The payroll tax-free threshold increased in the 2024-25 and 2025-26 financial years.
Threshold
From 1 July 2025, the payroll tax-free threshold increased from $900,000 to $1 million for annual returns, and from $75,000 to $83,333 for monthly returns.
Phase-out rate
From 1 July 2024, employers and groups with total annual taxable Australian wages between $3 million and $5 million are eligible for a tax-free threshold. The threshold is reduced progressively as wages increase, under a phase-out model.
The phase-out rate is:
- 45% for the 2024-25 financial year
- 50% from the 2025-26 financial year onwards.
Employers and groups with total annual taxable Australian wages above $5 million are not eligible for any tax-free threshold.
What the changes mean for you
Employers with Australian wages below $3 million
You are entitled to the entire threshold amount unless you also pay wages interstate or have employed for less than the full financial year.
Here, the threshold amount is reduced to reflect the percentage of your wage bill paid in Victoria and/or the percentage of the year you have employed.
For example, if your Victorian wages are 30% of your total Australian wages, you are entitled to 30% of the threshold. Or if you have employed for half the year, you are entitled to half the threshold.
Employers with Australian wages between $3 million and $5 million
Your entitlement to the threshold will gradually be reduced the closer your Australian wages are to $5 million.
To work out your reduced threshold amount:
- Step 1: Multiply the full threshold amount by the percentage of Victorian wages and the percentage of the year you employed.
- Step 2: Multiply $3 million by the percentage of Victorian wages and the percentage of the year you employed.
- Step 3: Subtract the result of Step 2 from your total Victorian wages, then multiply it by the phase-out rate.
- Step 4: Subtract the result of Step 3 from the result of Step 1.
If your result is negative, you are not entitled to any threshold.
Example 1
In the 2024-25 financial year, a metropolitan employer:
- employed for the full year
- paid Victorian wages of $4.2 million and no interstate wages.
Following the steps above:
- $900,000 (full threshold amount) × (365 ÷ 365) × ($4.2 million ÷ $4.2 million) = $900,000
- $3 million × (365 ÷ 365) × ($4.2 million ÷ $4.2 million) = $3 million
- ($4.2 million – $3 million) × 45% = $540,000
- $900,000 – $540,000 = $360,000
The employer is entitled to a payroll tax-free threshold of $360,000.
When an employer employs for the whole year and only pays wages in Victoria, like this example, the threshold is simply $5 million minus their wage bill multiplied by the phase-out rate.
In this case, $5 million minus $4.2 million multiplied by 45% equals $360,000.
Example 2
In the 2024-25 financial year, a metropolitan employer:
- employed for all but one month (335 out of 365 days)
- paid Victorian wages of $1.5 million and interstate wages of $2 million (total Australian wages $3.5 million).
Following the steps above:
- $900,000 (full threshold amount) × (335 ÷ 365) × ($1.5 million ÷ $3.5 million) = $354,012
- $3 million × (335 ÷ 365) × ($1.5 million ÷ $3.5 million) = $1,180,039
- ($1.5 million – $1,180,039) × 45% = $143,982
- $354,012 – $143,982 = $210,030
The employer is entitled to a payroll tax-free threshold of $210,030.
Calculate your reduced threshold amount
Employers with Australian wages above $5 million
You do not receive any tax-free threshold.
We’re here to help
If you need more information, contact our Customer Education team or join a payroll tax education session.
