Navigating Victoria’s new payroll tax provisions for non-government schools

As announced in the 2023-24 Victorian Budget, the Victorian Government imposed a payroll tax on high-fee non-government schools. This change took effect on 1 July 2024. Impacted schools are those where the annual income per student exceeds $15,000. This income calculation considers school fees, charges, and other family contributions, excluding revenue from overseas students.

Historically, non-government schools in Victoria have been exempt from payroll tax. However, this change by the State Government ensures the benefit of this exemption only flows to those schools that require support.

The $15,000 income per student threshold will remain in place until at least 1 January 2029 to provide schools with financial planning certainty. The Minister for Education will conduct annual reassessments of non-government schools.

The Parliamentary Budget Office (PBO) estimates that around 8 per cent or 60 schools will be affected currently, and an additional 18 schools (3 Catholic schools and 15 independents) could potentially fall above the $15,000 mark by 2029. This highlights the importance of understanding the income calculation and potential future impacts for schools approaching this threshold.

As schools face the decision on how they handle these changes, possible fee increases are expected in order to contribute towards this tax liability (which is typically calculated as 4.85% of taxable wages), potentially limiting school choices for families during a cost-of-living crisis. 

In this article, we explore the details of this change, its impact, and how affected schools can ensure readiness and compliance with their payroll tax obligations.

Helping schools navigate the new payroll tax landscape

Unlike any other state or territory in Australia, Victoria is the first state to impose payroll tax specifically targeting high-fee non-government schools.

Not only does this change create additional costs and financial burdens for impacted schools, but it also furthers compliance and complexity. Payroll tax is a monthly compliance obligation, meaning time and effort will be required from what are typically lean finance and payroll functions to ensure lodgement obligations are met each month. In addition, the regime is complex, particularly when it comes to classifying and managing independent contractors and ensuring the appropriate treatment of various taxable wage categories for payroll tax purposes. Our team of experts can assist with:

• Contractor Classification: Determining whether an individual working for the school is considered an employee for payroll tax purposes can be challenging, with complex ‘relevant contract’ provisions within the Victorian payroll tax legislation. Our team can help schools accurately assess contractor status to ensure the appropriate payroll tax treatment is determined and to avoid potential payroll tax shortfalls
• Assistance with taxable wages: Payroll tax is payable on ‘taxable wages’. There are a number of exemptions and concessions that may be applicable, e.g. certain motor vehicle allowances and wages paid or payable to an employee on maternity or adoption leave, up to certain limits. We can assist schools in the determination of taxable wages, which may include a pay code review to ensure appropriate payroll tax configuration of each pay code and, therefore, reduce the risk of under or overpaying payroll tax
• Filing support: Preparing and/or filing monthly payroll tax returns and year-end obligations (i.e. the annual payroll tax reconciliation due after financial year end).

While the current threshold exempts schools with income per student below $15,000, future policy changes are possible. We can help schools with potential future changes by offering financial modelling, assistance with any payroll tax audits and reviews that the Victorian State Revenue Office may conduct, cost management, and long-term planning assistance.

Victoria's new payroll tax policy for high-fee non-government schools is expected to remain fixed until 2029. While potential fee increases and resource allocation changes raise concerns, schools can proactively navigate this new landscape. By partnering with BDO, schools can ensure compliance, optimise costs, and ultimately prioritise their core mission - delivering high-quality education for their students. Contact our employment taxes team to find out how BDO can help you.