There are many factors to help you work out the correct amount to withhold from your employees’ pay. These may be based on information they provide in their TFN declaration or withholding declaration, or their employment information.
You must now report this information in each STP report, reflecting any changes to their employment basis.
You already provide some of this employment information to us, such as your employees’ commencement and cessation dates. Other information is provided to us and other government agencies through other forms such as TFN declarations and employment separation certificates.
By including this information in your STP report, in most cases you will no longer need to send TFN declarations to us or provide employment separation certificates when your employees leave.
You do not need to get new TFN declarations from your current employees to start reporting through STP Phase 2. Any new employees still need to provide you with their TFN declaration that you need to keep for your records.
Identifying employees in your STP report
You must provide either a TFN or Australian business number (ABN) for each payee included in your STP report. If you have not been provided with the employee’s TFN you must use the TFN exemption codes.
When you report a payment and withholding for a contractor under the voluntary agreement (VOL) income type, you must provide the contractor’s ABN. The contractor’s TFN is not required.
If a payee is a contractor and employee with the same payroll ID within the same financial year you must report both their ABN and TFN.
You must report your employees’ commencement date. If you do not know their commencement date, you can report a default date of 01/01/1800.
You must report information about your employees’ employment basis according to their work type.
- Full time (F) – a person who is engaged for the full ordinary hours of work as agreed between the payer and the payee and/or set by an award, registered agreement or other engagement arrangement. A full-time payee has an expectation of continuity of the employment or engagement on either an ongoing or fixed term basis.
- Part time (P) – a person who is engaged for less than the full ordinary hours of work, as agreed between the payer and the payee and/or set by an award, registered agreement or other engagement arrangement. A part time payee has an expectation of continuity of the employment or engagement on either an ongoing or fixed term basis.
- Casual (C) – a person who does not have a firm commitment in advance from a payer about how long they will be employed or engaged, or for the days or hours they will work. A casual payee also does not commit to all work a payer may offer. A casual payee has no expectation of continuity of the employment or engagement.
- Labour hire (L) – a contractor who has been engaged by a payer to work for their client. Income for contractors only, does not include employees.
- Voluntary agreement (V) – a contractor with their own ABN who has entered into a voluntary agreement with a business to bring work payments into the PAYG withholding system. To do this a contractor would normally complete a Voluntary Agreement for PAYG Withholding form.
- Death beneficiary (D) – the recipient of an employment termination payment (ETP) death beneficiary payment who is either a dependant, non-dependant or trustee of the estate of the deceased payee.
- Non-employee (N) – a payee, such as a contractor, who is not in scope of STP for payments but may be included in STP for voluntary reporting of superannuation liabilities only.
An employee may have one payroll ID, but more than one employment basis. For example, if an employee has multiple active employment contracts or engagements with you. In this case, if your employee has:
- multiple work patterns, report the first from this list that applies
- full time
- part time
- a labour hire employment basis and a work pattern, report labour hire
- a death beneficiary employment basis and a work pattern, report the work pattern.
Your STP Phase 2 report will include a six-character tax treatment code for each employee. The tax treatment code is an abbreviated way of telling us about factors that can influence the amount you withhold from payments to your employees
Reporting this information through your STP report means that when your employees give you a TFN declaration you no longer need to send a copy to us. It will also allow us to notify your employee if they have provided you with incorrect information which may lead to them getting a tax bill at the end of the year.
Your STP solution will automate the reporting of these codes and ensure that the tax treatment code you report is valid. Even though the creation of this code will be automated for you, it is still part of your STP report. It is important for you to understand what it means.
This table shows the components of the tax treatment code.
|Category of tax (character 1)||Options per category (character 2)||Are study and training support loans (STSL) (character 3) and Medicare levy variations (MLV) (characters 4-6) permitted?|
||STSL is only permitted for T (tax-free threshold) or N (no tax-free threshold). Report S at character 3. Otherwise report X at character 3.
MLV is only permitted for T (tax-free threshold). Refer to tax tables for when different kinds of variation are permitted.
|C (horticulturists and shearers)||
|S (seniors and pensioners)||
|H (working holiday makers)||
|W (seasonal worker program)||
|F (foreign resident)||
|N (no TFN)||
|V (voluntary agreement)||
You can’t report all possible combinations from the table above because sometimes the characters represent options which are not available in all circumstances. For example, if you have a full Medicare levy exemption, you can’t also have a Medicare levy reduction.
Example: tax treatment code
Hamid has given a TFN declaration to his employer. He has claimed the tax-free threshold and notified his employer that he has a study and training support loan. He has not asked his employer to vary the amount withheld from his pay for the Medicare levy.
When Hamid’s employer reports the salary and wages that she pays to Hamid through STP, she includes a tax treatment code.
The tax treatment code she reports is RTSXXX, which represents:
- R = regular employee, as Hamid’s employer knows he is not receiving any other income type.
- T = tax-free threshold, as Hamid has claimed the tax-free threshold in his TFN declaration.
- S = study and training support loan (STSL), as Hamid has notified his employer in his TFN declaration that he has a STSL.
- X = not applicable, as Hamid has not asked his employer to vary the amount withheld due to Medicare levy surcharge.
- X = not applicable, as Hamid has not asked his employer to vary the amount withheld due to a Medicare levy exemption.
- X = not applicable, as Hamid has not asked his employer to vary the amount withheld due to a Medicare levy reduction.
Annual tax offset amount
Your employee may have given you a Withholding declaration which claims an offset amount to reduce the amount you withhold from their pay. You will need to report the amount claimed in your STP Phase 2 reporting.
The annual tax offset amount only applies to regular employees who have claimed the tax-free threshold (meaning you can only report this for employees that you report a tax treatment code beginning in RT).
Reporting the amounts you have paid
STP Phase 2 doesn’t change the payments you need to report through STP, but it does change how those amounts need to be reported.
These changes will make it easier to identify amounts that have specific tax, super or social security treatments. It will also help us with pre-fill, which will make it easier for your employees when they lodge their individual income tax return.
Each amount you pay to an employee will now be assigned to an income type, and you can report amounts assigned to multiple income types throughout the year.
The reporting of income types helps us identify when:
- the employee’s income may be taxed differently (such as for working holiday makers)
- you are using a concessional reporting arrangement (such as for closely held payees)
- there may be other factors influencing the amounts you are reporting (such as foreign tax obligations and applicable tax treaties).
Income types that you can assign payments to are:
- SAW (salary and wages) – this is the most common income type and was formerly known as individual non-business (INB)
- CHP (closely held payees) – applies when the payee is directly related to the employer, such as family members. If you are using the concessions available to closely held payees, you must report these payments under this income type. This type of income was formerly included in SAW.
- WHM (working holiday makers) – applies to temporary visitors to Australia who hold a Working holiday visa (subclass 417) or Work and holiday visa (subclass 462).
- FEI (foreign employment income) – applies to assessable income paid to payees (who are Australian tax residents) that is subject to tax in another country for work performed in that country, if the qualification period is met.
- IAA (inbound assignees to Australia) – some multinational payers exchange, or transfer, payees between affiliated entities in different tax jurisdictions. If you are using the concessions available to inbound assignees to Australia, you must report these payments under this income type. This type of income was formerly included in SAW.
