Payroll tax in Victoria is a state tax that employers pay on the wages they hand out once those wages pass a set yearly threshold. It is not deducted from staff pay packets. It is a separate cost that sits with the business, calculated on total taxable wages and paid to the State Revenue Office (SRO).
For a Victorian business owner, the practical question is usually simple: does the business need to register, and if so, how much does it owe? This is one of several areas of business taxation that catch out growing companies.
Rates, thresholds and exemptions have all shifted for the 2025–26 financial year, with the most recent changes taking effect from 1 July 2025.
Grouping, contractor payments, interstate wages, regional eligibility and specific exemptions each turn on the details of an individual arrangement. General figures give a starting point, but a business’s actual position is worth checking against its own circumstances before relying on it.
What is payroll tax and who does it apply to in Victoria?
Payroll tax is a self-assessed state tax on the wages an employer pays, not on business profit. Australian wages are used to work out the applicable threshold and deduction, while the amount of tax actually payable is generally calculated on taxable wages connected with Victoria, subject to the SRO’s interstate-wage and nexus rules.
An organisation does not need to be based in Victoria to be caught by this tax. An employer that pays wages in Victoria must register if its taxable Australian wages exceed the applicable payroll tax threshold, including interstate businesses with Victorian staff.
Who counts as an employer for payroll tax purposes?
The definition is broad. It includes companies, partnerships, sole traders, trusts and other organisations that pay wages, along with groups of related businesses that are treated as a single employer for threshold purposes.
Government bodies and some non-profit or charitable organisations may be exempt, but most commercial employers are covered. Contractors engaged under arrangements that resemble employment can also bring a business within scope, even where no employee is on the books.
What counts as taxable wages?
Taxable wages cover far more than base salary. According to the State Revenue Office, payroll tax is calculated on total taxable wages paid each month, and the wage base includes salaries and wages, superannuation contributions, fringe benefits, certain contractor payments and termination payments.
Other inclusions typically picked up in an SRO review are bonuses, commissions, allowances, directors’ fees, employee share and option grants, and leave payments. Businesses that only tally base salary when checking the threshold often underestimate their true wage bill and their obligations.
Payroll tax rates in Victoria (current rates)
Victoria uses two flat payroll tax rates rather than a stepped scale. Which rate applies depends on where the workforce is based, not on how much the business pays in total wages.
Standard payroll tax rate
According to the State Revenue Office, the standard Victorian payroll tax rate is 4.85%, applied to taxable wages above the threshold. This is the rate that applies to most metropolitan Melbourne employers, and to any business that does not meet the regional employer test below.
Regional employer rate
Eligible regional employers pay a substantially lower rate. The State Revenue Office confirms that for wages paid from 1 July 2021, the regional employer rate of payroll tax is 1.2125%.
To access this rate, at least 85% of an employer’s Victorian taxable wages must go to regional employees, and those employees must perform more than half of their work in regional Victoria. The 85% test is checked monthly and again at annual reconciliation, which can mean a refund if the business only qualified for part of the year.
Grouped businesses are assessed individually against this rule. Each business in a payroll tax group is tested separately for the lower regional rate, so other members of the group do not automatically qualify just because one of them does.
Payroll tax threshold in Victoria
The payroll tax threshold is the amount of annual wages an employer can pay before payroll tax starts applying. Victoria increased this threshold from 1 July 2025, giving many smaller employers extra breathing room.
Current annual and monthly thresholds
Per the State Revenue Office, the payroll tax-free threshold rose from $900,000 to $1,000,000 a year from 1 July 2025, and the monthly threshold rose from $75,000 to $83,333. This threshold applies to total Australian taxable wages, not just wages paid in Victoria, and is adjusted proportionally for businesses that only operate for part of a financial year.
For an employer entitled to the full monthly deduction, taxable Australian wages below $83,333 in a given month generally produce no monthly liability for that month. This can differ where estimated Australian wages, grouping, part-year operation or the phase-out rules apply, so the annual figure at reconciliation time is what ultimately matters.
How the threshold phases out for larger employers
The deduction is not available in full once wages climb past $3 million. The State Revenue Office sets out that employers and groups with total annual taxable Australian wages between $3,000,000 and $5,000,000 receive only a reduced deduction, subject to phasing out at 45% for the 2024–25 financial year and 50% from 1 July 2025 onward. Employers and groups above $5,000,000 in total Australian wages get no deduction at all.
In practice, this means the $1,000,000 threshold shrinks steadily for mid-sized employers and disappears entirely once a group’s total Australian wages pass $5 million.
Payroll tax surcharges for large Victorian employers
Two additional surcharges sit on top of the standard rate for the state’s largest employers. Most small and medium Victorian businesses will never encounter either one, but they matter for organisations inside a larger corporate group.
