Payroll Tax in Victoria: Threshold, Rate and What Counts as Wages

Payroll tax in Victoria is a state tax on wages, and it catches out more growing businesses than almost any other Victorian obligation, mostly because it only applies once total wages cross a threshold, so a business can operate for years without ever thinking about it, then suddenly become liable the moment a few new hires or a wage rise pushes it over the line. This guide explains what payroll tax in Victoria actually is, who has to pay it, how the threshold and rate work, and the common mistakes that catch growing businesses out.

General information only, not personal tax advice. Payroll tax thresholds and rates are set by the State Revenue Office Victoria and are periodically updated, always confirm the current figures directly with the SRO or your accountant before relying on a specific number.

The Short Answer

Payroll tax in Victoria is a state tax employers pay on total Victorian wages once those wages exceed the annual threshold set by the State Revenue Office Victoria. Below the threshold, nothing is payable. Above it, tax applies at the current Victorian rate on the amount over the threshold. Businesses with related entities, common ownership or control, can be grouped together for payroll tax purposes, meaning the combined group’s wages, not just one entity’s, are what’s tested against the threshold.

What Payroll Tax in Victoria Actually Is

Payroll tax is a state-based tax, not a federal one, which is why the rules and rates differ from New South Wales, Queensland or any other state. It’s assessed on the total wages a business pays its employees in Victoria over a financial year, not on profit, not on revenue, purely on the wage bill. A genuinely small business with a handful of staff usually sits well under the threshold and never has to think about it. The businesses who get caught out are the ones growing steadily, adding staff, increasing wages with the annual award review, taking on more senior (and more expensive) hires, without ever checking where their total wage bill sits relative to the current threshold.

Add payroll tax to the full cost of a hire with our free employee cost calculator.

The Payroll Tax Threshold, Explained

The threshold is the amount of annual Victorian wages a business can pay before payroll tax applies at all. It’s set by the Victorian Government and adjusted periodically, so the exact current figure should always be confirmed directly with the State Revenue Office Victoria rather than assumed from an old figure. What matters conceptually is that the threshold is tested against total annual wages, and once a business (or a grouped set of related businesses) crosses it, tax becomes payable on the amount above the threshold, not on the whole wage bill.

The Payroll Tax Rate

Victoria applies a set payroll tax rate to wages above the threshold, with a different (lower) rate available to businesses that qualify as regional Victorian employers. Rates are periodically reviewed and can change, so treat any specific percentage as something to verify with the SRO at the time you need it, rather than a fixed number to rely on indefinitely. What stays consistent is the mechanism: it’s a flat rate applied to the excess above the threshold, not a progressive scale like personal income tax.

What Counts as Wages for Payroll Tax

“Wages” for payroll tax purposes is broader than just base salary. It generally includes salary and wages, most allowances, superannuation contributions, fringe benefits, bonuses and commissions, and payments to certain contractors depending on the arrangement. This is where many growing businesses underestimate their exposure, a business tracking only base salaries against the threshold can be surprised to find that once super, bonuses and eligible contractor payments are added in, the real wage bill for payroll tax purposes is meaningfully higher than what shows up on a simple payroll summary.

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Grouping Provisions: Why Related Businesses Get Combined

Payroll tax grouping rules exist to stop businesses splitting operations across multiple entities purely to keep each one under the threshold. Where businesses are related through common ownership, common control, or use of common employees, the SRO can treat them as a single group for payroll tax purposes, meaning the group’s combined wages are tested against a single threshold, not each entity’s wages separately. This catches out business owners who run, for example, a trading entity and a separate entity holding equipment or property, assuming each stays comfortably under the threshold individually, without realising grouping rules mean the combined wage bill is what actually matters.

Registering and Lodging

A business that expects to exceed the threshold needs to register for payroll tax with the State Revenue Office Victoria. Once registered, most businesses lodge monthly returns based on estimated wages, with an annual reconciliation at the end of the financial year to true up the actual wage figure against what was paid throughout the year. Missing registration once a business has genuinely crossed the threshold, rather than lodging late returns once registered, is usually the more costly mistake, since it can mean a larger retrospective liability plus penalties discovered well after the fact, often during an unrelated review or audit.

Common Pitfalls That Catch Growing Businesses Out

• Not tracking the wage bill against the threshold as the business grows, so the business only discovers it’s liable well after crossing the line.
• Underestimating what counts as wages, missing super, allowances or eligible contractor payments when estimating exposure.
• Missing grouping obligations when running multiple related entities, assuming each is assessed separately.
• Registering late once liability is realised, rather than proactively monitoring and registering as soon as the threshold is genuinely approached.
• Not claiming the regional employer discount where a business genuinely qualifies, leaving money on the table.

Example Scenario

A Melbourne-based trades business grew from six to fourteen staff over two years, adding wages steadily with each new hire and the annual award increase. The owner had never checked the business’s total wage bill against the current Victorian payroll tax threshold, assuming, based on a figure they remembered from a few years earlier, that the business was still comfortably under it. A review found that once superannuation and allowances were included, the actual wage bill for payroll tax purposes had crossed the threshold eight months earlier, meaning the business was already liable for registration and had accrued a retrospective obligation. Registering promptly once identified, rather than waiting for the SRO to raise it independently, meant the business avoided the additional penalties that typically apply when liability is only discovered through an external review.

