applicable threshold get to the Series B without a compliance review letter. Founders who don’t discover the regime the way the Sydney SaaS founder did — on a Tuesday, retrospectively, at penalty tax rates.
Viridian Lawyers advises Australian startups on payroll tax grouping, contractor classification, interstate wage apportionment and Revenue NSW compliance reviews. If your startup is approaching a payroll tax threshold, restructuring across multiple entities, or responding to a state revenue office assessment, get in touch.
