Aussie SMEs desperate for payroll tax reform, relief

The Council of Small Business Organisations Australia (COSBOA) shared that it would continue to ensure small businesses remained viable, competitive and confident to invest, which could be achieved by overhauling payroll tax and reducing the small business company tax rate.

Matthew Addison, COSBOA chair, said the body was advocating for a reduction of the small business company from 25 per cent to 20 per cent for businesses earning under $20 million.

Addison also noted payroll tax remained, and would continue to do so, a significant concern for small businesses, as a COSBOA survey highlighted 89 per cent of respondents believed payroll tax should be overhauled due to its impact on jobs and growth.

“While payroll tax is administered by the states, the federal government has an important leadership role to play,” he said.

“A nationally coordinated approach to harmonising payroll tax regimes, including thresholds, rates and reporting requirements, would reduce complexity, remove barriers to expansion and support employment growth across jurisdictions.”

The Australian Restaurant & Cafe Association (ARCA) also took the opportunity to oppose the current payroll tax regime, dubbing it a “hidden tax” on super contributions for small restaurants and cafes.

ARCA said working holiday makers (WHMs, international students and temporary migrants were an essential and longstanding labour source for Australia’s restaurant and cafe sector, yet the current income tax and super tax settings for temporary visa holders created additional labour costs, workforce uncertainty and administrative burden for small hospitality businesses already operating on thin margins under three per cent.  

In terms of the “hidden payroll tax”, ARCA said this referred to superannuation contributions tax as employers paid 12 per cent superannuation for WHMs, international students and temporary migrants, but contributions were immediately taxed at 15 per cent.

“This means that small hospitality businesses pay thousands of dollars each year in superannuation that the worker may never meaningfully benefit from,” ARCA said.

Additionally, it was noted that when temporary visa holders left Australia, WHMs faced a 65 per cent exit tax and most other temporary visa holders faced a 35 per cent exit tax.

“The combined effect is a double taxation system consisting of a 15 per cent contributions tax at entry, up to 65 per cent tax at withdrawal, and up to 80 per cent tax in many cases in a six-to-24-month period.”

“For many visa holders, the majority of their superannuation is lost, while small restaurants and cafes bear the full cost of superannuation contributions. This is effectively a payroll tax imposed on small hospitality businesses, with no productivity return, no labour-market benefit, and no retention impact.”

To tackle this, the submission proposed introducing a single, simplified income tax rate for WHMs and international students working in shortage sectors, reforming superannuation entry and exit taxation for temporary visa holders, and introducing an 80 per cent superannuation tax reinvestment rebate for small hospitality businesses, if the Tax Act and ATO policy could not be altered.

“The hospitality sector is central to Australia’s economic, cultural, and tourism success, but its recovery and future competitiveness require targeted, Treasury-aligned reforms,” ARCA said.

“By improving migration cost fairness, simplifying taxation for key worker cohorts, reviewing superannuation tax impacts, and accelerating AI-led productivity, the 2026/27 budget can deliver growth, jobs and long-term economic resilience.”