- SWP (seasonal worker programme) – applies to regional programmes for government-approved employers, administered by the Department of Employment, Skills, Small and Family Business. This type of income was formerly included in SAW. This does not include workers under the Pacific Labour Scheme which are recorded as SAW.
- JPD (joint petroleum development area) – before 1 July 2020 only.
- VOL (voluntary agreement) – applies to contractors paid under a Voluntary agreement.
- LAB (labour hire) – applies to payments by a business that arranges for persons to perform work or services, or performances, directly for clients of the entity. Income for contractors only – does not include employees. Employees of labour hire firms should be reported as the relevant income type, such as SAW.
- OSP (other specified payments) – this is a limited income type that only applies to specified payments by regulation 27 of the Taxation Administration Regulations 2017.
Different payroll solutions will handle changes to income types differently. If you need to change an income type during the year, you should follow your digital service provider’s instructions.
Example: income type reporting
Backpacker Farms Pty Ltd employs Jane, who is from Europe and has come to Australia on a working holiday maker visa. They include the amounts they pay to Jane in their STP reporting under the income type of WHM (Working Holiday Maker).
Jane’s working holiday maker visa is about to expire, and she applies for a different type of visa that will allow her to remain in Australia. She is granted a new visa which comes into effect on 1 February.
The payroll solution used by Backpacker Farms Pty Ltd enables the same payroll ID to have multiple income types. When they pay Jane after 1 February, they include a YTD amount against the WHM income type that is the amount they paid Jane before 1 February, and another YTD amount against the SAW income type that is the amount they paid her after 1 February.
At the end of the financial year, Jane logs in to ATO online services to complete her tax return. She is able to easily identify the amount she needs to report as working holiday maker income, which is taxed differently, because her income statement shows the amount she earned as a working holiday maker before 1 February and also the amount she earned as regular salary and wages after 1 February.
Note: if your payroll solution requires you to use separate payroll IDs for different income types then your employee will see separate income statements in ATO online services.
You must report a country code when you make payments to employees with the following income types:
- foreign employment income (FEI)
- inbound assignees to Australia (IAA)
- working holiday maker (WHM).
If you make a payment to an Australian resident working overseas, you must provide information about the host country.
If you make a payment to a working holiday maker or inbound assignee, you must provide information about their home country.
Disaggregation of gross
In STP Phase 1, the gross amount you reported contained different types of amounts depending on the particular income type. This approach has changed in STP Phase 2 and all payment types are now reported consistently for each income type.
Instead of reporting a single gross amount, you will now separately report:
- paid leave
- bonuses and commissions
- directors’ fees
- lump sum W
- salary sacrifice.
There are rules about which separately reported amounts can be included against each income type.
If your employee has an effective salary sacrifice arrangement, you previously would have reported post-sacrifice amounts to us. This changes as part of STP Phase 2. You now need to report pre-sacrifice amounts, as well as reporting salary sacrifice separately.
Your digital service provider will advise you on how to implement this change in your solution.
All remuneration you pay to employees that is reportable through STP, and is not separately itemised, should be reported as Gross.
Only pre-sacrifice amounts that are classified as ordinary time earnings (OTE) should be included as gross.
If you are making a back payment or arrears payment, it may be included as gross.
The following table outlines examples of what should and shouldn’t be included as gross reporting.
|Should be included as gross||Shouldn’t be included as gross|
Charge rates for work performed, outcomes achieved, or targets met by contractors
You will now need to separately report the following leave payments made to your employees in your STP Phase 2 report:
- other paid leave (paid leave type O)
- paid parental leave (paid leave type P)
- workers’ compensation (paid leave type W)
- ancillary and defence leave (paid leave type A)
- cash out of leave in service (paid leave type C)
- unused leave on termination (paid leave type U)
You don’t need to report unpaid leave through STP as there is no payment to report.
Other paid leave (paid leave type O)
All forms of paid absences should be reported as Other paid leave (paid leave type – O) unless they are required to be itemised using another leave type.
Only pre-sacrifice amounts that are classified as OTE should be included as other paid leave.
If you are making a back payment or arrears payment, it may be included in other paid leave.
The following table outlines examples of what should and shouldn’t be included in other paid leave reporting.
|Should be included as other paid leave||Shouldn’t be included as other paid leave|
Paid parental leave (paid leave type P)
All types of paid parental leave must now be reported separately.
Only pre-sacrifice amounts that are not classified as OTE according to the Superannuation Guarantee Act 1992 (SGAA) should be included as Paid parental leave. Some industrial instruments may require superannuation to be paid on these amounts.
If you are making a back payment or arrears payment, it may be included in Paid parental leave.
The following table outlines some examples of what should and shouldn’t be included in Paid parental leave reporting.
|Should be included as paid parental leave||Shouldn’t be included as paid parental leave|
Workers’ compensation (paid leave type W)
Some employers pay workers’ compensation to their employees, and in other circumstances the insurer makes the payment directly to the employee. Where you have made workers’ compensation payments, these must now be reported separately.
Only pre-sacrifice amounts that are not classified as OTE according to the SGAA should be included as workers’ compensation. Some industrial instruments may require superannuation to be paid on these amounts.
If you are making a back payment or arrears payment, it may be included in Workers’ compensation.
The following table outlines some examples of what should and shouldn’t be included in Workers’ compensation reporting.
|Should be included as workers’ compensation||Shouldn’t be included as workers’ compensation|
||Payments to employees on workers’ compensation who are at work performing duties – this payment must be reported as gross|
Ancillary and defence leave (paid leave type A)
There are a range of leave types that are paid while employees participate in volunteer or community activities. If you make ancillary and defence leave payments, they must now be reported separately in your STP Phase 2 report.
Only pre-sacrifice amounts that are not classified as OTE according to the SGAA should be included as ancillary and defence leave. Some industrial instruments may require superannuation to be paid on these amounts.
If you are making a back payment or arrears payment, it may be included in Ancillary and defence leave.
The following table outlines some examples of what should and shouldn’t be included in Ancillary and defence leave reporting.
|Should be included as ancillary and defence leave||Shouldn’t be included as ancillary and defence leave|
||Defence leave taken by the employee using annual leave, long service leave (LSL) or RDOs – this should be reported as other paid leave.|
Cash out of leave in service (paid leave type C)
When you pay out leave entitlements in lieu of your employee taking the absence from work, you must now report this separately.
The cash out of leave can only occur when it is allowed by Fair Work or other legislative sources.
Only pre-sacrifice amounts that are classified as OTE should be included as cash out of leave in service.
If you are making a back payment or arrears payment, it may be included in cash out of leave in service.
The following table outlines some examples of what should and shouldn’t be included in cash out of leave in service reporting.
|Should be included as cash out of leave in service||Shouldn’t be included as cash out of leave in service|
Unused leave on termination (paid leave type U)
If you make payments to your employees for unused leave on termination, you must separately include these payments. For more information, see termination payments.
You need to report overtime amounts paid to your employees.
Overtime is when an employee works extra time.
It can include work done:
- beyond their ordinary hours of work
- outside the agreed number of hours
- outside the spread of ordinary hours (the times of the day ordinary hours can be worked).
Only pre-sacrifice amounts that are not classified as OTE according to the SGAA should be included as overtime.
If you are making a back payment or arrears payment, it may be included in overtime.
