Victorian Budget’s surprise Payroll Tax increase for businesses and schools

ATO/General, Public
Author: Michael Doran
31 May 2023

Well, I don’t think too many people expected the Andrew’s Victorian Government to propose such dramatic changes to the Victorian Payroll Tax law as occurred in last weeks State Budget.

The legislation supporting the Budget has been introduced to Parliament and is progressing through the Legislative Assembly – click here for the Bill and Explanatory Memorandum.

There are a range of proposals which will have a material impact on the PRT liability of TaxEd members who are either already subject to PRT or will become subject to PRT as a result of measures in the Budget.

With the 2023/24 Queensland and NSW Budgets yet to be delivered, we hope there may be fewer nasty surprises for TaxEd members in these and the Budgets of other jurisdictions

We look at the changes below:

  • let’s start with the positive: an increase in the PRT exemption threshold (also known as the deduction). The PRT exemption threshold will increase as follows:
    • current : $700,000
    • from 1 July 2024 : $900,000
    • from 1 July 2025: $1,000,000
  • And now for the nasties: from 1 July 2024 the exemption threshold will commence to be phased out once a employer has more than $3 million in taxable wages and reduced to nil once the employer has $5 million in taxable wages (i.e PRT will apply to every $1 of taxable wages);
  • As a 10 year ‘temporary’ COVID-19 debt reduction related measure,  employers (including not-for-profits who are subject to PRT) who pay more than $10 million in taxable wages will pay a surcharge equal to 0.5% of taxable wages in excess of $10 million. For employers with taxable wages in excess of $100 million a further 0.5% surcharge will apply to taxable wages in excess of the $100 million threshold. The surcharges take effect from 1 July 2023. The surcharges are in addition to ‘mental health levy surcharges‘ already imposed in Victoria for employers with taxable wages in excess of $10 million (0.5% surcharge on excess) and $100 million (a further 0.5% surcharge on excess). The rate of PRT remains at 4.85%.
  • And if that isn’t enough, the long held PRT exemption for non-government schools will be removed from 1 July 2024 for ‘high-fee’ schools. The Bill gives the Minister of Education the power, with the written consent of the Treasurer to specify which schools will remain exempt with the decision as to continuing exemption being made having regard to:
      • the fees and charges imposed by the school in relation to the provision of education within that school;
      • any other financial contributions received by the school; and
      • any other matter that the Minister considers appropriate.

Current media reports are suggesting schools that charge fees of around $8,000 per annum or more may be ‘high-fee’ schools and potentially lose the exemption.

The loss of the PRT exemption, combined with the phase out and loss of the threshold (where taxable wages exceed $5 million) and the surcharges being imposed will certainly be a very costly hit for impacted schools.

Impacted schools will need to come to grips with the likely PRT exposure and how PRT works including working out whether the complex PRT grouping rules apply where multiple schools are managed/controlled together. The impact of grouping is that only one exemption threshold is available per group. Given the phase out of the threshold at $5 million taxable wages, it may be the usual ‘cost’ of being grouped (losing the threshold on a per school basis)  will be of no consequence as PRT will already be being paid on every $ of taxable wages. Other rules that require consideration will be the application of PRT to contractors (very different to ATO rules) and concessional PRT rates for eligible regional employers.


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This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.

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