Increase in the payroll tax threshold
The Andrews Government has announced that the payroll tax threshold will be increased from 1 July 2016 by $25,000 per annum over the next four years, representing an overall increase of $100,000 from 1 July 2020.
At the current rate of payroll tax of 4.85%, this represents an overall saving of up to $4,850 per business group in Victoria.
But while the increase in the payroll tax threshold is welcome, the proposed increase in the threshold will only translate into a modest saving of $1,200 per annum for those businesses that still find themselves above the threshold.
And Victoria still ranks as having the lowest payroll tax threshold in the country. Even if we were to take into account the full increase over the next four years, Victoria’s payroll tax threshold will still rank behind NSW’s threshold of $750,000, and it will still be significantly less than the current national average of $1,050,000.
While Victoria has the second lowest payroll tax rate in the country, the most significant savings factor for small and medium businesses, i.e. businesses with lower payroll expenditure, is the payroll tax threshold.
As an example, for a business group paying $25,000 above the payroll tax threshold in taxable wages, a 0.5% decrease in the payroll tax rate represents an annual saving of only $12.50. To put this in perspective, it means that only businesses paying more than $2.975m in taxable wages would benefit more from a 0.5% decrease in the payroll tax rate (to 4.80%) as opposed to the $25,000 increase in the payroll tax threshold.
Accordingly, while we support the state government in its move to increase the payroll tax threshold, if the government wants to make Victoria a more attractive place for SMEs to do business in comparison to other states and territories, they would need to increase the payroll tax threshold at least up to the national average.
If the government is concerned about a decreasing payroll tax revenue base, an alternative option may be to adopt a decreasing payroll tax threshold system similar to Queensland, Western Australia and the Northern Territory. Under this system, the payroll tax exemption threshold decreases for each dollar of payroll taxable wages paid by a business above the payroll tax exemption threshold.
In Western Australian, businesses that pay less than $800,000 in wages are exempt from payroll tax, and businesses that pay less than $7.5m in wages receive a diminished payroll tax exemption of approximately 12c for each dollar above the threshold. In this way, the savings provided to small and medium businesses could be offset by the reduced threshold for larger businesses.
Displaced trainees or apprentices
From 1 July 2016, there will be a payroll exemption available for wages paid to displaced apprentices or trainees.
This appears to be in addition to the existing payroll tax rebate of up to $5,000 available for employers who hire apprentices and trainees under the Victorian Government’s Back to Work scheme.
This measure represents a significant incentive for employers to hire apprentices and trainees in Victoria.