The following table outlines some examples of what should and shouldn’t be included in Overtime reporting.
|Should be included as overtime||Shouldn’t be included as overtime|
Bonuses and commissions
You may pay some employees bonus and commission payments to reward their performance, service or for meeting a specific goal. These are typically paid as a lump sum.
Only pre-sacrifice amounts that are classified as OTE should be included as bonuses and commissions.
If you are making a back payment or arrears payment, it may be included in bonuses and commissions.
The following table outlines some examples of what should and shouldn’t be included in bonuses and commissions reporting.
|Should be included as bonuses and commissions||Shouldn’t be included as bonuses and commissions|
||Bonuses and commissions that relate entirely to work performed outside normal hours – these are reported as overtime|
If you pay directors’ fees you must separately include these in your STP Phase 2 report.
Directors’ fees include payments to:
- the director of a company
- a person who performs the duties of a director of the company
- a member of the committee of management of the company, or as a person who performs the duties of such a member if the company is not incorporated.
Directors’ fees may include payment to cover travelling costs, costs associated with attending meetings and other expenses incurred in the position of a company director.
Only pre-sacrifice amounts that are classified as OTE should be included as directors’ fees.
If you are making a back payment or arrears payment, it may be included in Directors’ fees.
The following table outlines some examples of what should and shouldn’t be included in directors’ fees reporting.
|Should be included as directors’ fees||Shouldn’t be included as directors’ fees|
Lump sum W (return to work payment)
A return to work amount is paid to induce an employee to resume work. For example, to end industrial action or to return from working for another employer. This is a new category of lump sum payments which is being introduced as part of STP Phase 2. Previously, they were reported as gross and not separately identified.
Only pre-sacrifice amounts that are classified as OTE should be included as lump sum W.
If you are making a back payment or arrears payment, it may be included in lump sum W.
The following table outlines some examples of what should and should not be included in lump sum W reporting.
|Should be included as lump sum W||Should not be included as lump sum W|
In Phase 1 reporting, some allowances are reported separately, and some are reported as part of gross.
You will now need to report all allowances separately in your STP Phase 2 report across most income types, not just expense allowances that may have been deductible on your employee’s individual income tax return. This means that allowances previously reported as gross must now be separately itemised and reported.
- these are an amount that reimburses an expense which was (or will be) incurred by the employee in the course of their duties and can be verified by receipts
- some reimbursements may be subject to FBT.
- fringe benefits
- these are not amounts that you are paying to your employee.
The allowance types you will separately report in STP Phase 2 are:
- cents per km (allowance type CD)
- award transport payments (allowance type AD)
- laundry (allowance type LD)
- overtime meal allowance (allowance type MD)
- domestic or overseas travel (allowance type RD)
- tool allowances (allowance type TD)
- qualification and certification allowances (allowance type QN)
- task allowances (allowance type KN)
- other allowances (allowance type OD)
Cents per km allowance (allowance type CD)
This applies to deductible expense allowances paid to employees using their own car at a set rate for each kilometre travelled for business purposes that represents the vehicle running costs including registration, fuel, servicing, insurance and depreciation.
The following table outlines some examples of what should and shouldn’t be included as Cents per km allowance reporting.
|Should be included as cents per km allowance||Shouldn’t be included as cents per km allowance|
Award transport payments (allowance type AD)
Award transport payments are deductible expense allowances for the total rate specified in an industrial instrument to cover the cost of transport (excluding travel or cents per kilometre reported as other separately itemised allowances) for business purposes, as defined in section 900-220 of the Income Tax Assessment Act 1997.
The current award transport payment must be traceable to an award in force on 29 October 1986.
The following table outlines some examples of what should and shouldn’t be included as Award transport payments.
|Should be included as award transport payments||Shouldn’t be included as award transport payments|
|Allowance payments for the cost of transport for business related travel traceable to a historical award in force on 29 October 1986||
Laundry allowance (allowance type LD)
This is a deductible expense allowance paid to employees for washing, drying and ironing uniforms required for business purposes.
You should only include laundry allowances for the cleaning of clothing that falls into one or more of the following categories:
- Compulsory uniform – unique and distinctive to identify the employer with a strictly enforced policy that makes it compulsory for the uniform to be worn at work.
- Non-compulsory uniform – only if the design of the uniform has been entered on the Register of Approved Occupational Clothing.
- Occupation-specific clothing – that isn’t everyday in nature and allows the public to easily recognise the occupation.
- Protective clothing and footwear – to protect against the risk of illness or injury posed by the activities undertaken to earn the income.
The following table outlines some examples of what should and shouldn’t be included as Laundry allowance.
|Should be included as laundry allowance||Shouldn’t be included as laundry allowance|
Overtime meal allowance (allowance type MD)
This applies to deductible expense allowances defined in an industrial instrument that are in excess of the ATO reasonable amount, paid to compensate the employee for meals consumed during meal breaks connected with overtime worked.
The following table outlines some examples of what should and shouldn’t be included as overtime meal allowance.
|Should be included as overtime meal allowance||Shouldn’t be included as overtime meal allowance|
|Overtime meal allowances that exceed the ATO reasonable amount||Overtime meal allowances paid up to the ATO reasonable amount – this payment continues to be exempt from PAYG withholding and from STP reporting|
Domestic or overseas travel allowances and overseas accommodation (allowance type RD)
This applies to deductible expense allowances that are paid for domestic or overseas meals and incidentals and domestic accommodation, undertaken for business purposes, which is intended to compensate employees who are required to sleep away from home.
It is not a reimbursement of actual expenses, but a reasonable estimate to cover costs including meals, accommodation and incidental expenses.
You only need to report amounts in excess of the ATO reasonable amount.
Don’t include the amount paid up to the ATO reasonable amount. This payment continues to be exempt from PAYG withholding and STP reporting.
The following table outlines some examples of what should and shouldn’t be included as Domestic or overseas travel allowances and overseas accommodation.
|Should be included as domestic or overseas travel allowances and overseas accommodation||Shouldn’t be included as domestic or overseas travel allowances and overseas accommodation|
Tool allowance (allowance type TD)
This applies to deductible expense allowances to compensate an employee who is required to provide their own tools or equipment for business purposes. This allowance was formerly required to be reported under other allowances with a description of the allowance type.
The following table outlines some examples of what should and shouldn’t be included as tool allowance.
|Should be included as tool allowance||Shouldn’t be included as tool allowance|
Qualification and certification allowances (allowance type QN)
This applies to deductible expense allowances that are paid for obtaining or maintaining a qualification, which is evidenced by a certificate, licence or similar, and is required to perform the work or services. For example, this includes allowances to cover registration fees, insurance, licence fees, which are expected to be expended to maintain a requirement of the job.
It doesn’t include allowances paid for performing additional duties just because those duties require a qualification or certificate. It also does not include a direct reimbursement of the cost.
The following table outlines some examples of what should and shouldn’t be included as qualification and certification allowance.
|Should be included as qualification and certification allowance||Shouldn’t be included as qualification and certification allowance|
Task allowances (allowance type KN)
This applies to a services allowance that is paid to compensate an employee for specific tasks or activities performed that involve additional responsibilities, inconvenience or circumstances above the base rate of pay.
These allowances were included in gross in STP Phase 1 reporting but are now required to be reported separately.
It doesn’t include allowances paid for obtaining or maintaining a qualification even if the qualification is a pre-requisite for performing the task.
