It’s time for the Victorian Government to rethink school payroll tax

ISV Acting Chief Executive Meg Hansen urged the government to rethink the tax in light of concerns among government MPs, continuing uncertainty in schools about their tax liability, and the government’s willingness to grant payroll tax concessions to doctors.

‘The government needs to rethink its rushed and unprecedented decision to tax schools,’ Ms Hansen said.

‘We now know that a government MP, Mr Tim Richardson, the Member for Mordialloc, repeatedly raised concerns about the impact of the tax on an Independent school in his electorate,’ she said.

‘Mr Richardson is not alone in expressing unease about the impact of the tax on aspirational families. We understand his concerns are also shared by members of cabinet.’

Ms Hansen said some schools were also unclear on their tax liability, 12 months after the government announced the tax and just weeks before it comes into effect.

School planning and budgeting have been made complex and frustrating because of uncertainty surrounding which staff wages are counted when assessing liability.

Under amendments to the Payroll Tax Act 2007 passed by Parliament last September, wages were exempt from the tax if they were paid ‘for an educational service that is provided by a person in connection with the curriculum of a school’.

Some schools had assumed this meant wages paid to teaching staff would not be included in assessing payroll tax, and budgeted accordingly.

Now, however, schools face uncertainty because the State Taxation Amendment Bill 2024, before the Legislative Council this week, makes further amendments which suggest these wages will not be exempt.

Ms Hansen said the government’s decision last week to grant payroll tax exemptions to general practitioner contractors showed the government could compromise and abandon a strongly held position.

‘There are parallels between what has happened with the tax on doctors, with the tax on learning,’ she said.

‘In the case of doctors, the government will grant tax exemptions based on powers available to the Treasurer.

‘Similarly, legislation governing the tax on schools gives the Treasurer and Education Minister extraordinary powers to declare which schools are liable for the tax, and which aren’t.

‘While we want this tax on learning scrapped, at the very least there should be no tax on wages paid to school staff who deliver curriculum in ‘the education state’, because otherwise schools will be forced to compromise on the vitally important work of teaching our young people.’

A total of 52 Independent schools educating about 65,000 students have to pay the tax from July this year. The number of targeted schools will rise to about 70 within five years as they inevitably reach the arbitrary tax threshold of annual fees of $15,000.

The bulk of the schools affected by the tax this year are in Melbourne’s inner east and Bayside suburbs. But as the tax net widens, as more schools reach the fee threshold due to rising costs, the impact will spread into other suburbs.