The Victorian Government handed down its 2023-24 State Budget on 23 May 2023, with numerous payroll tax measures introduced, most of which create additional impost for businesses. With the exception of small businesses that pay wages of around $3 million or less, businesses are expected to be worse off by these measures.
In the Budget Overview presented by Treasurer Tim Pallas, the Victorian Government is “making payroll taxes fairer for business… To better support small businesses across our state, from 1 July 2024 we will raise the tax-free threshold to $900,000, with a further increase to $1 million from 1 July 2025... These benefits will be phased out for larger business to ensure support is well targeted.”
However, it is not just larger business who will see reduced support. We discuss the payroll tax measures and their impacts below.
Payroll tax measures
1. Increased payroll tax-free threshold
Whilst we welcome an increased payroll tax-free threshold of $900,000 from 1 July 2024, this is a necessary change given Victoria has the lowest tax-free threshold across all Australian States and Territories. This is a small win for small business, meaning the threshold to register for payroll tax purposes will increase. However, even after this increase, Victoria’s payroll tax-free threshold is still below all other jurisdictions. Current payroll tax-free thresholds for the 2022-23 financial year are set out below.
|
|
NSW |
VIC |
SA |
WA |
QLD |
NT |
TAS |
ACT |
|
Tax-free threshold |
$1,200,000 |
$700,000 |
$1,500,000 |
$1,000,000 |
$1,300,000 |
$1,500,000 |
$1,250,000 |
$2,000,000 |
Victoria has also introduced a diminishing threshold from 1 July 2024, meaning the tax-free threshold deduction will be phased out once a business pays more than $3 million of taxable wages. For businesses with taxable wages above $5 million, there will not be any tax-free threshold deduction, hence a payroll tax liability will arise on every dollar of Victorian wages. Whilst Victoria is not the first jurisdiction to introduce a diminishing threshold (the thresholds in Queensland and Western Australia also phase out once total group wages exceed a certain limit), the threshold before the deduction is negated is lower in Victoria than any other jurisdiction. Hence, both medium and larger businesses should be prepared for an increased payroll tax liability from 1 July 2024.
2. Introduction of COVID-debt levy
From 1 July 2023, Victorian Government has introduced a COVID Debt Repayment Plan to help pay off the debt and accumulating interest that was incurred as a result of the pandemic. The COVID Debt Repayment Plan includes an additional payroll tax liability that will be payable by businesses with total Australian wages exceeding $10 million a year. This is a temporary levy expected to apply until 30 June 2033, with forecast revenue budgeted at $3.9 billion over four years.
The levy will be imposed at 0.5% for businesses with total Australian wages exceeding $10 million a year, with an additional 0.5% applicable for businesses with total Australian wages exceeding $100 million. This levy is in addition to the Mental Health and Wellbeing Levy that also applies to big business in Victoria from 1 January 2022. Hence, it is big business that is being forced to pay off both the Government’s COVID debt and provide funding to the mental health system.
3. High-fee non-government schools to lose payroll tax exemption
From 1 July 2024, high-fee non-government schools will no longer be exempt from payroll tax. Approximately 110 schools will lose their exemption, with the Minister for Education determining those schools to retain the exemption, with the Treasurer’s consent. In addition, depending on their total wage bill, some schools may also be subject to the Mental Health and Wellbeing Levy and the COVID Debt Levy.
Losing the payroll tax exemption will mean budgeting for what could be a very significant payroll tax liability. Inevitably, this may lead to higher school fees in order to fund this liability. Given the cost of living is rising, higher school fees on top of increasing interest rates and inflation may not be sustainable for many families and may risk families having to make some difficult decisions regarding their children’s education. However, this payroll tax impost must be funded somehow, so if not by increased fees, this could even mean staff or program cuts.
In addition to the financial cost that a payroll tax liability brings, there is also the significant compliance cost – payroll tax is a monthly obligation, with a complex regime. Those schools to be impacted by this measure should ensure they are both budgeting for the financial cost and the compliance and administration cost that will be imposed from 1 July 2024.
Unfortunately, it is clear from Victoria’s 2023-24 State Budget that majority of businesses will be worse off from a payroll tax perspective. Sadly, the payroll tax measures introduced as part of Victoria’s State Budget for 2023-24 provide little, if any, incentive for businesses to set up and invest in Victoria.
Contact us
If you have any questions regarding this article or would like more payroll tax information, please contact a BDO employment tax specialist, or your local BDO adviser.