Payroll tax is a tax on wages. Depending on the circumstances, wages can be taxable or exempt.
1. Primary and secondary caregiver leave
From 1 July 2019, an exemption applies to wages paid or payable to an employee who has been given leave as a primary or secondary caregiver, in addition to their normal leave entitlements, for the birth or adoption of a child.
Prior to 1 July 2019, the exemption was limited to wages paid or payable to an employee given maternity or adoption leave.
Wages paid in respect of annual, sick, recreation, long service or any similar leave that are taken while an employee is absent due to pregnancy are not exempt.
A primary caregiver is a parent of any gender who has the principal role of providing care and attention to a child. A secondary caregiver is a parent, who is not the primary caregiver, but who has parental responsibility for the child.
Wages paid to an employee who is a primary or secondary caregiver of a child will be exempt from payroll tax for a maximum of 14 weeks (or an equivalent period of leave at a reduced rate of pay, such as 28 weeks at half pay).
Payments made under the Commonwealth scheme are not treated as wages for payroll tax purposes. Read about how this Victorian exemption interacts with the Commonwealth Government's Paid Parental Leave scheme.
2. Contributions to redundancy benefit schemes and 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 benefits 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 while on military leave as a member of Australia's Defence Forces or the armed forces of any part of the Commonwealth are exempt.
4. Community development employment project
Wages paid to an Aboriginal person employed under a community development employment project funded by the Commonwealth Department of Jobs and Small Business or the Torres Strait Regional Authority are exempt.
5. Volunteer firefighters and other emergencies
Wages paid or payable to employees absent from work to volunteer as firefighters or respond to other emergencies are exempt. This exemption also applies to employers providing 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 does not apply if those employees are away on official leave, for example recreation, annual, long service or sick leave.
6. Genuine redundancy or early retirement scheme payments
The income tax-free portion of genuine redundancy payments, previously known as bona fide redundancy payments, or early retirement scheme payments, previously known as approved early retirement scheme payments, is exempt. Our Revenue Ruling explains more about these termination payments.
7. Workers compensation
Payments made by an insurer and compulsory payments required under WorkSafe legislation are exempt. WorkSafe Victoria is the trading name of the Victorian WorkCover Authority.
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. TAC payments
Transport Accident Commission (TAC) payments for loss of earnings, paid through an employer to an employee as a result of a transport accident injury, are exempt.
Such payments are a form of compensation paid under the Transport Accident Act 1986.
9. Re-employed apprentices or trainees
Wages are exempt if they are paid or payable to a re-employed apprentice or trainee:
- whose initial employment stopped prior to the completion of their approved training contract
- who has been employed by another employer on or after 1 July 2016
- who is continuing with the same type of approved training contract.
An approved training contract is one 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
- 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.
The exempt amounts for motor vehicle and overnight accommodation allowances are set out in the table below. Amounts paid in excess of these figures are wages for payroll tax purposes.
For payroll tax purposes, we use the cents per kilometre deduction rate determined by the ATO for the financial year immediately preceding the financial year in which the motor vehicles allowance is paid or payable. This means we use the 2022-23 rate for 2023-24.
|Motor vehicles allowance as set by the ATO
(cents per km)
|Motor vehicles allowance used for payroll tax purposes
(cents per km)
($ per night)
A living-away-from-home allowance is a fringe benefit so its value for payroll tax purposes 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 is not subject to fringe benefits tax, and has all these 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.
- The precise amount is reimbursed.
If a reimbursement is subject to fringe benefits tax, it is also subject to payroll tax regardless of whether it has all of the above characteristics.