Following the release of the 2026–27 Victorian State Budget papers, the State Government has announced a further refinement to the payroll tax obligations for non-government schools, particularly those considered “lower-fee”.
In a significant development, the Government has brought forward its previously flagged review of the income per student threshold and will now align the threshold with increases in the Commonwealth’s Schooling Resource Standard (SRS) going forward.
From 1 July 2026, non-government schools with income per student up to $16,397 will be exempt from payroll tax. This replaces the previously fixed $15,000 threshold announced in June 2023 and introduces an annual indexation mechanism, with the threshold set to increase each year in line with the SRS amount for secondary students as determined by the Commonwealth Government.
Eligibility for the payroll tax exemption will continue to be assessed based on the latest available income per student data, relative to the updated threshold.
How is income per student determined?
Whilst the threshold has increased, how income per student is calculated remains the same. The Department uses Financial Questionnaire information from the following categories:
- RI.010 Fees and Charges (excluding Overseas Students) less discounts, concessions and scholarships.
- RI.020 Income from excursions/trips
- RI.030 Other Receipts from Students
- CI.030 Fee/levies Allocated for Capital Purposes
What happens next?
The Department undertakes an assessment and based on which schools are under the new threshold, it will specifically exempt those schools. All other schools will be required to pay payroll tax.
We expect this assessment to occur and be updated on the State Government website by 30 June 2026. The existing list of exempt and non-exempt schools is listed here.
How much is payroll tax?
For those non-exempt schools, payroll tax will be payable on wages over the $1m threshold. If a schools wages are between $3m and $5m they are entitled to a reduced deduction of 50%. Wages over $5m are not eligible for any deduction.
Payroll tax is paid at 4.85% or 1.2125% for regional Victorian employees.
If wages exceed $10m annually two additional surcharges apply, the mental health and wellbeing surcharge and COVID-10 debt temporary payroll tax recharge. Both are charged at 1%.
How it might impact your school
This change effectively means:
- Schools that were approaching or marginally exceeding the $15,000 threshold may now fall back below the revised limit.
- Future increases in school income will be partly offset by automatic increases in the threshold, reducing the risk of schools moving into the taxable category.
- The policy design is now more aligned to sector funding benchmarks, rather than a fixed nominal amount.
This update will be particularly relevant for schools that have been modelling a move above the prior $15,000 threshold and considering passing on payroll tax costs to parents. For some of these schools, the revised and indexed threshold may reduce or delay the likelihood of becoming liable for payroll tax.
Action Points
Schools should:
- Update their financial forecast modelling, including considering:
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- The new threshold,
- Future increases in the threshold based on the SRS,
- Expected future increases in school fees, factoring in global uncertainty, cost of living pressures, rising inflation, wages rate negotiations etc.
- Determine based on modelling, when they might be eligible for payroll tax and the financial impact on the organisation,
- Engage with their boards to understand the upcoming changes and the impact on their school.
If you would like to discuss how these updated settings may impact your school’s position, fee modelling or long-term planning, please reach out to our specialised Education Sector team.
