Biggest Tax Risks for Businesses in Victoria

Operating in Victoria brings unique opportunities, but also some very specific tax challenges. Over the past few years, rapid tax reform, increased compliance activity, and a tightening economic environment have created a more complex landscape for businesses to navigate.

With over 20 years advising on complex taxation matters, I’ve seen firsthand where
entities are most exposed and how proactive planning can help avoid costly surprises.

A uniquely challenging tax environment

Victoria’s tax landscape is shaped by a high volume of state-based taxes, frequent legislative change, and a strong enforcement approach from the State Revenue Office (SRO).

Two of the most significant areas of change in the past 24 months have been:

• Property tax reforms – The shift from traditional upfront stamp duty on certain commercial and industrial properties to a 10-year transitional payment model adds a layer of complexity when acquiring or holding property.
• Payroll tax changes – Thresholds have moved from $700,000 to $1 million, requiring boards and finance leaders to reassess their exposure as they grow.
  Add to this the legacy of COVID-19’s economic disruption, particularly in Melbourne’s CBD, where lower office occupancy still impacts surrounding businesses, the cost of doing business in Victoria can be higher and harder to predict than in other states.

Add to this the legacy of COVID-19’s economic disruption, particularly in Melbourne’s CBD, where lower office occupancy still impacts surrounding businesses, the cost of doing business in Victoria can be higher and harder to predict than in other states.

The most common areas of non-compliance

From my experience, the tax risks most often mishandled by boards and CFOs in Victoria include:

• Payroll tax grouping provisions – Where related businesses with common ownership are not correctly grouped, leading to underpayment.
• Undeclared contractor payments – Payments falling within payroll tax obligations but not being declared.
• Fringe benefits tax (FBT) errors – Misreporting or overlooking FBT liabilities.
• Land tax threshold changes – Entities not recognising new liabilities due to reduced thresholds.
• COVID debt recovery charges – These can be missed in payroll systems if
  processes aren’t updated.

Each of these can attract penalties and interest, especially with the SRO’s recent
introduction of a 50% recklessness penalty.

Increased compliance and audit activity

The SRO has significantly increased its audit focus, with common triggers including:

• Contractor vs employee classification issues
• Grouping errors in payroll tax
• Undeclared fringe benefits
• Trust-owned property and incorrect land tax registration

Data matching between the SRO, ATO, and other state agencies means inconsistencies are far more likely to be detected, even across different tax types or jurisdictions.

Structural change: Mergers, demergers, and IPOs

Major business restructures can create unexpected state tax liabilities if not planned for. Examples include:

• Landholder duty on mergers – Increasing an ownership stake in land beyond 50% can trigger duty.
• Demergers and land transfers – Duty exemptions exist but are conditional; missing a condition can be costly.
• Payroll tax thresholds – Merging with an entity that has staff in other states may require apportioning payroll thresholds across jurisdictions.
   

The hidden danger of poor systems integration

When financial systems don’t talk to each other, tax obligations can fall through the
cracks. Poor integration often leads to:

• Inconsistent financial records
• No single source of truth for payroll and property data
• Missed tax flags or alerts
• Difficulty consolidating data for accurate reporting

These governance gaps can create significant exposures, often only uncovered during an audit.

Interstate and international operations

Cross-border activity can further complicate Victorian tax positions. For example:

• Service entity arrangements – Wages recharged from an interstate or overseas related entity may still be taxable in Victoria.
• Payroll allocation – Determining which state payroll tax applies to cross- charged wages requires careful analysis and documentation, depending on how the payments are structured.

Without the right structures and advice from the outset, these scenarios can quickly escalate into multi-jurisdictional compliance headaches.

How CFOs and tax leaders can reduce risk

The most effective approach is prevention. That means:

• Identifying potential exposures early
• Embedding tax considerations into business decisions, especially structural change, employment models, and intercompany arrangements
• Strengthening payroll and property transaction controls
• Integrating tax data into core systems and processes
• Conducting regular internal reviews
• Training finance and HR teams on state-specific obligations
• Engaging with the SRO proactively

Tax governance: More than a compliance exercise

A robust tax governance framework should be structured, tested, and maintained over time. The best frameworks include:

• Policy – Clear principles and responsibilities for tax compliance.
• Procedures – Detailed steps for meeting obligations.
• Testing – Regular reviews to confirm the framework works in practice.

Businesses that can demonstrate strong governance are often viewed more favourably by revenue authorities, reducing their audit risk profile.

The mindset shift: Use tax as a business tool

My final advice? Don’t treat tax as a last-minute compliance task.

If you embed tax into your strategic and operational planning, it becomes a risk management tool, not a burden!

By being proactive, you’ll avoid unnecessary penalties, improve cash flow
predictability, and free up your time and resources to focus on growth.

Need clarity on your Victorian tax position?

RSM can help you assess your risk, strengthen your governance, and engage proactively with the State Revenue Office. Get in touch to start the conversation