Mental health and wellbeing surcharge
The mental health and wellbeing surcharge has applied since 1 January 2022 and helps fund mental health services recommended by the Royal Commission into Victoria’s Mental Health System. It applies only to wages above the relevant surcharge threshold, not to the whole payroll.
COVID-19 debt temporary surcharge
The COVID-19 debt temporary payroll tax surcharge started on 1 July 2023 and, per the State Revenue Office, is legislated to run until 30 June 2033. It was introduced to help repay debt incurred during the pandemic and, like the mental health surcharge, only bites once wages clear the relevant threshold.
Australian wages are used to determine whether an employer falls within the surcharge regime, but the surcharges themselves are calculated on the relevant Victorian taxable wages above the applicable Victorian surcharge thresholds. According to the State Revenue Office, businesses with national wages above $10 million pay a combined surcharge of 1% on the Victorian wages above that threshold, rising to a combined 2% once national wages exceed $100 million.
The first annual threshold is $10 million, with a corresponding monthly threshold of $833,333, and the second annual threshold is $100 million, with a corresponding monthly threshold of $8,333,333, subject to the SRO’s detailed calculation rules.
The surcharge rates are separate from Victoria’s standard and regional payroll tax rates; eligibility is worked out under the surcharge rules rather than the regional-employer test. Because the $10 million test is based on national grouped wages, a standalone Victorian entity can be drawn into surcharge territory by the combined payroll of the wider corporate group it belongs to, even if its own wage bill looks modest.
How to register for payroll tax in Victoria
Registration is not automatic. An employer must register for Victorian payroll tax if it pays wages in Victoria and its taxable Australian wages exceed the applicable threshold, and late registration, lodgement or payment can lead to penalties and interest.
When a business needs to register
A Victorian employer, or a group of related employers, must register once its taxable Australian wages exceed the applicable monthly or annual threshold. In practice, this means monitoring estimated annual wages and registering promptly once liability arises, rather than waiting until the figures are finalised.
Interstate employers with Victorian staff, and businesses that only start operating partway through a financial year, should check the pro-rated threshold rather than assuming the full annual figure applies.
Lodging returns and the annual reconciliation
Once registered, employers generally lodge and pay monthly through the SRO’s online PTX Express system, unless the SRO has approved an annual-payment arrangement. Payment is due by the 7th of the following month, or the next business day if the 7th falls on a weekend or public holiday. The annual reconciliation, which finalises the year’s actual liability, is due by 21 July, or the next business day if 21 July falls on a weekend or public holiday, and extensions are not available.
The annual reconciliation compares the monthly returns already lodged against actual wages for the full financial year. This is where any regional rate true-ups, phase-out adjustments or surcharge calculations are finalised, and where refunds or top-up payments are triggered.
Payroll tax exemptions in Victoria
Not every payment made to a worker is taxable, and not every organisation is liable. The exemptions matter because missing one usually means overpaying, while wrongly applying one creates compliance risk at audit time.
Exempt wages
Some payment types are excluded from the wage base even for an otherwise liable employer. Under the State Revenue Office’s parental leave exemption, wages paid to an employee acting as a primary or secondary caregiver around a pregnancy, birth or adoption are exempt, capped at a maximum of 14 weeks’ pay or a pro-rata amount.
The exemption can cover salary, superannuation, allowances, bonuses and commissions relating to that leave, but it excludes fringe benefits and does not extend to ordinary annual leave, sick leave or long-service leave. Certain reimbursements and specific motor vehicle or accommodation allowances can also fall outside the definition of wages, depending on how they are structured.
Exempt organisations
Some organisations are exempt from payroll tax altogether, a category the State Revenue Office designs to support charitable, educational and community-focused entities. Eligibility usually turns on the organisation’s purpose and structure, so a not-for-profit label alone does not guarantee exemption; each entity needs to check its status against the SRO’s rules.
Grouping rules: why related businesses can lose their threshold
Grouping is one of the most misunderstood parts of Victorian payroll tax, and one of the areas the SRO reviews most closely. A business does not need to be a large single employer to be liable; it just needs to belong to a group whose combined wages exceed the threshold.
How businesses become grouped
Businesses can be grouped through common ownership, common control, shared employees, or corporate relationships such as holding and subsidiary companies. Grouping provisions apply regardless of where each business operates, so a Victorian entity can be grouped with an interstate business and still have its Victorian threshold affected by the group’s total Australian wages.
What grouping means in practice
Only one threshold deduction applies across an entire group, not one deduction per entity. A business that looks well under the threshold on its own can still be fully liable for payroll tax once its related entities’ wages are added in, which is why grouping structures deserve a periodic review rather than a one-off check.
Contractor payments and payroll tax
Contractor payments are a common blind spot because payroll tax is not limited to employees on wages. Victoria’s contractor provisions are statutory and exemption-based, meaning contractor payments can be taxable wages unless a specific legislative exemption applies, rather than being tested purely on general independent business grounds.
