How does payroll tax work in Victoria?
Payroll tax in Victoria works in much the same way as it does in other parts of Australia, but there are some key differences. As an employer, it's your responsibility to determine whether you're liable for payroll tax and, if you are, to pay the correct amount before the deadlines.
This guide helps you with the basics of payroll tax in Victoria, including payroll tax rates, payment deadlines and payroll tax exemptions.
What is the payroll tax threshold and rate in Victoria?
The payroll tax threshold and rate in the state of Victoria are $58,333.33 a month and 4.85%, respectively, unless you are a regional employer. So, if your Victorian wage bill is more than $700,000 a year or $58,333 a month, you need to register to pay payroll tax. From 1 July 2024, however, this threshold will be lifted to $75,000 for monthly returns or $900,000 for annual returns.
If your annual wage bill is over $10 million, you’re also liable to pay two payroll tax surcharges – mental health and a temporary COVID-19 debt surcharge – which carry a rate of 0.5% each. Employers paying over $100 million in wages are liable for 1% on each surcharge.
How is payroll tax calculated in Victoria?
Payroll tax is calculated in Victoria on the total taxable wages you pay to employees.
For example, if you pay $690,000 in a year, you're not required to pay any payroll tax as you fall under the threshold. But if you pay $710,000, you'll pay 4.85% in tax on the total amount – not just on the $10,000 over the threshold limit.
If you're worried about how much tax to pay, cloud payroll software will do the complicated payroll tax calculations for you.
When is payroll tax due and payable in Victoria?
Payroll tax is due and payable in Victoria every month. If you are registered for payroll tax, you'll need to submit your monthly wage details even if your wages that month don’t exceed the threshold.
You must pay your payroll tax by the 7th day of the following month. So, if you pay employees $60,000 in June, you'll need to pay your payroll tax by 7 July. If the 7th falls on a weekend or a public holiday, your payroll tax payment is due on the next business day.
Annual reconciliation for Victoria-based businesses
Annual reconciliation for Victoria-based businesses is due by 21 July each year. The aim is to reconcile your taxable wages for the year, finalise how much payroll tax you should've paid, and make sure you've paid the right amount.
If you're liable for payroll tax in Victoria, you must submit your electronic annual reconciliation (e-AR) through PTX Express.
What is exempt from payroll tax in Victoria?
Some wages are exempt from payroll tax in Victoria, including:
Caregiver leave (previously known as adoption and maternity leave)
Commonwealth paid parental leave
Redundancy benefits
Wages paid to employees on military leave or absent from work to provide voluntary emergency response
Early retirement payments
Wages paid to apprentices and trainees (only applicable to approved group training organisations)
Who is exempt from payroll tax in Victoria?
You’re eligible for payroll tax in Victoria if you employ staff in Victoria and your wage bill goes over the monthly threshold. However, some organisations are exempt from paying payroll tax regardless of their wage bill. These include:
Non-profit, charitable or benevolent organisations
Religious institutions
State school councils
Some non-profit, non-government schools (secondary level or below)
Healthcare service providers
Municipalities (except for wages paid in connection with business activities like supplying water or electricity)
To figure out if you're liable to pay payroll tax, use the state's online self-assessment tool or download the wages worksheet.
Employer groupings for payroll tax in Victoria
Employer groupings for payroll tax in Victoria are groups of two or more businesses treated as a single entity for payroll tax purposes.
The tax-free threshold applies to a group's total wages. So, if one employer in your group pays just $40,000 a month in wages, and the other pays $30,000 a month, you have exceeded the threshold as a group, and are liable for payroll tax.
Once grouped, your businesses are jointly liable for the payroll tax payments. This means if one of your members doesn't pay on time, the Victoria State Revenue Officer can claim payroll tax from any member.
Victoria State Revenue Office compliance activities
Victoria State Revenue Office (VSRO) compliance activities ensure that state taxes, duties, grants and levies are regulated fairly and efficiently. Revenue officers regularly audit and investigate organisations to ensure that everyone is paying the correct amount of tax. If state revenue officers audit your organisation and find evidence of non-compliance, you could be liable for sanctions or penalties.
To stay compliant with the VSRO, you need to understand your tax obligations, keep detailed business records and pay your taxes accurately and on time.
What is the regional payroll tax rate in Victoria and who’s eligible?
The regional payroll tax rate in Victoria is a lower rate of 1.2125%. This regional payroll tax rate has been in place for regional Victorian employers since 1 July 2021 (before this, it was in place for a subset of bushfire-affected areas).
If you pay at least 85% of your taxable wages to Victorian regional employees, you're considered a regional Victorian employer. Regional employees perform their services mainly (more than half of the month) in regional Victoria.
The '85% rule' applies to monthly and annual wages paid to employees — so any month you fail the 85% rule, your wage payroll tax goes up to 4.85%.
The payroll tax surcharges apply to wages paid to all employees working in the state of Victoria, including regional employees, provided your wage bill is over $10 million a year.
How to register for payroll tax in Victoria
To register for payroll tax in Victoria, you must have your payroll records for this and the last four years, your ABN number and business details. Then, you can register online. Once you're set up, you can pay online through PTX Express.
Penalties for late payment or failure to submit payroll tax
Penalties for late payment or failure to submit payroll tax can significantly impact your company's funds. Knowing your tax obligations is one of the accounting basics when running a business in Australia, so make yourself aware of the consequences below and ensure you pay your payroll tax on time to avoid them.
Default assessment
A default assessment is issued if your business fails to meet tax obligations by the due date. If you miss a deadline as an employer, the VSRO will issue a default assessment estimating your outstanding payroll tax with an added non-payment penalty plus interest.
Penalty tax
Penalty tax is charged when you don't lodge your monthly payments or annual reconciliation on time. The standard rate of penalty tax in Victoria is 25%. Intentionally ignoring your payroll tax obligations or give false information to the VSRO, can send your penalty tax as high as 90%.
If you've missed a payroll tax payment, report it to the VSRO straight away. If you provide your payroll tax liability information before they start investigating you, they may agree to a reduced penalty tax of 5% plus interest.
Payroll tax Victoria FAQs
Do you need to pay payroll tax for contractors in Victoria?
In some situations, yes, you need to pay payroll tax for contractors in Victoria. Generally speaking, if you're paying someone to undertake work for you, you're considered their employer and their payments are deemed taxable wages. However, in some situations, contractor payments are exempt from payroll tax.
Are superannuation contributions subject to payroll tax in Victoria?
Yes, superannuation contributions are subject to payroll tax in Victoria. This is also the case for most employee benefits, including commissions and bonuses.
Do you only pay payroll tax over the threshold?
No, once you pay more in wages than the tax-free threshold, you pay payroll tax on all Australian wages. For example, for $710,000 in wages in a year, you'll pay payroll tax on the total amount, not just the $10,000 over the threshold.
Keep your payroll tax plate spinning
As a small business owner, you've many spinning plates and payroll management is just one of them. Losing control of your tax liabilities as an employer could attract substantial penalties, so it's important to have processes in place to stay compliant.
MYOB payroll software automates your payroll and simplifies payroll tax calculations, so you can be sure you're paying the right amount at the right time.
Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.