VIC State Budget 2017-18 | Payroll Tax

By Craig Whatman - May 2, 2017

The Andrews Government has announced an increase in the payroll tax-free threshold for all businesses, a reduction in the payroll tax rate for eligible regional businesses, and an increase in annual payroll tax liability threshold so that more businesses can opt for an annual payroll tax lodgement.

Payroll tax-free threshold

The payroll tax-free threshold will be increased from $575,000 to $625,000 with effect from 1 July 2017, and to $650,000 with effect from 1 July 2018.

What it means for you

Based on the current rate of payroll tax of 4.85%, this change represents an annual saving of $2,400 per annum per business group in Victoria as of 1 July 2017, and a further saving of $1,200 as of 1 July 2018.

Compared to the rest of Australia, after this change Victoria will have the second lowest payroll tax-free threshold in the country, with South Australia being the lowest at $600,000 and ACT being the highest at $2m. However, the Victorian threshold will still be significantly less than the current national average of $1.078m.

Whilst the accelerated increase in the payroll tax-free threshold is a welcome change that will generate real savings for middle market businesses, to make a real impact and attract more businesses to operate in Victoria, the government should consider increasing the payroll tax-free threshold further to the national average.

Payroll tax rates

The payroll tax rate will be reduced by 25% from 4.85% to 3.65% for businesses where at least 85% of their employees are ‘regional employees’.

What it means for you

This change is great news for eligible regional businesses. They will enjoy the lowest payroll tax rate in the country. 

For example, a business group that from 1 July 2017 pays annual wages of $1m will benefit from a $4,500 annual reduction in payroll tax. From 1 July 2018, due to the increase in the threshold, the benefit will be $4,200. A business group that from 1 July 2017 pays annual wages of $3m will benefit from a $28,500 annual reduction in the payroll tax. From 1 July 2018, due to the increase in the threshold, the benefit will be $28,200.

On the other hand this measure is likely to increase compliance costs for those businesses that are not wholly in regional Victoria, and that will subsequently need to monitor whether they qualify for the concession. At this stage there are no details on how the change is proposed to be administered and who will qualify as ‘regional employee’. However, the administration might be particularly complex where a business employs both regional and non-regional employees and their numbers fluctuate over the course of the year.

Annual payroll tax liability threshold

More businesses will be eligible to opt for annual payroll tax payments rather than monthly payments, due to the increase in annual payroll tax liability threshold from $10,000 to $40,000.

What it means for you

From 1 July 2017, based on a $10,000 annual payroll liability, only business groups which pay annual wages under $830,000 would have qualified for annual payroll tax payments. The Budget change will mean that business groups with an annual payroll under $1.449m will now be able to opt for annual payroll tax returns.

Furthermore, due to the threshold increase from $625,000 to $650,000 from 1 July 2018, businesses that pay annual group wages under $1.47m will be able to opt for annual payroll tax returns, compared to businesses with annual group wages of $856,000 that previously qualified.

This is a welcome change for small businesses that will benefit from the reduced costs of compliance with payroll tax, as they will no longer be required to prepare and lodge monthly payroll tax returns. 


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