Awards and enterprise agreements contain many different types of task allowances.
The following table outlines some examples of what should and shouldn’t be included as task allowance.
|Should be included as task allowance||Shouldn’t be included as task allowance|
Other allowances (allowance type OD)
These are other allowances that are not otherwise separately itemised. These can either be deductible or non-deductible expenses.
Anything you report as another allowance needs to have a description for the category of expense. These categories will help us assist each of your employees to complete their individual income tax returns.
The descriptions you can use are:
- G1 (general)
- H1 (home office)
- ND (non-deductible)
- T1 (transport/fares)
- U1 (uniform)
- V1 (private vehicle).
The following table outlines some examples of what should and should not be included as another allowance.
|Should be included as other allowances||Shouldn’t be included as other allowances|
H1 (home office)
V1 (private vehicle)
These category descriptions don’t apply where we tell you to use a specific description, for example in administering programs like JobKeeper Payment.
Sometimes there may have been an oversight or delay and you need to make a back payment to an employee. In some cases, this may be a lump sum E payment.
If you are making a back payment to an employee and it is not lump sum E, then report it in STP as the relevant payment type (such as gross or overtime).
Lump sum E
Lump sum E is an amount of back payment of remuneration that accrued, or was payable, more than 12 months before the date of payment and is greater than or equal to the Lump sum E threshold amount ($1,200).
Your payroll solution may report Lump sum E:
- in each STP report or
- only when you finalise your reporting at the end of the financial year.
Both ways are acceptable.
You must report Lump sum E YTD amounts by specifying each prior financial year to which the amount relates.
When you report lump sum E payments, you will no longer need to issue employees with a lump sum E letter at the end of the financial year. This information will now be available on their income statement.
The following table outlines some examples of what should and shouldn’t be included as lump sum E.
|Should be included as lump sum E||Shouldn’t be included as lump sum E|
|Back payments which accrued, or were payable, more than 12 months before the date of payment and are greater than or equal to the lump sum E $1,200 threshold||
Example: Lump sum E reporting
Due to an administration error, it is identified on 15 February 2022 that Ross has not been paid his higher duties allowance for the past 22 months totalling $3,300. Using the normal ATO backpay rules, the pay office has split the payment into the following categories:
- The past 12 months of backpay (15 February 2021 to 15 February 2022) totals $1,800. This is taxed and reported in the current financial year. As the backpay is for an allowance, it will be reported in the appropriate allowance field.
- The amount that is greater than 12 months old (14 February 2021 and earlier) totals $1,500 which means it must be reported as Lump sum E because it is greater than the lump sum E threshold of $1,200. The Lump sum E component must be allocated to the appropriate financial year. $600 relates to the 2020-21 financial year and $900 relates to the 2019-20 financial year.
Here is how this would be reported in STP Phase 2.
- KN tasks: $1,800
- Lump sum E 2021: $600
- Lump sum E 2020: $900
Ross’ employer does not need to provide him with a letter as the lump sum E amounts have been allocated to the appropriate financial years in the STP report.
Exempt foreign employment income
Any amount you pay to an employee that is exempt foreign employment income must be reported as exempt foreign employment income.
You must report these amounts even if they are the only income paid to the employee for the financial year. This is a new reporting requirement for STP Phase 2, as it was not required to be reported under previous reporting phases such as STP Phase 1 or payment summaries.
If the employee’s foreign service qualifies as exempt foreign income, it is not subject to withholding and must be reported in STP Phase 2 against the income type SAW as exempt foreign income.
Exempt foreign employment income is the exception to the reporting of pre-sacrificed amounts. You must only report post-sacrifice amounts as exempt foreign employment income, and you must not report any amount sacrificed from exempt foreign employment income as salary sacrifice in your STP report.
If the employee’s foreign service does not qualify as exempt foreign income, it must be reported against the income type FEI.
You must separately report salary sacrificed amounts.
When reporting salary sacrificed amounts, there are two new types to report:
- superannuation (salary sacrifice type S) – for superannuation to a complying fund or retirement savings account (RSA)
- other employee benefits (salary sacrifice type O) – for benefits other than super.
If your employee has an effective salary sacrifice arrangement, you have previously reported post-sacrifice amounts to us. This changes as part of STP Phase 2. You now to need to report the salary sacrifice amounts and separately report the pre-sacrificed income amounts in your STP report.
You must not report amounts sacrificed from exempt foreign employment income as salary sacrifice in your STP report.
Example – reporting pre-sacrificed income
Adam earns $60,000 per annum and would like to sacrifice $3,000 into superannuation.
In STP Phase 1 you reported the post-sacrificed income of $57,000.
In STP Phase 2 you are required to report the pre-sacrificed income as well as the amount of salary sacrifice. This is how you should report this in STP Phase 2:
- gross: $60,000
- salary sacrifice type S (superannuation): $3,000
This new method of reporting will show that Adam’s full income is $60,000 with $3,000 being sacrificed to superannuation, leaving a taxable income of $57,000.
Example – reporting both types of salary sacrifice
Anita earns $100,000 and sacrifices $5,000 into superannuation and $20,000 to a novated lease.
In STP Phase 1 you reported the post-sacrificed income of $75,000.
In STP Phase 2 you are required to report the pre-sacrificed income as well as the amount of salary sacrifice. This is how you should report this in STP Phase 2:
- gross: $100,000
- salary sacrifice type S (superannuation): $5,000
- salary sacrifice type O (other employee benefits): $20,000
This new method of reporting will show that Anita’s full income is $100,000 with $5,000 being sacrificed to superannuation and $20,000 being sacrificed to other employee benefits, leaving a taxable income of $75,000.
What is an effective salary sacrifice arrangement?
An effective salary sacrifice arrangement is one where the approved agreement between the employer and employee is in place before the payments to be sacrificed have been accrued, earned or are payable.
Salary sacrifice superannuation (salary sacrifice type S)
You should include salary sacrifice to a complying superannuation fund or RSA from an effective salary sacrifice arrangement.
The following table outlines what should and shouldn’t be included in superannuation salary sacrifice (salary sacrifice type S).
|Should be included in superannuation salary sacrifice||Shouldn’t be included in superannuation salary sacrifice|
|Amounts sacrificed to a complying superannuation fund or RSA due to an effective salary sacrifice agreement.||
Salary sacrifice other employee benefits (salary sacrifice type O)
You must include salary sacrifice of all benefits from an effective salary arrangement. This includes where the sacrifice relates to benefits that are exempt from FBT, such as Living Away from Home Allowance and laptops used primarily for business purposes.
The following table outlines what should and shouldn’t be included in Other employee benefits salary sacrifice (Salary sacrifice type O):
|Should be included in other employee benefits salary sacrifice||Shouldn’t be included in other employee benefits salary sacrifice|
Tax that has been withheld or paid
The kinds of payments you need to report are also payments which are part of the PAYG withholding system. This means you are required to withhold amounts from these payments and pay the amount you have withheld to us. In some cases, you may also need to pay tax to a foreign government or tax authority. You need to include these amounts.
You must report the amounts you withhold from payments you make to employees. You must include separate YTD amounts you have withheld from each income type (and for income types that require a country code, for each combination of income type and country code).
