Payroll tax is:

• a State tax
  
  
• payable at the rate of 4.95 per cent (rate effective from 1 July 2008).
  
  
• calculated on wages paid by an employer to its employees
  
  
• charged by all Australian States and Territories - each State has its own legislation, with differing provisions and exemption levels
  
  
• collected and administered in Victoria by us in accordance with the Pay-roll Tax Act 1971.
  
  
• from 1 July 2007 onwards, in accordance with the Payroll Tax Act 2007.

An employer that employs in Victoria must register for and pay payroll tax when:

• its total Australian wages exceeds the Victorian general deduction threshold of $45,833 a month or $550,000 over a full financial year, and/or
  
  
• when grouped with other businesses, the combined Australian wages of the group exceed the general deduction threshold level.

Payroll tax is payable monthly, by the seventh day of the month following the month in which an employer's wages have exceeded the general deduction threshold.

However, if the estimated tax payable by an employer is relatively low, the employer may apply to us for approval to pay annually.

Employers must lodge an electronic Annual Reconciliation by 21 July each year. The Annual Reconciliation reconciles the tax payable for the financial year and incorporates the wages for the month of June. There is no separate payroll tax return for June in Victoria.

The definition of wages is very broad and includes all of the following:

• wages
  
  
• salaries
  
  
• allowances
  
  
• commissions
  
  
• bonuses
  
  
• employer (pre-tax) superannuation contributions and includes:
• superannuation guarantee payments,
• salary sacrifice contributions, and
• from 1 July 2007, the value of non-monetary contributions
  
  
• fringe benefits, within the meaning of the Fringe Benefits Tax Assessment Act 1986 (Cth) - before 1 July 2007 the fully grossed-up value of the fringe benefits, and from 1 July 2007 the total taxable value of the fringe benefit grossed up by the Type 2 factor
  
  
• from 1 July 2007, the value of shares and options granted to employees, directors, former directors and some contractors
  
  
• payments to some contractors
  
  
• payments by employment agencies arising from employment agency contracts
  
  
• remuneration paid by a company to or in relation to company directors
  
  
• employment termination payments and accrued leave.

Some payments are not subject to payroll tax. These include:

• compensation payments to injured workers (for example, WorkCover and TAC payments) but not amounts paid in excess of the amounts prescribed as compensation (for example, make-up pay is taxable)
  
  
• the income tax free portion of bona fide redundancy or early retirement payment
  
  
• maternity or adoption leave if paid in addition to employees' normal leave entitlements
  
  
• payments to employees while they are on leave to work in the Defence Forces
  
  
• from 1 July 2006, wages paid to persons engaged exclusively in work of an ambulance service, a community health centre, denominational hospital, multi-purpose service, public health service, public hospital and the Victorian Institute of Forensic Mental Health
  
  
• from November 2006, wages paid or payable to employees who are absent from work to volunteer as firefighters or respond to other emergencies
  
  
• from 1 July 2007, wages paid or payable to aboriginal persons employed under an employment project Community Development Employment Project funded by the Commonwealth Department of Employment and Workplace Relations, or the Torres Strait Regional Authority

Allowances: although allowances are generally fully taxable, motor vehicle, accommodation and living away from home allowances may be fully or partially exempt in some circumstances.

The exempt rates for motor vehicle allowances (per kilometre) and accommodation allowances (per night) are:

A living away from home (LAFH) allowance is a fringe benefit. Therefore the value of a LAFH allowance for payroll tax purposes is the value determined in accordance with the Fringe Benefits Tax Assessment Act 1986 (Cth). If the allowance does not qualify as a LAFH benefit under the FBT legislation, for payroll tax purposes it must be treated in the same manner as an accommodation allowance.

For more information for the period from 1 July 2007, please refer to Revenue Ruling PTA005.

For more information for the period before 1 July 2007, please refer to Revenue Ruling PT.089

From 1 January 2005 onwards, an employment agency is liable for payroll tax for their on-hired workers and its in-house staff.

An exemption applies to wages paid in respect of workers on-hired under an employment agency contract to a client that has been exempted under the payroll tax legislation.

Before 1 January 2005, the client of an employment agent was liable for any payroll tax applicable and a number of arrangements and exemptions existed at that time to reflect that position.

See our Employment Agency Circular for more detailed information regarding employment agents.