Payroll Tax for Residential Builders in NSW

What it is

Payroll tax in New South Wales is a state tax on wages paid by an employer to its workers. It is administered by Revenue NSW under the Payroll Tax Act 2007 (NSW). Once a residential builder pays Australia-wide wages above the threshold, the builder must register, lodge monthly returns and pay the tax.

The Payroll Tax Act 2007 is harmonised across most states, which keeps the core concepts consistent across NSW and Victoria, Tasmania and the ACT, although thresholds, rates and a handful of rules differ.

Threshold and rate

For the 2025-26 financial year the NSW threshold is 1.2 million dollars in Australian taxable wages with a payroll tax rate of 5.45 per cent. The threshold is the annual tax-free amount. If wages exceed the threshold, tax is paid on the excess.

A builder that pays wages only in NSW gets the full threshold. A builder paying wages in NSW and other states must apportion the threshold based on the proportion of wages paid in NSW relative to total Australian wages. This is the federal-state share known as the Schedule 1 calculation.

Monthly returns are lodged through Revenue NSW Payroll Tax Online by the seventh day of the following month. The annual reconciliation is due 28 July.

What counts as wages

Taxable wages include far more than salary. The base includes:

• Gross wages, salaries and overtime
• Commissions and bonuses
• Allowances paid in cash to employees
• Superannuation contributions including SG and salary sacrifice
• Fringe benefits grossed up at the Type 2 rate
• Termination payments excluding the tax-free portion of genuine redundancy
• Director fees and shareholder salaries
• Contractor payments deemed to be wages under the relevant contract provisions

The most surprising line for residential builders is contractor payments. A builder that engages subcontractors will often have a significant payroll tax base sitting outside its payroll software.

Contractor deeming rules

Division 7 of the Payroll Tax Act 2007 (NSW) contains the relevant contract provisions. A relevant contract is broadly any contract under which a person supplies services. Payments under a relevant contract are deemed wages unless one of nine exemptions applies. The most commonly used exemptions are:

• Services performed by the contractor for 90 days or less in a financial year
• Services not ordinarily required by the principal and the contractor provides those services to the public generally
• Services performed by two or more workers supplied through the contractor
• Owner-driver contracts where the contractor mainly provides a vehicle
• Contracts for services not related to the conduct of the principal trade or business
• Services performed for 180 days or less by a contractor who ordinarily provides the same services to the public

If an exemption applies, the contractor payment is excluded entirely. If not, the labour component of the payment is the taxable amount. Revenue NSW publishes deemed labour percentages for common trades that can be used where the contract does not separately identify materials and labour.

Grouping

The grouping provisions catch related businesses and combine their wages for payroll tax. Common triggers in residential construction:

• Same controller of two or more businesses through directorships or shareholding above 50 per cent
• Use of common employees between businesses
• A business that is a subsidiary of another
• A controlling interest by the same person or persons

A grouped business gets only one threshold across the group, with one nominated designated group employer claiming it. The risk for residential builders is running a building company plus a separate development entity plus a property maintenance trust and only registering one. All three may be grouped.

Penalties

Failure to register attracts a market rate interest charge plus a penalty tax up to 90 per cent of the unpaid amount where deliberate avoidance is found. Revenue NSW operates an active investigations program targeting the building and construction industry, partly using TPAR data shared by the ATO.

What residential builders should do

Run a payroll tax estimate every quarter once total Australian wages climb past 1 million dollars. Include super, fringe benefits and contractor labour. Map any related entities and treat them as a group until a tax adviser confirms otherwise. Where contractor exemptions are claimed, hold the supporting evidence in the project file because Revenue NSW will ask for it on audit.