If you are reporting amounts you have withheld from payments you are reporting against the FEI income type, you must only report the residual amount withheld after the deduction of foreign tax paid. If you do not know the amount of foreign tax on or before each payday, you must report the full amount of PAYG withholding. When you know the amount of foreign tax you can correct your STP reporting so that you are reporting the residual amount.
Foreign tax paid
If you have paid amounts to an employee that you are reporting against the FEI income type, you must report the amount of foreign tax that you have paid or are required to pay to a foreign government or authority.
This amount must be included in your STP reporting during the same financial year as the payment is reported even you do not actually pay the foreign tax until after the end of the Australian financial year.
The amount you report must be in Australian dollars. See, Converting foreign income to Australian dollars
If you do not know the amount of foreign tax on or before each payday, then you can report zero or estimate the amount of foreign tax. If you do this, you must still include the correct foreign tax amount in your STP report when you finalise your reporting at the end of the financial year.
Other components of your STP reporting
There are components you need to report through STP that influence the amount you pay to an employee, but relate to the employee themselves rather than the kind of payment they are receiving.
For these components, you don’t need to include an income type or country code in your STP report.
These components are:
- child support
The reporting of deductions does not change under STP Phase 2.
There are two deduction types you can report:
- union and professional association fees (deduction type F)
- workplace giving (deduction type W).
Union and professional association fees (deduction type F)
You should only report union fees and professional association fees deducted from payroll as Deduction type F.
No other post-tax deductions can be reported as Deduction type F.
Workplace giving (deduction type W)
You should only report workplace giving as deduction type W if the amount is:
- an employee contribution made via a formal workplace giving program in accordance with ATO guidelines
- a post-tax contribution to a charity.
Do not include salary sacrifice contributions to a charity.
This is reported as Salary Sacrifice Type O (other employee benefits).
Child support reporting
You may voluntarily choose to report your Child support deductions and Child support garnishees if your solution offers this functionality.
- A child support deduction is a deduction from the employee’s pay made under a notice that is issued under section 45 of the Child Support (Registration and Collection) Act 1988. It requires an employer to deduct a fixed dollar amount each pay period and is subject to a protected earnings amountExternal Link. You should report these amounts in your STP report as deduction type D.
- A child support garnishee is a deduction from the employee’s pay made under a notice that is issued under section 72A of the Child Support (Registration and Collection) Act 1988. It requires an employer to deduct a percentage of the employee’s income, a lump sum, or a fixed amount each pay. You should report these amounts in your STP report as deduction type G.
If you report child support deduction or garnishee amounts, you may not need to separately report those amounts to the Child Support Registrar. However, you must still pay the required amounts directly to them by the date specified in your notice.
If the amount varies from what was requested the Child Support Registrar needs to know why and you should contact Services AustraliaExternal Link.
Starting to report child support amounts through STP
There are some things you need to do before you can report child support amounts through STP.
- When you lodge your first STP report that includes child support deductions, you still need to send the Child Support Registrar a child support deductions report form CS4964 using your preferred child support reporting channel. This is so the Child Support Registrar can work out your pay period Child support deduction amounts from your YTD amounts going forward.
- The information you include with your payment, such as your payment reference number, may also change when you start reporting Child support deduction and support garnishee amounts. You should contact Services AustraliaExternal Link to confirm your payment details with them.
- Special rules apply if you are making corrections to garnishee or deduction amounts.
If your payroll solution doesn’t offer functionality to report child support amounts, or you choose not to, you will still need to report directly to the Child Support Registrar using your existing reporting channel.
If you need assistance with reporting child support deduction or garnishee amounts, contact Services AustraliaExternal Link.
Reportable employer superannuation contributions and reportable fringe benefit amounts
You can report an employee’s reportable fringe benefit amount (RFBA) or a reportable employer super contribution (RESC) through STP.
The reporting rules for RFBA and RESC have not changed with STP Phase 2.
How to report RESC and RFBA through STP
You only report RFBA amounts if the total taxable value of certain fringe benefits you provided to your employee exceeds $2,000 for the FBT year (1 April – 31 March).
If you choose to report this information, you may provide YTD RFBA and RESC either:
- through a pay event (if the information is available in payroll) throughout the financial year OR
- through an update event throughout the financial year.
This can be at any time up until the due date to make the declaration that you have finalised your reporting for that employee for the financial year.
Once you’ve reported an amount, you should continue to report the amount in all following pay events, even if the YTD amounts remain the same.
If you can’t (or choose not to) provide RFBA or RESC through STP, you must provide this information on a payment summary to the employee and provide us with a payment summary annual report. The payment summary must not include amounts reported through STP.
Relationship between reporting RESC and RFBA, and salary sacrifice amounts
While RESC and RFBA are related to salary sacrifice superannuation (salary sacrifice type S) and salary sacrifice other benefits (salary sacrifice type O), they are not the same.
Often the amounts you report as salary sacrifice superannuation (salary sacrifice type S) are also considered RESC. However, there are other contributions you may make to superannuation for an employee that are RESC but not salary sacrificed.
RFBA may differ from the amounts you report as salary sacrifice other benefits (salary sacrifice type O) due to factors such as some:
- benefits an employee receives from salary sacrificing may not also be RFBA
- benefits an employee may not receive from salary sacrificing but they are nonetheless RFBA
- actions, such as employee contributions, may change the value of RFBA relative to the salary sacrifice.
When reporting RESC and RFBA through STP, you need to ensure you identify reportable employer super contributions and reportable fringe benefits amounts so that you can report correctly.
Example: RESC and salary sacrifice type S
Jackie earns $60,000 per annum. During the employment process she negotiated an extra 2% ($1,200) superannuation above the superannuation guarantee (SG) rate. Because Jackie negotiated with her employer to pay extra super this must be reported as RESC.
Jackie has also decided to salary sacrifice $10,000 into superannuation.
Here is how this would be reported in STP Phase 2.
- Gross: $60,000
- Salary sacrifice type S (superannuation): $10,000
- RESC: $11,200
The RESC value is higher than the salary sacrifice type S because it includes:
- the salary sacrifice amount of $10,000
- the extra $1,200 of employer super she negotiated.
Example: RFBA and salary sacrifice type O
Ross earns $80,000 per annum. Instead of carrying his heavy laptop, he has decided to salary sacrifice a tablet worth $2,000 which will be primarily used for work purposes.
Here is how this would be reported in STP Phase 2.
- Gross: $80,000
- Salary sacrifice type O (other employee benefits): $2,000
- RFBA: $0
The tablet is reported as Salary sacrifice type O because all salary sacrifice items are reported in STP Phase 2. However, because the tablet is being used primarily for work purposes it is not subject to FBT, so is not reported as RFBA.
You must include information about your employees’ superannuation entitlements.
You must continue to report and pay your employees’ superannuation entitlements through your existing SuperStream solution (including the Small Business Superannuation Clearing House). This has not changed with STP Phase 2.
You must report either:
- your YTD employer superannuation liability for each employee in the STP report (superannuation type L)
- the YTD ordinary time earnings (OTE) for each employee in the STP report (superannuation type O).
If your payroll solution allows you can also report both.
There are some circumstances where it may not be clear what to report such as where your:
- YTD employer super liability or your employee’s OTE is zero – report zero
- employees are entitled to receive super contributions above the minimum super guarantee (SG) liability – report this higher amount if you can’t separately identify these in your payroll solution
- employee is a member of a defined benefit fund and you make super contributions for the employee – report this amount if it is available in your payroll system. This would usually correspond to the YTD amount shown on the employee’s payslip. Otherwise, report zero as the super liability amount.
