Payroll tax contractor provisions: do you owe tax on your contractors?

Plenty of owners pay their sparkies, cleaners, drivers and designers on an ABN invoice and assume payroll tax is only about staff on the books. It isn’t. State revenue offices can treat contractor payments as wages, and the bill arrives years later, as a lump sum with interest.

Here’s how the contractor provisions work, how the main exemptions compare in New South Wales, Victoria and Queensland, and what a June 2026 court ruling changed for businesses that subcontract regular work.

Are payments to contractors subject to payroll tax?

Usually, unless an exemption applies. The states harmonised the basics years ago, so the broad scheme is the same wherever you trade:

1. Is the person really an employee? If so, the payments are wages. The label on the contract doesn’t decide it.
2. Is it a “relevant contract”? Broadly, a contract under which someone supplies services to you. SRO Victoria says most contracts qualify. The Queensland Revenue Office (QRO) says service arrangements are “almost always” relevant contracts, and that they’re taxable unless an exemption applies.
3. Does an exemption apply? You need only one, and it’s tested for each contractor and each financial year.

If a contract is relevant and no exemption fits, the parties are treated as employer and employee, and what you pay becomes wages. Those wages are added to your Australian total and tested against your state’s threshold. That’s why contractors matter most for businesses sitting near the line. Our payroll tax thresholds comparison shows where each state’s line is.

Which contractor exemptions can you actually use?

The wording differs by state, but the logic is similar. This table pulls the common ones together. Always check the current rules for your state, because the detail matters.

Exemption	The gist	Where it trips people up
90 days or less	The contractor does the same or similar work for you for no more than 90 days in the financial year	Any part of a day counts as a full day. On day 91, the whole year becomes taxable
Under 180 days	Your business needs that type of service for fewer than 180 days in the year, counting employees and contractors together	If your own staff already do the job most of the year, you won’t qualify
Engages others	The contractor uses other people to do the work, and the work needs two or more people	A solo operator with no help doesn’t qualify
Materials and equipment	The main purpose is supplying goods; labour is incidental	QRO and SRO Victoria both point to materials or equipment above 50% of the contract amount, with evidence
General public	The contractor ordinarily serves the public, and you don’t normally need the service for your ongoing business	In Queensland, the contractor must also earn under 40% of gross trading income from you
Owner-drivers	The contractor carries goods in their own vehicle	Carriage tied to installation or repairs is excluded

Both the 90-day and 180-day exemptions are mirrored by revenue office rulings, so it’s worth reading the ruling for your state before relying on them. Revenue NSW’s guidance on the 90-day test says the same thing as Queensland’s: once the limit is passed, total payments for the year, including those for the first 90 days, are taxable.

Queensland adds a practical shortcut. The Commissioner can approve the “similar services to the public” exemption, and a contractor who works for two or more principals in the year, averaging 10 days or fewer a month, can be exempt without applying. Don’t assume the same shortcut applies in other states; check your revenue office’s ruling.

Illustrative example (Toowoomba): a small electrical business in Toowoomba uses a self-employed sparky for 60 days over the year, mostly on weekends and peak weeks. The 90-day exemption covers him. Then a big job comes in and he works another 45 days. At day 106 the business has passed the line, so every dollar paid to him that year, including the first 60 days, can count as taxable wages, unless another exemption fits.

Is there a difference between contractors and labour hire?

Yes, and it’s where the biggest recent shift has come from. Separate “employment agency” rules apply when a person procures workers for a client’s business, or supplies services that are performed in and for the client’s business. Revenue NSW says that when those rules apply, the contractor provisions and their exemptions don’t.

In June 2026 the NSW Court of Appeal handed down SKG Cleaning Services v Chief Commissioner of State Revenue [2026] NSWCA 122. The cleaning businesses subcontracted work for commercial and government clients, and the Chief Commissioner assessed payroll tax on what they paid the subcontractors. The court unanimously upheld that. On 8 October 2026 the High Court refused special leave to appeal, so it’s the law in NSW now.

