Since 1 July 2017, a lower payroll tax rate has applied to taxable wages paid by regional employers.
For wages paid from 1 July 2021, the rate is 1.2125%.
From 1 July 2019, the rate of payroll tax for regional employers in bushfire-affected local government areas is 1.2125%. This rate applies to regional employers with a registered address in the local government areas of East Gippsland, Mansfield, Wellington, Wangaratta, Towong and Alpine. This reduced rate was to apply until 30 June 2022, however from 1 July 2021 the same rate (1.2125%) applies for all regional employers across regional Victoria.
Payroll tax surcharges
There are 2 payroll tax surcharges which apply if you pay Victorian taxable wages and your Australian wages exceed the first annual threshold of $10 million, with a first monthly threshold of $833,333. The rate of the surcharges is the same wherever you are located in Victoria.
- The mental health and wellbeing surcharge commenced from 1 January 2022.
- The COVID-19 debt temporary payroll tax surcharge commenced on 1 July 2023, and will apply for 10 years until 30 June 2033.
Both surcharges are calculated on the same basis:
- Businesses with a national payroll above $10 million will pay a combined 1%.
- Businesses with a national payroll above $100 million will pay a combined 2%.
The surcharges only apply to businesses’ Victorian share of wages over these thresholds.
- From 1 July 2019, you are a regional employer if you pay at least 85% of your Victorian taxable wages to regional employees.
- From 1 July 2017 to 30 June 2019, regional employers also needed to be based in regional Victoria.
These are employees who perform their services mainly (more than 50%) in regional Victoria during the month.
The 85% rule
To qualify as a regional employer, you must also pay:
- at least 85% of your monthly Victorian taxable wages to your regional employees for the purposes of your monthly returns, and
- at least 85% of your Victorian taxable wages to your regional employees during a financial year for the purposes of your annual return.
It is not necessary for an employer to meet the monthly rate reduction threshold every month during a financial year for the purpose of determining that they meet the annual rate reduction threshold.
During 2021–22, RedCar pays 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 2021 — $90,000 each month.
- November 2021 to February 2022 — $80,000 each month.
- March to June 2022 — $90,000 for each month.
RedCar meets the 85% rule for the months of July to October 2021 and March to June 2022, but not for the months November 2021 to February 2022. Therefore, it pays payroll tax at the lower regional employer rate of 1.2125% for its monthly returns from July to October 2021 and March to June 2022. It must pay payroll tax at the rate of 4.85% for its monthly returns for November 2021 to February 2022.
For the purpose of calculating the payroll tax rate for its annual return, the wages paid to RedCar’s regional employees during the months of November 2021 to February 2022 are taken into account in determining the 85% rule. RedCar pays total taxable wages of $1,040,000 to its regional employees during the 2021–22 year. This is 86.67% of its total taxable wages for that year meaning RedCar meets the 85% test and will therefore pay payroll tax on its total taxable wages for the financial year at the lower regional employer rate of 1.2125%.
Businesses grouped for payroll tax purposes are separately assessed for eligibility at the lower regional employer rate of payroll tax. For example, a group consists of 3 members. One is based in regional Victoria but the other 2 are not. If the member based in regional Victoria satisfies the 85% rule, that member is eligible for the lower payroll tax rate of 1.2125%. The other 2 members in the group will pay payroll tax at the rate of 4.85%.
Groups lodging joint (schedule) returns
Some groups may have approval to lodge a joint return (referred to as a schedule return) that covers 2 or more members of the group. Where all of the members covered by the schedule return are regional employers, the tax payable is at the lower payroll tax rate of 1.2125%. Where none of the members covered by the schedule return are regional employers, the tax payable is at the rate of 4.85%.
If some, but not all, members covered by the schedule return are regional employers, the tax payable is calculated as follows:
- at the lower rate of 1.2125% on the proportion of the total taxable wages covered by the schedule return (after subtracting the deduction amount) that is attributable to the regional employers, and
- at the rate of 4.85% on the proportion of the total taxable wages covered by the schedule return (after subtracting the deduction amount) that is attributable to the members who are not regional employers.
ABC, XYZ and DoReMi have been grouped and given approval to lodge a joint return.
For July 2021, ABC paid wages of $40,000, XYZ (who is a regional employer) paid wages of $30,000 and DoReMi paid wages of $20,000. Their total wages for the month are $90,000.
The monthly deduction amount is $58,333. This means the wages liable to payroll tax are $31,667. One third of the total taxable wages is paid by XYZ, the regional employer.
One third of the wages liable to payroll tax ($10,556) is assessed at the regional employer tax rate of 1.2125% and the remaining 2 thirds ($21,111) is assessed at the tax rate of 4.85%.
The same method applies to calculating payroll tax for the annual return.
For the 2017–18 and 2018–19 financial years, you were based in regional Victoria if you:
- had an ABN and your ABN registered business address was located in regional Victoria, or
- did not have an ABN but your principal place of business was located in regional Victoria.
For employers that operated under a trust, it was the registered business address under the trust’s ABN that was relevant. If the trust did not have an ABN, then the registered business address under the trustee’s ABN would be used.
If an employer based in Victoria had an ABN-registered business address located in and outside regional Victoria at the same point in time, the location where that employer was based was made by reference to where the employer’s principal place of business was located.
If an employer changes their ABN registered address during a month, the ABN registered address existing on the last day of the month is used to determine whether the employer is based in regional Victoria.