When an employee transfers or leaves
You must provide information in your STP Phase 2 report when employees leave. This will reduce the need to provide them with an employment separation certificate.
There are some kinds of payment you make to an employee when their employment with you ends.
Each of these amounts must now be reported against an income type and (for some income types) a country code.
There are also changes to the way you report a payment of unused leave on termination.
There are no other changes to any of the other amounts you may pay when an employee leave including:
- lump sums
Unused leave on termination (paid leave type U)
Unused leave paid on termination that was previously reported in Gross in your STP Phase 1 report must now be reported as unused leave on termination (paid leave type U) in your STP Phase 2 report.
The following table outlines what should and shouldn’t be included in unused leave on termination (paid leave type U).
|Should be included in unused leave on termination (paid leave type U)||Shouldn’t be included in unused leave on termination (paid leave type U)|
When you report lump sums through STP, you must include an income type and country code. You must also include the type of lump sum and the YTD amount. The type of lump sum is represented by a code.
The lump sum type codes you can include in your report are:
- R or T (lump sum A)
- B (lump sum B)
- D (lump sum D).
There are also lump sums you can report which are not paid when an employee leaves:
- E (lump sum E)
- W (lump sum W (return to work payment)).
Lump sum A
Lump sum A is for certain unused leave that is paid out on termination.
When reporting lump sum A, you need to report the lump sum type code of R or T.
- Lump sum type code R – for all unused annual leave or annual leave loading, and the component of long service leave that accrued from 16 August 1978 that is paid out on termination only for genuine redundancy, invalidity or early retirement scheme reasons.
- Lump sum type code T – for unused annual leave or annual leave loading that accrued before 17 August 1993, and long service leave that accrued between 16 August 1978 and 17 August 1993 that is paid out on termination for reasons other than genuine redundancy, invalidity or an early retirement scheme.
Lump sum B
Lump sum B is for long service leave that accrued before 16 August 1978 that is paid out on termination, no matter the reason for termination.
When reporting lump sum B, you should report the whole amount even though the employee will only be taxed on 5% of it.
You cannot report lump sum B for employees whose date of birth is later than 16 August 1978.
Lump sum D
Lump sum D represents the tax-free amount of only a genuine redundancy payment or approved early retirement scheme payment, up to the tax-free limit, based on the employee’s complete years of service, for an employee up to their age-pension age.
You need to report lump sum D amounts even if they are the only amount you pay your employee in the financial year. This is different to STP Phase 1.
Employment termination payments (ETPs)
When an employee leaves, you may pay them an ETP.
If you make an ETP you must report the:
- date you paid it
- type of ETP it is
- amount you paid, itemising the non-taxable (for life benefits only) and taxable components
- amount you have withheld from the ETP.
ETPs are different to the other amounts you include in your STP report because you do not report them as YTD amounts. Instead you report each amount by payment date and type.
You must now also include an income type and country code for each ETP you report.
ETP types you can report
ETP types help us to identify factors such as whether the ETP is a life benefit or death benefit, the reason it is being paid and the recipient. There are eight ETP types you can report.
- Genuine redundancy or early retirement scheme payments (ETP type R) – a life benefit paid only for reasons of
- genuine redundancy to employees under their pension age or earlier age of mandatory retirement
- an ATO approved early retirement scheme
- compensation for personal injury, unfair dismissal, harassment or discrimination.
- Other reasons (ETP type O) – a life benefit paid for reasons other than for ETP type R.
- Split ETP type R (ETP type S) – multiple payment of life benefit ETP type R for the same termination of employment, where the later payment is paid in a later financial year than the original payment.
- Split ETP type O (ETP type P) – multiple payment of life benefit ETP type O for the same termination of employment, where the later payment is paid in a later financial year than the original payment.
- Dependant (ETP type D) – a death benefit payment directly to a dependant of the deceased employee.
- Non-dependent (ETP type N) – a death benefit payment directly to a non-dependant of the deceased employee.
- Split ETP type N (ETP type B) – a multiple payment for a death benefit ETP type N for the same deceased person, where the later payment is paid in a later financial year than the original payment.
- Trustee of deceased estate (ETP type T) – a death benefit payment directly to a trustee of the deceased estate.
Paying an ETP to a death beneficiary
There are special rules for reporting ETPs you pay to death beneficiaries of a deceased employee.
- the identity information you report (such as TFN, name, address or date of birth) must belong to the death beneficiary, not the deceased employee. If you do not have the death beneficiary’s TFN, use the relevant TFN exemption code
- reporting either the payroll ID of the deceased employee or a new one you have assigned to the death beneficiary in your payroll solution
- reporting a commencement date of 01/01/1800 for the death beneficiary
- reporting an employment basis code of D for the death beneficiary
- reporting a tax treatment code of DBXXXX for the death beneficiary.
If the death beneficiary is also an employee on your payroll, you should report their actual commencement date, employment basis and tax treatment code.
Outstanding salary or wages, paid leave taken, allowances, overtime, bonuses and commissions, or directors’ fees that were payable upon death of the employee, but not paid to the employee before death are not ETPs. Do not report these through STP.
Some payroll solutions may allow you to report the non-taxable component for death beneficiaries. This is acceptable.
Paying ETPs in multiple instalments
If you pay the ETP in multiple instalments, you must report each payment separately.
If you pay multiple ETP types on the same day, they must still be identified separately if the ETP type code is different. You must not add the payments together and report the payments as a YTD figure unless they are paid on the same day and are the same type.
You must report your employees’ cessation date when they leave.
If you make another payment to that employee after the cessation date (for example an ETP), you do not need to update the cessation date.
There are many reasons why employees leave, and you will need to include the reason in your STP report.
Cessation reasons you can report are:
- Voluntary cessation (V) – an employee resignation, retirement, domestic or pressing necessity or abandonment of employment
- Ill health (I) – an employee resignation due to medical condition that prevents the continuation of employment, such as for illness, ill health, medical unfitness or total permanent disability
- Deceased (D) – the death of an employee
- Redundancy (R) – an employer-initiated termination of employment due to a genuine redundancy or approved early retirement scheme
- Dismissal (F) – an employer-initiated termination of employment due to dismissal, inability to perform the required work, misconduct or inefficiency
- Contract cessation (C) – the natural conclusion of a limited employment relationship due to contract/engagement duration or task completion, seasonal work completion, or to cease casuals that are no longer required
- Transfer (T) – the administrative arrangements performed to transfer employees across payroll systems, move them temporarily to another employer (machinery of government for public servants), transfer of business, move them to outsourcing arrangements or other such technical activities.
Transferring or rehiring an employee
Sometimes you may transfer an employee between different combinations of ABNs and branches within the same payroll solution, or from one payroll solution to another.
When you do this, it may impact on what you report as an employee’s commencement date, and whether you report cessation date and cessation reason.
When you transfer or rehire an employee, the commencement date you report after the transfer or rehire depends on the way you have processed it in your payroll solution. Your payroll solution will determine the date to use in most cases.
