Payroll tax is a tax payable on wages. Wages can be taxable or exempt, depending on the circumstances.
1. Adoption, maternity and paid parental leave
An exemption applies to maternity or adoption leave paid in addition to an employee’s normal leave entitlements. Annual, sick, recreation, long service or any similar leave taken while the employee is absent due to pregnancy is not exempt.
Note: payments made under the Commonwealth Government’s paid parental leave scheme are not to be treated as wages for payroll tax purposes.
2. Contributions to redundancy benefit schemes/portable long service leave funds
An exemption applies to contributions made by employers to a portable long service leave scheme as long as those contributions are not taxable for fringe benefit tax (FBT) purposes.
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 whilst on military leave as a member of the Defence Forces of the Commonwealth or the armed forces of any part of the Commonwealth of Nations are exempt.
4. Community development employment project
Wages paid to an Aboriginal person who is employed under a community development employment project funded by the Commonwealth Department of Employment and Workplace Relations, or the Torres Strait Regional Authority, are exempt.
5. Volunteer firefighters and other emergencies
Wages paid or payable to employees who are absent from work to volunteer as firefighters or respond to other emergencies are exempt. This exemption also applies to employers who provide emergency workers volunteering for organisations such as the Country Fire Authority, the State Emergency Service, St Johns Ambulance, Red Cross, Volunteer Coast Guards and Life Saving Victoria.
The exemption will not apply if those employees are away on official leave (e.g. recreation, annual, long service or sick leave).
6. Bona fide redundancy or early retirement payment
The income tax-free portion of bona fide redundancy or early retirement payment is exempt.
7. Workers compensation
Payments made by an insurer and compulsory payments required under WorkSafe legislation are exempt.
Make-up pay, being additional wages paid by an employer representing the difference between the employee’s regular pay and the compensation payments, is not exempt.
8. Re-employed apprentices or trainees
Wages are exempt if they are paid or payable to a re-employed apprentice or trainee:
- Whose initial employment ceased prior to the completion of their approved training contract,
- Who has been employed by another employer on or after 1 July 2016, and
- Who is continuing with the same type of approved training contract
An approved training contract is a training contract that complies with the requirements of an approved training scheme. The Victorian Registrations and Qualifications Authority website contains a list of approved training schemes.
The exemption applies irrespective of the length of time between the employment of the apprentice or trainee with the previous employer and the current employer, and only applies for the duration of the apprenticeship or traineeship.
It is available to each subsequent employer of the apprentice or trainee as they work toward completing their apprenticeship or traineeship.
The exemption is not available where:
- An employer terminates an apprentice or trainee's contract and then re-employs that same person, or
- The current employer is in the same payroll tax group as the previous employer
This exemption is set out in Schedule 2, Clause 16A of the Payroll Tax Act 2007.
Although allowances are generally taxable, motor vehicle, accommodation and living-away-from-home allowances may be fully or partially exempt in some circumstances.
Motor vehicle and overnight accommodation allowances are not taxable to the extent that each of these allowances does not exceed the exempt rate as listed in the following table.
|Period||Motor vehicles allowance
A living-away-from-home allowance (LAFHA) is a fringe benefit. Its value for payroll tax purposes, therefore, is the value determined in accordance with the Fringe Benefits Tax Assessment Act 1986 (Cth). If the allowance does not qualify as a fringe benefit under this legislation, it must be treated in the same manner as an accommodation allowance.
Reimbursements of business expenses incurred by employees on behalf of their employer are exempt if it has all of the following characteristics:
- At the time of payment, the expense has already been incurred by the employee (if the payment was made in advance, the employee has provided the employer with a receipt relating to the expense and refunded any excess from the advance payment),
- The expenditure by the employee was incurred in the course of the employer's business, and
- The precise amount is reimbursed
- Non-profit organisations having as their whole or dominant purpose a charitable, benevolent, philanthropic or patriotic purpose (but not including a school, an educational institution, an educational company or an instrumentality of the state), for wages paid or payable to a person engaged exclusively in work of a religious, charitable, benevolent, philanthropic or patriotic nature for the institution or non-profit organisation (there are qualifications on exemptions available to organisations engaging in commercial activities),
- Public benevolent institutions, where persons are engaged exclusively in work of a public benevolent nature,
- Religious institutions, where persons are engaged exclusively in religious work of that institution,
- Non-profit non-government schools, where persons are providing education at or below secondary level,
- Healthcare service providers (i.e. public hospitals, non-profit hospital, denominational hospital, public health service, registered community health centre, multi-purpose service, ambulance service and the Victorian Institute of Forensic Mental Health) for wages paid for work ordinarily performed in connection with the conduct of the healthcare service provider,
- Municipalities, other than wages paid or payable in connection with specified business activities such as the supply of water or electricity,
- State school councils within the meaning of the Education and Training Reform Act 2006, and
- Approved not-for-profit group training organisations (GTO) for wages paid to a new entrant apprentice and trainee on-hired to the GTO’s host clients. These approved GTOs are exempt from payroll tax in respect of wages paid to those apprentices/trainees