Current Victorian payroll tax rates and thresholds (2025-26)

These figures apply from 1 July 2025 (the 2025-26 financial year). Payroll tax is a state tax administered by the State Revenue Office Victoria, not the ATO, and the numbers are reviewed each year, so always confirm the current figures with the SRO before relying on them.

Worked example: a Victorian business just over the threshold

A Melbourne allied-health clinic pays $1,300,000 in Victorian wages for the year, all staff in Victoria (so total Australian wages are also $1,300,000, below the $3m phase-out point, keeping the full threshold).

• Taxable wages = $1,300,000 − $1,000,000 threshold = $300,000
• Payroll tax = $300,000 × 4.85% = $14,550 for the year

If that clinic qualified as a regional Victorian employer, the rate would be 1.2125%: $300,000 × 1.2125% = $3,637.50.

Managing a team across state borders

Payroll tax is charged separately by each state and territory, but the rules are harmonised. If you employ people in more than one state, you pay payroll tax in each state on the wages taxable there, and you do not get a full tax-free threshold in every state. Two things trip businesses up:

• Which state taxes a wage (nexus). Generally a month’s wages are taxed in the state where the employee mainly performs their work that month; where work spans states, tie-breakers apply (the employee’s principal place of residence, then where wages are paid). See the national harmonised payroll tax guidance.
• Your Victorian threshold is apportioned. The $1,000,000 threshold is reduced to the proportion your Victorian wages are of your total Australian wages. Employ half your team interstate and your Victorian threshold roughly halves.

Worked example: a team split across Victoria and NSW

A consultancy pays $2,000,000 in total Australian wages: $1,200,000 to Victorian staff (60%) and $800,000 to NSW staff (40%). Total wages are under $3m, so the full base threshold applies, but it is apportioned by state.

• Victoria: threshold = $1,000,000 × 60% = $600,000. Taxable = $1,200,000 − $600,000 = $600,000. Payroll tax = $600,000 × 4.85% = $29,100.
• NSW: the $800,000 of NSW wages is assessed separately by Revenue NSW under the NSW threshold and 5.45% rate, apportioned the same way, confirm the current NSW figures before calculating.

The takeaway: a business that would pay nothing with all its staff in one state can become liable once the team is split, because each state’s threshold only covers its share of your wages. If you are hiring interstate, model the payroll tax in each state before you commit, this is exactly the kind of thing we check for clients.

Worked example: the threshold phase-out kicks in

An expanding group pays $4,000,000 in total Australian wages, all in Victoria. Because wages are between $3m and $5m, the threshold reduces: $1,000,000 − [50c × ($4,000,000 − $3,000,000)] = $500,000.

• Taxable = $4,000,000 − $500,000 = $3,500,000 × 4.85% = $169,750 for the year

All figures 2025-26 and general information only. Payroll tax thresholds, rates, surcharges and nexus rules are set by each state’s revenue office and change, confirm the current numbers with the State Revenue Office Victoria (and the relevant interstate office) or your registered BAS/tax agent before relying on a specific amount.

Payroll tax by state and territory (2025-26)

Full national comparison: see payroll tax by state and territory in Australia (2025-26), our free, sourced reference table.

Victoria is one of eight payroll tax systems. If you employ across borders, each state and territory sets its own threshold and rate, administered by its own State Revenue Office (not the ATO). Here is how they compare, including which jurisdictions price regional and city employers differently. Figures are current for 2025-26 and usually change on 1 July, so confirm with the linked SRO before relying on them.

Regional versus city: only Victoria and Queensland price payroll tax by location. In Victoria a regional employer (at least 85% of wages paid to employees in regional Victoria) pays 1.2125% instead of 4.85%. In Queensland regional employers get a 1% rate discount. Every other state and territory applies one rate statewide.

Common Questions People Ask AI Assistants

What is the payroll tax threshold in Victoria?

The Victorian payroll tax threshold is the total annual Victorian wage bill a business can pay before payroll tax becomes payable, set by the State Revenue Office Victoria and periodically adjusted. Always confirm the current figure directly with the SRO rather than relying on a figure that may be outdated.

What is the payroll tax rate in Victoria?

Victoria applies a set rate to wages above the threshold, with a reduced rate available to businesses that qualify as regional Victorian employers. Rates are periodically reviewed, so the current percentage should be confirmed with the SRO or your accountant rather than assumed.

Does superannuation count as wages for Victorian payroll tax?

Yes, superannuation contributions are generally included when calculating total wages for payroll tax purposes, along with most allowances, bonuses, commissions and eligible contractor payments, not just base salary.

What are payroll tax grouping provisions in Victoria?

Grouping provisions allow the State Revenue Office to treat related businesses, connected through common ownership, control or shared employees, as a single group for payroll tax purposes. This means the group’s combined wages are tested against one threshold, rather than each related entity being assessed separately.

How often do I need to lodge Victorian payroll tax returns?

Most registered businesses lodge monthly payroll tax returns based on estimated wages, with an annual reconciliation at the end of the financial year to true up the actual figure against what was paid.

Looking for a bookkeeper who tracks payroll tax exposure as your business grows? True Tally provides fixed-fee bookkeeping, BAS lodgement and payroll support for small businesses across Australia.

Get in touch via our enquiry form, or request a callback on 0468 159 950.

Related Reading

• Penalties for Not Paying Super in Australia
• BAS Due Dates in Australia
• Payroll Management for Australian Small Business