The Threshold Trap No One Warns You About
There is a tax that does not show up when you start.
It doesn’t hit you in year one.
It doesn’t sit in your accounting software flashing red.
It creeps.
Quietly.
And then one month your accountant says,
“By the way… you’ve crossed the threshold.”
Payroll tax.
And I want to talk about this properly.
Because I have seen disability providers build strong teams, grow from 5 staff to 25 staff, move from $800,000 in payroll to $1.4 million dollars, and then suddenly realise their entire margin model just shifted.
Not because wages increased.
Not because superannuation changed.
But because they crossed a state payroll tax threshold they were not actively tracking.
Payroll tax in Australia is not federal. It is state and territory based.
That means different thresholds. Different rates. Different taper rules. Different grouping provisions.
And in some states, it looks like you have breathing room.
Until you realise that breathing room narrows as you grow.
This is not about fear.
This is about leadership.
Because at some point you need to decide intentionally:
Are we building beyond the threshold?
Or are we strategically staying under it?
Drifting into payroll tax accidentally is where the real damage happens.
Payroll tax is a state tax on wages.
Once your total Australian wages exceed your state’s threshold, you begin paying payroll tax on the taxable wages above that threshold.
That sounds simple.
The complication sits underneath.
First, it is based on Australian wages, not just wages in one state in many cases.
Second, grouping rules apply.
If you own multiple entities, if your spouse owns a related entity, if businesses are connected or share control, wages can be aggregated.
That is where providers get caught.
They assume each company has its own threshold.
Not always.
Grouping rules are complex and vary slightly by state, but the principle is consistent.
Connected businesses can be treated as one employer for payroll tax purposes.
If you are growing and structuring multiple entities, this must be modelled properly.
State by State Payroll Tax Thresholds 2025–26
Let’s walk through the headline thresholds and rates as at early 2026.
These numbers shift over time, so always confirm with your state revenue office.
New South Wales
Threshold is $1.2 million dollars.
Rate is 5.45%.
Once your Australian wages exceed $1.2 million, payroll tax applies to wages above that threshold.
There is no generous taper. Once you are over, you are in.
Victoria
Threshold is $1 million dollars from 1 July 2025.
General rate is 4.85%.
Victoria uses a phase out model.
If your Australian wages are between $3 million and $5 million dollars, your threshold progressively reduces. Above $5 million, there is no threshold at all.
The phase out rate from financial year 2025–26 is 50%.
Growth reduces your benefit.
It is not simply under or over. It tapers.
Queensland
Threshold concept sits around $1.3 million dollars.
Rates are 4.75% up to $6.5 million and 4.95% above that.
Queensland operates via a deduction scheme. Between $1.3 million and $10.4 million in payroll, the $1.3 million deduction reduces by $1 for every $7 over the base.
Above $10.4 million, no deduction remains.
There is also a mental health levy for large employers above $10 million and $100 million.
The deduction shrinkage is where providers underestimate their exposure.
South Australia
Threshold is $1.5 million dollars.
Top rate is 4.95%.
There is a graduated scale between $1.5 and $1.7 million.
Below $1.5 million, no payroll tax.
Above $1.7 million, full rate.
Western Australia
Threshold is $1 million dollars.
Rate is 5.5%.
WA applies a diminishing threshold. Between $1 million and $7.5 million, the threshold reduces under a taper formula. Above $7.5 million, there is no deductible amount.
Tasmania
0% up to $1.5 million.
4% between $1.25 and $2 million.
6.1% above $2 million.
Tasmania also allows employers to elect not to claim the threshold and instead pay 6.1% on all wages.
ACT
Threshold is $2 million dollars.
Rate is 6.85% generally.
From 1 July 2026, the ACT will reduce its threshold to $1.75 million.
For employers above $150 million in Australian wages, a higher rate of 8.75% applies.
Even if you are safe today, settings can change.
Northern Territory
Threshold is $2.5 million dollars.
Rate is 5.5%.
The NT uses a deductible amount that reduces $1 for every $2 above the threshold, with no deduction at $7.5 million.
Imagine you are in New South Wales.
You cross $1.2 million dollars in wages.
You now pay 5.45% on wages above that threshold.
If your payroll reaches $1.5 million, you are three hundred thousand dollars over the threshold.
5.45% of that is sixteen thousand three hundred and fifty dollars.
That might feel manageable.
Now imagine your payroll reaches $3 million dollars.
You are $1.8 million above threshold.
5.45% of that is $98,100.
That is close to a full senior salary.
For disability providers operating on tight margins, that is not small.
And this is where the threshold trap sits.
Payroll tax does not feel heavy at first.
It becomes heavy as you scale.
Disability services are labour heavy.
If you operate Supported Independent Living, community access, allied health, or behaviour support, wages are your largest cost line.
Growth means staff.
Staff means wages.
Wages mean thresholds.
Many providers focus on revenue targets and participant numbers.
They do not actively model payroll growth against payroll tax thresholds.
So growth feels positive.
Until it quietly compresses margin.
And payroll tax is not progressive like income tax.
Once you are liable, it applies to taxable wages above the threshold every month.
It is predictable.
But only if you are tracking it.
There are really two choices.
Choice one is to deliberately scale beyond the threshold and build enough margin to absorb payroll tax as a normal operating cost.
Choice two is to intentionally design your business model to sit under the threshold strategically.
What is dangerous is drifting past the threshold accidentally.
Because at that point, you are absorbing a cost you did not model.
Splitting entities often does not solve it because grouping rules can apply.
This is not something to guess at.
It is something to model deliberately.
This is a simple but powerful exercise.
Calculate your projected annual Australian wages for the next twelve months.
Check your state’s threshold and rate.
Model what happens with:
10% staff growth.
20% staff growth.
One new SIL house.
Two additional allied health hires.
Look at the payroll tax impact in dollars, not percentages.
Then decide intentionally.
Are we building through the threshold?
Or are we holding under it strategically for now?
This decision should align with your long term vision, not surprise you halfway through a financial year.
Payroll tax frustrates providers because it feels like a growth penalty.
You hire more staff to serve more participants, and the state takes a percentage.
But ignoring it does not change it.
Leadership means knowing your fully loaded cost per hour.
Wages.
Superannuation.
Workers compensation.
Portable long service leave.
Payroll tax.
When you understand your numbers properly, growth feels controlled rather than shocking.
Disability businesses are built on heart.
But they survive on structure.
And providers who understand their cost base stay steady when others feel blindsided.
Payroll tax is not a surprise.
It is a threshold.
And strong leaders choose how they cross it.