Payroll Tax for Residential Builders in Victoria

What it is

Payroll tax in Victoria is a state tax on the wages a business pays. It is administered by the State Revenue Office Victoria under the Payroll Tax Act 2007 (Vic). Once a residential builder pays Australian taxable wages above the threshold, the builder must register, lodge monthly returns and pay the tax.

The Victorian Act shares its structure with the New South Wales, Tasmanian and ACT Acts, so the wage definitions and the contractor rules look familiar. The numbers do not travel. Victoria has its own threshold, its own phase-out, a lower regional rate and two surcharges aimed at large employers.

Threshold and rate

For the 2026-27 financial year the Victorian tax-free threshold is 1 million dollars a year, or $83,333 a month. The general rate is 4.85 per cent. Regional employers pay 1.2125 per cent, and to qualify at least 85 per cent of Victorian taxable wages must be paid to regional employees.

The threshold is not a flat allowance. Once Australian wages pass 3 million dollars it begins to phase out, and it hits zero at 5 million dollars. The phase-out rate is 50 per cent from 1 July 2025 onwards. A builder on 4 million dollars of wages keeps part of the threshold. A builder on 5 million dollars keeps none of it.

Two surcharges sit on top for large employers. The mental health and wellbeing surcharge has applied since 1 January 2022, and the COVID-19 debt temporary surcharge applies from 1 July 2023 through to 30 June 2033. Combined, they add 1 per cent on Victorian taxable wages above 10 million dollars and 2 per cent above 100 million dollars.

What counts as wages

• Gross wages, salaries, overtime, commissions and bonuses
• Allowances paid in cash
• Superannuation contributions, including the 12 per cent Super Guarantee and any salary sacrifice
• Fringe benefits grossed up at the Type 2 rate, which picks up site utes, fuel cards and entertainment
• Termination payments, excluding the tax-free part of a genuine redundancy
• Director fees and working-shareholder salaries
• The labour component of contractor payments caught by the relevant contract rules

Super is the quiet one. At 12 per cent, a 2 million dollar wage bill carries another 240,000 dollars of taxable wages that never shows up on a payslip.

Contractor deeming rules

Division 7 of the Payroll Tax Act 2007 (Vic) holds the relevant contract provisions. Almost any contract under which a person supplies services is a relevant contract. The principal becomes the deemed employer, the subcontractor the deemed employee, and the payments deemed wages. This is what catches residential builders, because the subcontract spend is usually larger than the payroll.

A payment escapes only if an exclusion applies. The ones that matter on a build:

• The contractor worked no more than 90 days in the financial year. Cross 90 days and every dollar paid to that contractor for the whole year becomes taxable, not just the days past 90
• The service is one the builder ordinarily needs for less than 180 days in the year
• The contractor ordinarily supplies the same service to the public generally. The SRO accepts this where the contractor served two or more principals that year
• The contractor engages their own employees or subcontractors to do the work
• The contractor is an owner-driver carting goods in their own vehicle

Where no exclusion applies, only the labour component is taxable. If the contract does not split labour from materials, the SRO publishes deemed labour percentages for common trades.

Grouping

Grouping combines the wages of related businesses so one threshold is shared across the group and claimed by a single designated group employer. It is triggered by common control, by a corporate holding relationship, by shared employees or by tracing an interest through trusts and companies.

The classic residential structure is a building company, a separate development entity and a family trust that owns the plant. Grouped, they share one 1 million dollar threshold, and their combined wages can push the group past the 3 million dollar phase-out point.

Lodgement and what to do

Monthly returns are lodged in PTX Express and paid by the seventh of the following month. The annual reconciliation is due 21 July and it replaces the June monthly return. Extensions are not granted, and penalty tax of up to 25 per cent plus interest applies if you miss it.

Rerun the estimate every quarter once wages, super, fringe benefits and contractor labour together approach 1 million dollars. Map every related entity and treat it as grouped until an adviser says otherwise. Hold the evidence behind any contractor exclusion you claim, because the SRO asks for it on audit and the 90-day count is the first thing it checks.