Wages exempt from payroll tax

Payroll tax is a tax on wages. Depending on the circumstances, wages can be taxable or exempt.

Exempt wages

1. Primary and secondary caregiver leave

An exemption applies to employer-paid primary and secondary caregiver leave payments. If your employee takes paid leave, as a primary or secondary caregiver, for the birth or adoption of a child, those wages may be exempt from payroll tax for a maximum of 14 weeks (or an equivalent period of leave at a reduced rate of pay, such as 28 weeks at half pay).

The exemption does not apply to other types of leave taken (i.e. annual, sick, recreational) while an employee is absent due to pregnancy or caring for a child.

The Commonwealth Government paid parental leave scheme payments are not wages for payroll tax purposes. This is because these are Commonwealth Government payments rather than payments by employers to their employees.

2. Contributions to redundancy benefit schemes and portable long service leave funds

Employers’ contributions to a portable long service leave scheme are exempt if those contributions are not taxed as fringe benefits.

The same exemption applies to contributions made by an employer to a redundancy or severance scheme (retrospective to 1 July 2006).

3. Defence Force personnel

Wages paid to a person while on military leave as a member of Australia’s defence forces or the armed forces of any part of the Commonwealth are exempt.

4. Community development employment project

An Aboriginal or Torres Strait Islander person’s wages are exempt from payroll tax if:

• they are employed under a community development employment project
• the job is funded by the Commonwealth Department of Jobs and Small Business or the Torres Strait Regional Authority.

5. Volunteer firefighters and other emergencies

Wages paid or payable to employees absent from work to volunteer as firefighters or respond to other emergencies are exempt. This includes volunteers with:

• the Country Fire Authority
• the State Emergency Service
• St John Ambulance
• Red Cross
• the Australian Volunteer Coast Guards
• Life Saving Victoria.

The exemption does not apply if those employee is on official leave, such as annual or long service leave.

Watch a video about the payroll tax exemption for volunteer firefighters and other emergencies.

6. Genuine redundancy or early retirement scheme payments

An exemption applies for the income tax-free portion of certain redundancy payments. This includes:

• genuine redundancy payments, previously known as bona fide redundancy payments
• early retirement scheme payments, previously known as approved early retirement scheme payments.

For more details, see Revenue Ruling PTA-004.

7. Workers compensation

Payments made under an approved WorkCover claim are exempt, including the first 10 days paid by the employer.

Extra payments (make-up pay) to top up a worker’s usual wage are not exempt.

Watch a video about workers compensation and payroll tax.

8. TAC payments

Transport Accident Commission payments for lost earnings due to a transport accident are exempt when paid through an employer.

These are compensation payments under the Transport Accident Act 1986.

9. Re-employed apprentices or trainees

Wages are exempt from payroll tax if an apprentice or trainee is hired again by a new employer and continues with the same approved training.

The exemption doesn’t apply if the same employer rehires them or if both employers are in the same payroll tax group.

10. Allowances

Most allowances are taxable. Some may be fully or partially exempt including:

• Motor vehicle allowance up to a set amount. Anything above the set amount is taxable. The limit is based on the ATO’s cents-per-kilometre rate from the previous financial year (e.g. use the 2023–24 rate for 2024–25). See the table below for the allowance amounts.
• Accommodation allowances up to a set amount. Anything above the set amount is taxable. See the table below for the allowance amounts.
• Living-away-from-home allowances are fringe benefits. If it doesn’t qualify as a fringe benefit, it is treated like an accommodation allowance.

Some expense payments (like car expenses paid per kilometre) are not wages for payroll tax. This applies even if they also count as wages under other parts of the law.

See Revenue Ruling PTA-005v3 for more detail on allowances.

11. Reimbursement

A reimbursement is exempt if it is not subject to fringe benefits tax, and:

• the expense has already been incurred by the employee
• the expenditure by the employee was for the employer’s business
• the exact amount is reimbursed.

If a reimbursement is subject to fringe benefits tax, it is also subject to payroll tax.

A-Z of taxable and exempt items

If you are unsure whether a wage item is taxable or exempt, check this list.