A lower payroll tax rate applies to taxable wages paid by regional employers.
Regional employers have paid a lower payroll tax rate on taxable wages since 1 July 2017. For wages paid from 1 July 2021, the regional employer rate of payroll tax is 1.2125%.
To obtain the lower rate, you must pay at least 85% of your Victorian taxable wages to regional employees. These employees must perform more than half of their work for you in regional Victoria. If your employees work in other parts of Australia, only the work they do in Victoria counts when deciding if they are regional employees.
For example, if during a month, an employee works
- 60% of the time in Australian Capital Territory, New South Wales and Queensland
- 10% in Melbourne
- 30% in regional Victoria
Only the time spent in Victoria (being 40%) is relevant. Out of that 40%, the employee spent 75% of time in regional Victoria (30% out of 40%) and is considered a regional employee.
Meeting the 85% rule
To qualify as a regional employer, you must:
- pay at least 85% of your monthly Victorian taxable wages to regional employees for monthly returns
- meet the 85% rule for the full financial year for your annual reconciliation.
You don’t need to meet the monthly rate reduction threshold every month, but you must meet it for the full year to get the lower rate.
Example 1
In 2024–25, RedCar paid total taxable Victorian wages of $100,000 each month, totalling $1,200,000 for the year.
It paid wages to its regional employees as follows:
- July to October 2024 — $90,000 each month.
- November 2024 to February 2025 — $80,000 each month.
- March to June 2025 — $90,000 for each month.
Monthly returns
RedCar meets the 85% rule in:
- July to October
- March to June.
So, for those months, it paid the lower rate of tax of 1.2125%. It must pay payroll tax at the rate of 4.85% for its monthly returns for November to February.
Annual reconciliation
RedCar pays total taxable wages of $1,040,000 to its regional employees during the 2024–25 year. This is 86.67% of its total taxable wages. Because it is more than 85%, RedCar will pay payroll tax at the lower rate of 1.2125% for its annual reconciliation. It will also be entitled to a refund of the overpaid payroll tax for the months of November 2024 to February 2025, less any unpaid payroll tax at the time of its annual reconciliation.
For more information, refer to Revenue Ruling PTA-042v2 Application of regional rate.
Grouped businesses
Each business in a payroll tax group is assessed separately to determine if it qualifies for the lower regional employer rate. Only the businesses that meet the 85% rule can get the lower rate. Other businesses in the group do not get the lower rate just because they are grouped with one that does.
Groups lodging joint (schedule) returns
Some payroll tax groups have approval to lodge a joint return for 2 or more businesses in the group. A joint return is also called a schedule return.
If all businesses in the return are regional employers, the lower rate of 1.2125% applies. If none are regional employers, the normal rate of 4.85% applies.
If some are regional, and some are not, the tax payable is calculated as follows:
- the share of total taxable wages from regional employers is taxed at 1.2125%
- the rest is taxed at 4.85%.
Example 2
ABC, XYZ and DoReMi are grouped and have approval to lodge a joint return.
For July 2024
- ABC paid wages of $40,000
- XYZ (a regional employer) paid wages of $30,000
- DoReMi paid wages of $20,000.
Total wages = $90,000.
The monthly tax-free threshold = $75,000.
- Taxable wages = $15,000.
XYZ paid one third of the total wages, so:
- $5,000 (one third of $15,000) is taxed at 1.2125%
- $10,000 (the rest) is taxed at 4.85%.
The same method is used for the annual reconciliation.
Regional Victoria
Regional Victoria means these regional councils:
- Alpine Shire Council
- Ararat Rural City Council
- Ballarat City Council
- Bass Coast Shire Council
- Baw Baw Shire Council
- Benalla Rural City Council
- Buloke Shire Council
- Campaspe Shire Council
- Central Goldfields Shire Council
- Colac Otway Shire Council
- Corangamite Shire Council
- East Gippsland Shire Council
- Gannawarra Shire Council
- Glenelg Shire Council
- Golden Plains Shire Council
- Greater Bendigo City Council
- Greater Geelong City Council
- Greater Shepparton City Council
- Hepburn Shire Council
- Hindmarsh Shire Council
- Horsham Rural City Council
- Indigo Shire Council
- Latrobe City Council
- Loddon Shire Council
- Macedon Ranges Shire Council
- Mansfield Shire Council
- Mildura Rural City Council
- Mitchell Shire Council
- Moira Shire Council
- Moorabool Shire Council
- Mount Alexander Shire Council
- Moyne Shire Council
- Murrindindi Shire Council
- Northern Grampians Shire Council
- Pyrenees Shire Council
- Borough of Queenscliffe
- South Gippsland Shire Council
- Southern Grampians Shire Council
- Strathbogie Shire Council
- Surf Coast Shire Council
- Swan Hill Rural City Council
- Towong Shire Council
- Wangaratta Rural City Council
- Warrnambool City Council
- Wellington Shire Council
- West Wimmera Shire Council
- Wodonga City Council
- Yarriambiack Shire Council.
It also includes the 6 alpine resorts of Mt Baw Baw, Mt Buller, Mt Hotham, Mt Stirling, Falls Creek and Lake Mountain.
