The Treasurer has announced reforms to payroll tax that will be welcomed by many Victorian employers, but the measures are largely temporary and will not provide any ongoing relief.
Having previously announced various payroll tax concessions to address the impact of COVID-19 on businesses, in its State Budget handed down today, the Victorian Government announced further initiatives concerning payroll tax and casual employment:
- Businesses with Australian group wages of less than $10 million will receive a non-refundable payroll tax credit of 10 cents for every dollar in taxable wages they pay in 2020-21 and 2021-22 that is in excess of the previous year’s taxable wages.
- Commencing in 2021-22, the maximum ceiling below which employers can pay payroll tax on an annual basis rather than a monthly basis will increase from $40,000 to $100,000 in tax.
- A Government-funded pilot scheme will introduce paid sick leave for casual employees in certain ‘priority industries’.
Notwithstanding these positive announcements, the Victorian payroll tax threshold still lags behind other Australian States and Territories and continues to result in businesses being liable for payroll tax in Victoria in circumstances where they would not have to pay payroll tax if they were operating outside Victoria.
New jobs tax credit
Providing payroll tax credits for employers who increase their taxable wages in 2020-21 and 2021-22 is part of the Government’s Jobs Plan. Referred to as the ‘New jobs tax credit’, it is designed to encourage small and medium-sized businesses with Australian group wages of less than $10 million to re-employ staff, restore staff hours and hire additional staff as they recover from the effects of the coronavirus pandemic.
For example, if a business increases its taxable wages by $100,000 in 2020-21 when compared to the prior year, it will benefit from an effective reduction in its payroll tax liability of $10,000. Further increases in taxable wages in the 2021-22 year will make it eligible for additional credits in that year as well.
The New jobs tax credit is even more beneficial for regional employers who enjoy a much lower rate of payroll tax which is currently no more than 2.02%.
Unfortunately, the 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 and could have a significant impact on employment levels in our State. Pitcher Partners encourages the Government to consider a similar scheme for larger businesses, even if only to give those employers a credit equivalent to the tax that would be payable on the increased wages over the next two years such that there is no net increase in payroll tax.
Annual payment threshold
The second reform announced in the Budget is to increase the maximum ceiling at which employers can pay payroll tax and lodge returns annually rather than monthly. Commencing from the 2021-22 year, businesses with annual tax payable of less than $100,000 will be able to pay payroll tax on an annual basis rather than monthly. The Government estimates that 7,000 more businesses will qualify to pay payroll tax on an annual basis as a result. This will relieve those businesses of a significant administrative burden and is a welcome measure for small businesses.
No increase in the payroll tax threshold
Whilst Pitcher Partners welcomes these initiatives, Victoria remains out of step with other Australian States and Territories in one key area. Currently, the Victorian threshold at which a business must register and pay payroll tax is annual wages of $650,000. All other States and Territories have an annual threshold of between $1,000,000 and $2,000,000 in wages.
For example, NSW’s threshold for the 2020-21 financial year was recently increased to $1,200,000 with a tax rate equal to Victoria’s of 4.85%. In effect, this means that NSW employers with wages over their threshold will pay $26,675 less in payroll tax in 2020-21 than an equivalent employer in Victoria.
Whilst reforms such as the New jobs tax credit provide a welcome temporary concession for Victorian employers as they recover from the impact of the pandemic, we implore the Victorian Government to consider undertaking more substantial and long-term reform of payroll tax and significantly increase the tax-free threshold to levels comparable with other States, particularly NSW. This will ensure that Victorian businesses can compete on an equal footing and in doing so, help attract new business to Victoria.
Sick leave for casual employees
The Government has announced a pilot program to introduce sick leave for casual workers in ‘priority industries’. Details of the scheme are sketchy at this stage but it is likely to provide up to five days paid sick leave at the national minimum wage for casual employees who work in certain (as yet unnamed) industries. Design of the pilot scheme, which will be paid for by the Government, will involve consultation with businesses, unions, and employees.
Pitcher Partners questions the need for such a scheme given that casual employees already receive a loading of 25% of their hourly rate to compensate for not having access to annual leave and sick leave entitlements. Also, if the scheme is adopted permanently, it will result in a further cost to businesses in the form of a levy or tax which, in the post-COVID climate, will present a further challenge for those businesses and may ultimately impact on employment levels.
What are the next steps?
Contact your Pitcher Partners representative if you have any queries concerning the Victorian Budget 2020-21 measures.