Victoria’s payroll tax system has come under fire after the Andrews Labor government delivered the state’s budget on Tuesday, with business advisors saying it offers no incentive for mid-sized businesses to create jobs.
The budged announced two key changes to payroll tax: a new tax credit scheme that will offer payroll relief to businesses that hire new staff or give ongoing staff more hours, and the option to pay payroll tax annually instead of monthly for employers with tax liabilities under $100,000.
Pitcher Partners’ Craig Whatman acknowledges that small businesses welcome the temporary relief, however, he says the changes fall short of having any “meaningful impact”.
The tax credit scheme will give businesses with a payroll of $10 million or less a tax credit of 10 cents for every dollar in wages they pay this financial year and next, so long as their tax bill is higher than it was in the year prior.
“This New Jobs Tax Credit does not apply to businesses with taxable wages above $10 million, who may have more scope to re-employ staff in the short to medium term,” Whatman said.
Whatman said a similar scheme for larger businesses could help boost employment at a time when it is desperately needed.
No core changes to payroll tax
On top of the disappointing tax credit scheme, Whatman said businesses were let down by the Victorian government’s decision to not change the core payroll tax structure, effectively discouraging businesses from investing in Victoria.
Victoria’s tax-free payroll threshold of $650,000 is significantly lower than all of the other states, which have thresholds between $1 million and $1.7 million.
The threshold limit in Victoria results in businesses being liable for payroll tax in circumstances where they would not have to pay payroll tax if they were operating in other states, Whatman said.
According to Whatman, the Victorian government is not sending the right signals to show that the state welcomes business investment.
“The Victorian government must begin long-term reform of payroll tax and significantly increase the tax-free threshold to levels comparable with other states, particularly NSW,” he said.
Current tax-free payroll thresholds and rates, state by state
The tax-free annual threshold in Victoria is $650,000 from July 2020 to July 2021 with a tax rate of 4.85%.
New South Wales
The tax-free threshold in New South Wales was permanently increased in this year’s state budget to $1.2 million with a temporary tax rate of 4.58% for the next two years.
In Queensland, the current threshold is $1.3 million in annual taxable wages, with a tax rate of 4.75% for employers paying $6.5 million or less in wages, and 4.95% for employers paying more than $6.5 million.
In South Australia, the threshold for when the payroll tax kicks in is $1.5 million of annual wages.
Businesses spending between $1.5 million and $1.7 million pay a variable tax rate of up to 4.95%, and businesses with wages exceeding $1.7 million are taxed at 4.95%.
The tax-free threshold in Western Australia is $1 million and until July 2023, the payroll tax rate is calculated on a tiered scale that increases from 5.5% to a maximum of 6.5%.
The tax-free annual threshold in the Northern Territory is $1.5 million with a tax rate of 5.5%.
In Tasmania, a payroll tax of 4% kicks in for businesses with annual wages between $1.2 million to $2 million, and rises to 6.1% for businesses with wages over $2 million.