- are only moving the employee to a different combination of ABN and branch, the commencement date you should report is the start of the employment relationship. If this is unavailable, report the date you recognise for prior service
- transfer the employee in your payroll solution by terminating and rehiring them and
- assign them a different payroll ID, report the rehire commencement date
- terminate and rehire in the same pay period for the same combination of ABN and branch with the same payroll ID, you do not need to report the rehire commencement date
- terminate and rehire for a different (related) combination of ABN and branch (regardless of the pay period), your payroll solution will determine if you report the rehire commencement date or the earliest recognised date for service. Both are acceptable.
Cessation date and reason
When you transfer or rehire an employee, the way you report cessation date and reason before the transfer or rehire depends on the way you will process it in your payroll solution. Your payroll solution will determine the date to use in most cases.
- are only moving the employee to a different combination of ABN and branch, do not report any cessation date or reason. This is because there is no cessation to report.
- transfer the employee by terminating them from your current payroll solution and rehiring them in a new payroll solution, report the cessation date and reason code.
- terminate the employee and later rehire them in the same combination of ABN and branch then
- report the cessation date and reason you terminate. If the employee is rehired using the same payroll ID and you have not yet reported a cessation date, the cessation date should not be reported
- if the employee is rehired using the same payroll ID, you should stop reporting the cessation date and reason.
- terminate the employee and rehire them in the same pay period in a different combination of ABN and branch within the same group, the cessation date does not have to be reported.
The rules of reporting through STP
There are some rules for reporting through STP. This section explains those rules.
Requirements for an STP report
An STP report must meet some minimum requirements. Your payroll solution will ensure you meet them, as you will not be able to lodge your STP report otherwise.
The minimum requirements for an STP report are:
- your STP report must contain at least one employee record
- your STP report can only include one record per payee identity (combination of payroll ID and payee details such as TFN, name, date of birth)
- If you establish two payroll records for an individual, you can report these payments within the same pay event by using unique Payroll IDs.
- You must report separate YTD amounts for each unique Payroll ID for an employee.
- You must report period gross salary or wages (BAS label W1) and PAYG withholding (BAS label W2) for all employee payments included in that pay event. These amounts
- are your ’employer-level amounts’
- may be negative because of fixes you’ve made
- would generally correspond to the amounts you posted to your general ledger for the pay run.
- If your payroll solution offers the functionality to report child support amounts and you choose to use it, you must also include your total period amounts for each child support type.
When your STP report is due
Your STP report is due on or before the pay day. The pay day is either the payment date stipulated in the electronic transaction to your financial institution or, if you did not specify a date for payment, the date you intend to make the payment into your employee’s bank account.
You may lodge multiple STP reports on the same day. Your system will generate a time stamp to identify the latest record for each financial year and ensure the employee’s myGov display recognises the latest record.
There are concessional reporting arrangements which provide a later due date in some circumstances.
You may make payments to employees other than as part of their regular pay cycle, for example when you pay commissions, bonuses, payments in advance or back payments to your employees.
These payments may be reported by either:
- lodging a pay event on or before the pay day you made the payment
- including the out-of-cycle payment made to the employee in the next regular pay event you lodge if your payroll solution offers this functionality. If the next regular pay cycle is in the following financial year, you must report the payment by 30 June in the year the payment was made before you finalise.
This is distinct from an ad hoc payment that is generally either run as a calculation simulation or as an advance of the regular salary (which is deemed as a loan) and should be reported at the time the actual salary is calculated.
Example: out-of-cycle reporting
A software company pays its employees monthly. The employment agreement stipulates that employees should receive their pay on the 15th of every month.
On 30 March, Matthew, an employee of the company, earns a commission of $1,000. On 31 March, the company processes Matthew’s commission through payroll.
The company has two options to report the payment made to Matthew, either:
- report this payment to Matthew through a separate pay event (that is, not the regular 15th of the month pay event)
- include the commission payment to Matthew when it lodges the next regular pay event (the pay event with the pay date 15 April).
Note: Some STP-enabled solutions may not offer both options.
Who you include in your STP report
Your STP report must include each employee you’ve made a payment to that is mandatory for you to report. See Mandatory reporting below.
Your STP report may also include information for other employees, such as:
- those you’ve made a payment to that is voluntary to report
- those who’ve been reported earlier during the financial year but did not receive a payment for this pay period.
Payments you must report
Under STP, some payments subject to withholding are in scope and some are out of scope. These have not changed under STP Phase 2 reporting.
There are some withholding payments that are required to be reported under STP. They are generally paid through a payroll process by employers to their employees.
If you report these payments (and amounts withheld from them) throughout the year and complete a Finalising your STP data you will not need to provide the corresponding payment summaries to your employees or a PAYG withholding payment summary annual report to us.
(gross payment, amount withheld)
|Payment summary type|
|A payment to an employee, such as salary or wages||W1, W2||INB (except INB-P) or FEI|
|A payment of remuneration to the director of a company||W1, W2||INB (except INB-P) or FEI|
|A payment to an office holder (for example, a member of the Defence Force)||W1, W2||INB (except INB-P) or FEI|
|A payment to a religious practitioner||W1, W2||INB (except INB-P) or FEI|
|A return to work payment to an individual||W1, W2||INB (except INB-P) or FEI|
|A payment for termination of employment||W1, W2||ETP (life benefit)|
|An unused leave payment||W1, W2||INB (except INB-P) or FEI|
|A payment of parental leave pay||W1, W2||INB (except INB-P)|
|A payment to an employee under the Seasonal Labour Mobility Program||W1, W2||INB (except INB-P)|
INB: PAYG payment summary – individual non-business (NAT 0046)
INB-P: Individual non-business (pension)
FEI: PAYG payment summary – foreign employment (NAT 73297)
ETP: PAYG payment summary – employment termination payment (NAT 70868)
You must lodge a pay event even if the amount you were required to withhold from any of these payments was nil.
You may choose to include voluntary reporting amount in your STP reports. These are not mandatory.
Reporting voluntary amounts through STP may help to streamline your reporting and compliance processes because it can replace other reporting requirements, such as payment summaries.
|Description||Current BAS labels (gross payment, amount withheld)||Payment summary type|
|A payment that is covered by a voluntary agreement||W1, W2||Business and personal services income – 003|
|A payment under a labour hire arrangement or a payment specified by regulations||W1, W2||Business and personal services income – 001 or 002|
|A payment for termination of employment||W1, W2||ETP (death benefit)|
PAYG payment summary – business and personal services income (NAT 72545)
ETP: PAYG payment summary – employment termination payment (NAT 70868)
You can also choose to include:
- child support deduction amounts
- child support garnishee amounts.
If you choose to include RESC and RFBA in an STP report by 14 July in the next financial year and complete a finalisation declaration, you don’t have to give payment summaries to your employees covering these amounts. You don’t need to lodge a payment summary annual report covering these amounts.
If you choose to include child support deduction or child support garnishee amounts, you may no longer need to provide separate reporting directly to the Child Support Registrar, via your previously preferred reporting channel.
Payments that can’t be reported through STP
Some payments can’t be reported through STP.
- payments that are generally not paid through a payroll process
- payments made by payers to recipients that are generally not their employees, such as
- Services Australia
- investment bodies and managed investment funds
- purchasers of certain taxable Australian property.
Payers must continue to provide payment summaries and lodge a payment summary annual report for these withholding payments.
