Exempt wages and payments not liable for payroll tax

Allowances paid to employees are generally liable for payroll tax.

However, you may be able to claim an exemption up to a certain amount on:

• a motor vehicle allowance, and
• an accommodation allowance.

Read the motor vehicle allowances and accommodation allowances pages for more details about how to correctly calculate the exempt and taxable components.

Wages are exempt from payroll tax for a person who is performing duties as a member of:

• the Australian Defence Force, or
• the armed forces of any part of the Commonwealth.

This exemption applies to wages paid for a specific period to an employee who is:

• taking part in bushfire fighting activities as a volunteer member of a Rural Fire Service under the Rural Fires Act 1997, or
• engaging in emergency operations as a volunteer member of an emergency services organisation under the State Emergency and Rescue Management Act 1989.

This exemption does not apply to wages that are paid as:

• annual leave
• long service leave, or
• sick leave.

The liable amount of an employment termination payment (ETP) is the amount you paid minus the income tax exempt component.

Exempt payments for an ETP include:

• a genuine superannuation lump sum paid on retirement
• an income tax-exempt component of redundancy or early payments shown as lump sum D in the PAYG payment summary, and
• a capital payment for restraint of trade – for example, a restriction on who the terminated employee can work for.

Read the termination payments page for more details.

Wages are exempt from payroll tax if they are paid to an Indigenous person employed under a Community Development Employment Project funded by the:

• Commonwealth Department of Employment and Workplace Relations of the Commonwealth, or
• Torres Strait Regional Authority.

JobKeeper payments were wage subsidies paid by the Commonwealth Government to eligible businesses and not-for-profit entities affected by the COVID-19 pandemic.

Payments were administered by the Australian Taxation Office and covered the period from 30 March 2020 to 28 March 2021.

The top-up amounts your business paid to eligible employees are exempt from payroll tax in New South Wales. See section 66D of the PTA.

Read the JobKeeper payments page for more details.

The Jobs Plus Program (JPP) was an initiative of the NSW Government to stimulate the economy and create new jobs. Applications for the JPP closed on 30 June 2022.

A payroll tax exemption is available to JPP employers that create a minimum of 30 full-time equivalent jobs by 30 June 2024.

Wages paid to new employees created in relation to an employer’s Jobs Plus Deed of Agreement are excluded from liable wages (deducted from total gross NSW wages) when reporting monthly or in the annual reconciliation.

Read more about the JPP. Contact Investment NSW if you have any questions not related to payroll tax.

If you pay wages to an employee on maternity, paternity or adoption leave, the wages are:

• exempt for 14 weeks full-time, or
• exempt if paid for an equivalent period of leave at a reduced rate of pay.

For example, if wages are paid for maternity leave for 28 weeks at half of the rate, they would be exempt from payroll tax.

This exemption does not apply to wages that are paid as:

• annual leave
• long service leave
• sick leave, or
• fringe benefits.

You must have medical records, or a statutory declaration, to verify that the exemption applies.

Need more detailed information?

Revenue Ruling PTA 012B – Exemption for maternity and adoption leave pay explains the application of the exemption for maternity and adoption leave pay and clarifies the elements of the exemption.

Note

We treat payments made by the employer under their own maternity leave provisions differently to payments made to an employee under the Commonwealth Paid Parental Leave (PPL) Scheme.

PPL provides financial support for eligible parents of a newborn or adopted child. Employees can take parental leave pay before, after, or at the same time as paid maternity leave or unpaid leave.

For more details on PPL read the payments not liable for payroll tax section.