Payroll tax and regional employers
Since 1 July 2017, a lower payroll tax rate has applied to taxable wages paid by regional employers to their regional employees.
For the 2017-18 year, the rate was 3.65 per cent. It was reduced to 2.425 per cent for wages paid from 1 July 2018 onwards. This rate reduces further over the next three years:
- From 1 July 2020, it will be 2.02 per cent.
- From 1 July 2021, it will be 1.62 per cent.
- From 1 July 2022, it will be 1.2125 per cent.
From 1 July 2019, you are a regional employer if you pay at least 85 per cent of your Victorian taxable wages to regional employees.
From 1 July 2017 to 30 June 2019, regional employers also needed to be based in regional Victoria.
These are employees who perform their services mainly (more than 50 per cent) in regional Victoria during the month.
Regional Victoria means the regional councils listed below and the six alpine resorts of Mt Baw Baw, Mt Buller, Mt Hotham, Mt Stirling, Falls Creek and Lake Mountain.
- Alpine Shire Council
- Ararat Rural City Council
- Ballarat City Council
- Bass Coast Shire Council
- Baw Baw Shire Council
- Benalla Rural City Council
- Buloke Shire Council
- Campaspe Shire Council
- Central Goldfields Shire Council
- Colac Otway Shire Council
- Corangamite Shire Council
- East Gippsland Shire Council
- Gannawarra Shire Council
- Glenelg Shire Council
- Golden Plains Shire Council
- Greater Bendigo City Council
- Greater Geelong City Council
- Greater Shepparton City Council
- Hepburn Shire Council
- Hindmarsh Shire Council
- Horsham Rural City Council
- Indigo Shire Council
- Latrobe City Council
- Loddon Shire Council
- Macedon Ranges Shire Council
- Mansfield Shire Council
- Mildura Rural City Council
- Mitchell Shire Council
- Moira Shire Council
- Moorabool Shire Council
- Mount Alexander Shire Council
- Moyne Shire Council
- Murrindindi Shire Council
- Northern Grampians Shire Council
- Pyrenees Shire Council
- Borough of Queenscliffe
- South Gippsland Shire Council
- Southern Grampians Shire Council
- Strathbogie Shire Council
- Surf Coast Shire Council
- Swan Hill Rural City Council
- Towong Shire Council
- Wangaratta Rural City Council
- Warrnambool City Council
- Wellington Shire Council
- West Wimmera Shire Council
- Wodonga City Council
- Yarriambiack Shire Council
The 85 per cent rule
To qualify as a regional employer, you must also pay:
- at least 85 per cent of your monthly Victorian taxable wages to your regional employees for the purposes of your monthly returns, and
- at least 85 per cent of your Victorian taxable wages to your regional employees during a financial year for the purposes of your annual return.
Note: It is not necessary for an employer to meet the monthly rate reduction threshold every month during a financial year for the purpose of determining that they meet the annual rate reduction threshold.
During 2017-18, RedCar pays total taxable Victorian wages of $100,000 each month, totalling $1,200,000 for the year. It paid wages to its regional employees as follows:
- July to October 2017 - $90,000 each month.
- November 2017 to February 2018 - $80,000 each month.
- March to June 2018 - $90,000 for each month.
RedCar meets the 85 per cent rule for the months of July to October 2017 and March to June 2018, but not for the months November 2017 to February 2018. Therefore, it pays payroll tax at the lower regional employer rate of 3.65 per cent for its monthly returns from July to October 2017 and March to May 2018. It must pay payroll tax at the rate of 4.85 per cent for its monthly returns for November 2017 to February 2018.
For the purpose of calculating the payroll tax rate for its annual return, the wages paid to RedCar’s regional employees during the months of November 2017 to February 2018 are taken into account in determining the 85 per cent rule. RedCar pays total taxable wages of $1,040,000 to its regional employees during the 2017-18 year. This is 86.67 per cent of its total taxable wages for that year meaning RedCar meets the 85 per cent test and will therefore pay payroll tax on its total taxable wages for the financial year at the lower regional employer rate of 3.65 per cent.
Businesses grouped for payroll tax purposes are separately assessed for eligibility at the lower regional employer rate of payroll tax. For example, a group consists of three members. One is based in regional Victoria but the other two are not. If the member based in regional Victoria satisfies the 85 per cent rule, that member is eligible for the lower payroll tax rate of 3.65 per cent (2.425 per cent from 1 July 2018). The other two members in the group will pay payroll tax at the rate of 4.85 per cent.
Groups lodging joint (schedule) returns
Some groups may have approval to lodge a joint return (referred to as a schedule return) that covers two or more members of the group. Where all of the members covered by the schedule return are regional employers, the tax payable is at the lower payroll tax rate of 3.65 per cent (2.425 per cent from 1 July 2018). Where none of the members covered by the schedule return are regional employers, the tax payable is at the rate of 4.85 per cent.
If some, but not all, members covered by the schedule return are regional employers, the tax payable is calculated as follows:
- at the lower rate of 3.65 per cent (2.425 per cent from 1 July 2018) on the proportion of the total taxable wages covered by the schedule return (after subtracting the deduction amount) that is attributable to the regional employers, plus
- at the rate of 4.85 per cent on the proportion of the total taxable wages covered by the schedule return (after subtracting the deduction amount) that is attributable to the members who are not regional employers.
ABC, XYZ and DoReMi have been grouped and given approval to lodge a joint return.
For July 2017, ABC paid wages of $40,000, XYZ (who is a regional employer) paid wages of $30,000 and DoReMi paid wages of $20,000. Their total wages for the month are $90,000.
The monthly deduction amount is $52,083. This means the wages liable to payroll tax are $37,917. One-third of the total taxable wages is paid by XYZ, the regional employer.
One-third of the wages liable to payroll tax ($12,639) is assessed at the regional employer tax rate of 3.65 per cent and the remaining two-thirds ($25,278) is assessed at the tax rate of 4.85 per cent.
The same method applies to calculating payroll tax for the annual return.
For the 2017-18 and 2018-19 financial years, you are based in regional Victoria if you:
- have an ABN and your ABN registered business address is located in regional Victoria, or
- do not have an ABN but your principal place of business is located in regional Victoria.
For employers that operate under a trust, it is the registered business address under the trust’s ABN that is relevant. If the trust does not have an ABN, then the registered business address under the trustee’s ABN will be used.
If an employer based in Victoria has an ABN-registered business address located in and outside regional Victoria at the same point in time, the location where that employer is based is made by reference to where the employer’s principal place of business is located.
If an employer changes their ABN registered address during a month, the ABN registered address existing on the last day of the month is used to determine whether the employer is based in regional Victoria.