According to Bartier Perry’s summary, the key points are:

• Control over how the work is done is one factor, not the deciding test.
• The question is whether the services are supplied “in and for” the client’s business, meaning how they connect to its ordinary activities.
• The contracts were caught because the work was regular and ongoing, tied to daily operations, and something employees could reasonably be expected to do if it weren’t outsourced.

The court didn’t say that every subcontract is caught. But if you outsource cleaning, security, maintenance, facilities or similar regular work and take a hands-off approach, “I don’t supervise them” is no longer a safe defence in NSW. Other states have their own employment agency provisions, so Victorian and Queensland businesses in those industries should check their position too.

How do the states compare for a typical small business?

	NSW	Victoria	Queensland
Threshold you’re testing against	$1.2m a year	$1m a year	$1.3m a year
Contractor payments counted as wages?	Yes, unless an exemption applies	Yes, unless an exemption applies	Yes, unless an exemption applies
Day-count exemptions	90 days and 180 days	90 days and 180 days	90 days and 180 days
Helpful extra	Employment agency test widened in 2026	Owner-drivers: Fair Work Commission road transport order from 21 April 2026 doesn’t affect the owner-driver exemption if the revenue ruling’s requirements are met	Exemption without applying for contractors serving two or more principals at 10 days a month or less
Regional angle	None	Regional employers can use a much lower rate	1% regional discount to 30 June 2030

The thresholds are from our state map data and the figures on each state’s page, and the rest is from the revenue offices linked below. If you operate in several states, wages are added together and each state takes its share. Our NSW payroll tax guide and the regional discount guide cover the local detail.

What should you do before a revenue office asks?

Most contractor assessments start with an audit, and wrongly claimed exemptions are a common trigger. A tidy-up now costs far less than a back assessment. A sensible sequence:

1. List every contractor paid in the last few years. Include trusts, companies and sole traders. Revenue offices don’t care how the contractor is structured.
2. Count days for each. Use diary entries, invoices and timesheets. Remember that a part day is a full day.
3. Write down the exemption you’re relying on. If you can’t name one for a contractor, assume the payments are taxable until you’ve checked.
4. Separate labour from materials on invoices. The goods exemption needs evidence of the split.
5. Check agency risk. Regular, ongoing work that’s part of your ordinary operations, and that you’d otherwise hire staff for, is the red flag.
6. Check your registration. If contractor payments push your total over the line, you may need to register. The registration checklist covers the timing, and the payroll tax checker gives a quick read.
7. Think about grouping. Contractors can be a related business of yours. See our guide to grouped payroll tax.

Where you find an error, disclosing it before an audit usually goes better than waiting. Revenue offices can reduce penalty tax for voluntary disclosure, but interest still runs. Ask your accountant to talk to the revenue office on your behalf.

If you’ve found a gap and the cash isn’t sitting there, see what your business could qualify for. Enquiring doesn’t touch your credit file.

How do owners fund a payroll tax assessment on contractors?

These assessments tend to land on businesses that are busy and growing, which is when cash is tied up in wages, stock and receivables. Owners commonly use:

• Unsecured or line-of-credit finance, typically $5,000 to $500,000, sized on turnover and bank statements. It suits a moderate assessment, or carrying the extra monthly cost while you adjust pricing.
• Property-secured business loans from $20,000 to $5,000,000 against residential or commercial property, which can spread a large multi-year assessment over a longer term.
• A payment arrangement with the revenue office, plus finance for the gap, where you clear the arrears and keep the ongoing cost in the monthly budget.

Overdue payroll tax and past credit issues are looked at case by case.

Found a contractor problem? Let’s work out where you stand

Finding out that your contractors may be taxable isn’t a failure. It’s what happens when a business grows faster than its paperwork, and it’s far better to find it yourself than to wait for the audit letter.

If you’re facing a bill or just want to be ready for one, the first step takes about 60 seconds. There’s no credit check when you enquire, so asking won’t mark your credit file. We don’t send your details to a pile of lenders, so your phone stays quiet. A real person who understands how payroll tax works in your state looks at your situation and calls you. Please fill the form in accurately, including the size of the assessment and what security you hold, so we can match the right option first time.

See if you qualify →