Payroll tax is a state-based tax that applies when a business’s total wages exceeds a certain threshold, currently $1 million.
Here’s what Victorian employers should know about payroll tax as of the 2025–26 financial year.
What Is Payroll Tax?
Payroll tax is a tax on wages paid or payable by employers when their total Australian wages exceed the threshold set by the State Revenue Office (SRO) of Victoria. It is calculated on the wages paid in Victoria, but businesses must also account for total Australia-wide wages when determining liability. For example, if an employers wages bill is $600,000 in South Australia and $700,000 in Victoria, then the combined wages bill is $1,300,000. Even though the Victorian wages bill is below the $1 million threshold, the employer will still be required to pay payroll tax as the combined wages is above the $1 million threshold. Don’t hesitate to contact a tax accountant Melbourne to run through the calculations if you have any questions.
Payroll Tax Thresholds and Rates in Victoria (2025–26)
As at July 2025, the following thresholds and rates apply:
Employer Type | Annual Threshold | Payroll Tax Rate |
General employers (metro) | $1,000,000 | 4.85% |
Regional employers* | $1,000,000 | 1.2125% (concessional) |
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*Regional employers must pay at least 85% of wages to regional employees and have ABN-registered addresses outside metropolitan Melbourne to qualify for the lower rate.
What Counts as Wages?
Payroll tax applies to more than just base salaries. “Wages” for payroll tax purposes include:
- Salaries and wages
- Bonuses and commissions
- Allowances
- Superannuation contributions
- Fringe benefits (grossed-up)
- Contractor payments (in some cases)
Certain payments to contractors and consultants may also be caught under “deemed wages” provisions, depending on the working arrangement. Best to contact an accountant Melbourne to explain what remuneration is included in the payroll tax regime.
When and How Is It Paid?
- Monthly returns are required if your annual wages exceed the threshold.
- Annual reconciliation is due by 21 July each year.
- Lodgement and payment are handled via the SRO’s PTX Express portal. Note that your tax accountant Melbourne can also lodge the returns for you.
Penalties and interest may apply if obligations are not met on time.
Payroll Tax Grouping
Businesses that are related or have shared ownership or control may be grouped for payroll tax. This means their total wages are aggregated, and only one threshold applies across the group.
Common triggers for grouping include:
- Shared employees or directors
- Common control or ownership
- Inter-entity financial arrangements
Grouping can significantly affect your liability, especially for businesses operating multiple entities or locations. Again, best to contact an accountant Melbourne, such as Nobel Thomas, who can explain which entities are included within the grouping provisions.
Common Mistakes to Avoid
- Not registering for payroll tax once the threshold is exceeded. Nobel Thomas is aware of situations where taxpayers have been audited for failing to register for payroll tax.
- Underreporting superannuation or fringe benefits
- Misclassifying contractors who should be included as deemed employees and thus included within the payroll tax regime.
- Failing to identify grouping arrangements
Example Calculation
Metro employer pays $1.2 million in annual wages:
- Threshold: $1,000,000
- Taxable amount: $1,200,000 – $1,000,000 = $200,000
- Payroll tax: 4.85% × $200,000 = $9,700
How to Stay Compliant
- Monitor wage levels monthly against thresholds
- Use SRO’s payroll tax calculators
- Register as soon as you exceed the threshold (or contact a tax accountant Melbourne to do this for you)
- Review employee vs contractor status carefully (Again contacting an accountant, like Nobel Thomas, can help you identify the difference)
- Conduct annual reviews of group structures.
Please do not hesitate to reach out if you need any assistance.