Whether an exemption applies depends on the contract and the nature of the services provided, so each arrangement needs to be assessed against the Victorian payroll tax legislation and SRO guidance rather than assumed from a business’s general use of contractors. Keeping records that show why a particular contractor exemption applies is worthwhile, since the SRO can request evidence for any exemption claimed.
Payroll tax obligations to watch heading into the new financial year
Wage-related obligations rarely stay still for long, and two changes are worth flagging for Victorian employers planning ahead. From 1 July 2026, Payday Super requires employers to pay Superannuation Guarantee contributions on payday rather than quarterly, which changes the timing and administration of super payments. It does not remove employer superannuation contributions from the Victorian payroll tax wage base: the SRO’s wage rules continue to treat superannuation contributions, including salary sacrifice, as taxable wages.
Employers should also keep an eye on wage growth relative to the phase-out bands, since a business sitting comfortably under $3 million in total Australian wages one year can move into phase-out territory the next, particularly after a hiring push or an acquisition.
Businesses unsure whether a recent change in headcount, structure or interstate wages has shifted their payroll tax position can have their obligations reviewed before the annual reconciliation falls due, rather than after.
How Victoria compares with other states
Every state and territory sets its own payroll tax threshold, rate and surcharge rules. Victoria has a phase-out deduction and two large-employer surcharges, which can make its calculations more involved than some other jurisdictions. The table below is a simplified 2025–26 comparison for context only.
Figures above are a simplified guide for the 2025–26 financial year only. They should be confirmed against each state’s current legislation before being relied on, since thresholds and rates are reviewed regularly and may have since changed.
Getting the numbers right before they are locked in
Payroll tax in Victoria generally comes down to three key areas: the wages included in the calculation, the payroll tax group a business belongs to, and the rate that applies. Errors such as overlooking a grouped entity, incorrectly treating a contractor, or applying the wrong regional rate may not become obvious until annual reconciliation or an SRO review, when interest or penalties may already apply.
At Pennywise Accountants, we often see payroll tax issues arise not from one major mistake, but from several smaller assumptions that have not been reviewed as the business has changed. Growth, interstate employees and greater use of contractors can all affect a business’s payroll tax position.
Reviewing the wage base, grouping arrangements and applicable rates each year can help businesses identify issues earlier and approach annual reconciliation with more accurate figures.
Frequently asked questions
How much is payroll tax in Victoria?
The standard rate is 4.85% of taxable wages above the threshold, or 1.2125% for eligible regional employers, calculated only on the portion of wages that exceeds the applicable annual or monthly threshold.
What is the payroll tax threshold in Victoria for 2025?
From 1 July 2025, the threshold is $1,000,000 a year or $83,333 a month, up from $900,000 and $75,000 the year before. The deduction phases out between $3 million and $5 million in total Australian wages and disappears entirely above $5 million.
Does payroll tax apply to contractor payments?
It can. Victoria’s contractor provisions are statutory and exemption-based, so contractor payments can be taxable wages unless a specific legislative exemption applies to that contract, depending on the nature of the services and the arrangement.
When are Victorian payroll tax returns due?
Registered employers generally lodge and pay monthly, with payment due by the 7th of the following month (or the next business day if the 7th falls on a weekend or public holiday). The annual reconciliation, which finalises the year’s actual liability, is due by 21 July, or the next business day if that date falls on a weekend or public holiday, and extensions are not available.
Are charities exempt from payroll tax in Victoria?
Some charitable, religious, educational and community organisations are exempt, but eligibility depends on the organisation’s structure and purpose rather than its non-profit status alone, so each entity needs to confirm its own position with the SRO.
Has Victoria cut payroll tax?
Victoria has not reduced its payroll tax rates, but it has lifted the tax-free threshold in two steps, taking many small businesses out of payroll tax altogether. The threshold rose to $900,000 from 1 July 2024 and to $1,000,000 from 1 July 2025, so a small employer whose total wages sit below that figure now pays no payroll tax at all, subject to the deduction phase-out for employers and groups with Australian wages above $3 million, even though the 4.85% and 1.2125% rates themselves are unchanged.
Does superannuation count as taxable wages for payroll tax?
Yes. Employer superannuation guarantee contributions, including amounts paid through salary sacrifice, form part of an employee’s taxable wages for Victorian payroll tax purposes, alongside salary, allowances, bonuses and fringe benefits. Businesses that calculate their wage bill using base salary alone, without adding superannuation, commonly underestimate how close they are to the threshold.
Can related businesses be grouped for payroll tax even if they operate in different states?
Yes. Victoria’s grouping rules apply regardless of where each related business is located, so a Victorian entity can be grouped with an interstate business through common ownership, common control or shared employees. Only one threshold deduction is available across the whole group, and the group’s combined Australian wages, not each entity’s wages in isolation, determine whether the threshold and phase-out bands are exceeded.
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