In addition, a payer can’t include any payment made through payroll solution that is not a withholding payment – for example, partnership distributions and payments to suppliers.
|Description||Current BAS labels (gross payment, amount withheld)||Payment summary or annual report|
|A superannuation income stream or an annuity||W1, W2||PEN or INB-P|
|A superannuation lump sum||W1, W2||SLS|
|A social security or similar payment||W1, W2||INB|
|A compensation, sickness or accident payment||W1, W2||INB|
|Payment of income of closely held trust where tax file number (TFN) not quoted||Annual activity statement||Closely-held trust or Annual TFN withholding report|
|Recipient does not quote Australian Business Number (ABN)||W4||ABN or No ABN, AIIR|
|Dividend, interest and royalty payments||W3||n/a or non-residents, AIIR|
|Departing Australia superannuation payment||W3||DASP|
|Excess untaxed roll-over amount||W3||n/a|
|A payment to a foreign resident||W3||Free format or Foreign residents|
|Payments in respect of mining on Aboriginal land, and natural resources||Electronic payment||Free format|
|Distributions of withholding MIT income||W3||Free format or AIIR|
|Distributions by AMITs (including deemed payments)||W3||Free format (for example AMMA statement), AIIR|
|Alienated personal services payments||W1, W2||Business and personal services income – 004|
|Non-cash benefits, and accruing gains, for which amounts must be paid to the Commissioner, except subdivisions 14-C and 14-D||W3 / Electronic payment||Most applicable|
|Shares and rights under employee share schemes (ESS)||W1, W2, where TFN quoted
W3 only, where TFN not quoted
|Capital proceeds involving foreign residents and taxable Australian property||Electronic payment||n/a|
PEN: Superannuation income stream
SLS: Superannuation lump sum
AIIR: Annual investment income report,
DASP: Departing Australia superannuation payment
AMMA statement: Annual attribution MIT member statement
ESS: Employee share scheme.
Payments made to contractors are not mandatory to report under STP. However, if you currently report contractors through your payroll solution, you should continue to do so under STP.
If you report payments to contractors and you have a voluntary agreement to have withholding applied, you don’t need to provide a payment summary to these contractors.
If the contractors are managed outside of payroll using accounts payable you don’t have to report payments to them under STP.
Rules for reporting amounts
Your STP report includes YTD amounts of salary or wages, allowances or other payments (as relevant), deductions and PAYG withholding for each employee included in that pay event.
These YTD amounts may be less than a previous report (for example, recovery of a current year overpayment) or can be zero.
There are limited circumstances where YTD amounts for specific payment types are negative, typically where corrections cross financial years (such as refunds of salary sacrifice) or cross related payers. This can result in some of the YTD amounts you need to report through STP also being negative.
If this occurs, YTD amounts can be negative when they are reported for:
- paid leave
- bonuses and commissions
- directors’ fees
- lump sum type W
- salary sacrifice.
If any of the YTD amounts you report are negative, the overall amount of income for each income type you report in your STP report must still be zero or positive. This means that for each income type the total of Gross, Paid leave, Allowances, Overtime, Bonuses and commissions, Directors’ fees and Lump sum W, less salary sacrifice, must be zero or positive. Your solution will ensure you meet this requirement.
Not all amounts can be reported for all income types. The following table shows the amounts that can be reported against each income type.
|Exempt foreign Income||Y||N||N||N||N||N||N||N||N|
|Paid leave payment||Y||Y||Y||Y||Y||Y||N||N||N|
|Bonuses and commissions||Y||Y||Y||Y||Y||Y||N||N||N|
|Lump sum payment||Y||Y||Y||Y||Y||Y||N||N||N|
|Employment termination payment||Y||Y||Y||Y||Y||Y||N||N||N|
Reporting based on your current business structure
Your payroll solution will generate your STP report for your pay cycle by ABN, branch and business management software (BMS) ID. We use this combination of information, together with the Payroll IDs you report, to identify when we need to display a separate income statement to your employee.
Some businesses structure their payroll so that the same person may be paid by different combinations of ABN, branch and BMS ID. They may also have multiple Payroll IDs in the same payroll solution that relate to the same person (for example, where the person performs multiple jobs).
This section explains some of the circumstances where this occurs.
PAYG withholding branches
Some business entities register PAYG withholding branches to suit the structural, management and accounting arrangements of the organisation. When an entity registers a branch, it must report and pay PAYG withholding separately for each branch.
If you have registered multiple PAYG withholding branches, you must conduct your STP reporting separately for each branch.
Multiple payroll solutions
If you currently use multiple payroll solutions, you can report separately from each payroll solution. This will be identified by the payroll solution via a unique BMS ID, which forms part of the STP report.
Most products will allocate the BMS ID for you as part of making their products STP-enabled. If you have more than one payroll solution, you will need to ask your digital service provider about your BMS ID.
When the employee’s payer changes
Your employee may have income attributed to different ABNs, branches, and BMS IDs during a financial year. If this is the case, each combination will result in a separate income statement displayed on the employee’s myGov account.
You must finalise each income statement (that is the combination of ABN, branch and BMS ID and payroll ID). You can choose whether you finalise the income statement during the year or at the end of the year (by 14 July). However, you should consider whether:
- your previous ABN/branch will still be active. You cannot finalise your STP reporting if the ABN or branch has been cancelled
- you will still have authorisation to report on behalf of your previous ABN/branch
- you will still have access to the payroll solution you reported from.
If your business structure changes, the ABN and branch under which you have been generating your STP reporting may change. If this occurs, you must:
- finalise your STP reporting under the ABN and branch you have been using for your STP reporting. You can choose whether you do this before you start reporting for the new ABN and branch or later (up until 14 July). However, you should consider whether
- your previous ABN/branch will still be active. You cannot finalise your STP reporting if the ABN or branch has been cancelled
- you will still have authorisation to report on behalf of your previous ABN/branch
- you will still have access to the payroll solution you reported from.
- start your STP reporting under the new ABN and branch using zero YTD employee amounts.
Example: Partnership to company
Amy, Joanna and Remy run a small furniture manufacturing business as equal partners. They report monthly wage payments for 20 employees through their STP-enabled payroll software.
In the 2020–21 financial year, they decide they want to transfer their interests in the assets of the partnership to a company. This is to occur on 1 March 2021.
When making and reporting via STP their February 2021 monthly wage payments, they make a finalisation declaration to finalise their STP reporting under the partnership’s ABN.
As part of the restructure, Amy, Joanna and Remy’s employees become employed by the company from 1 March 2021. Therefore, the company reports its March 2021 wage payments under the company’s ABN, starting from zero YTD employee amounts.
In their 2020–21 income tax returns, the employees will see two records – one listed against the partnership (for the period 1 July 2020 – 30 April 2021), the other against the company (for the period 1 March – 30 June 2021).
Example: Employee starts to work for a different branch
Priya is employed by a small mining company as a project manager in their main business. The company reports the fortnightly salary paid to Priya through STP throughout the year from its ABN and main reporting branch.
In the 2021-22 financial year the company enters into a joint venture. The joint venture will commence on 1 April 2022 and the company establishes a new branch for their ABN to keep their joint venture reporting separate from their main business.
Priya begins to work solely on the joint venture. Her salary starts to be paid by the joint venture branch from 1 April 2022. Therefore, the joint venture branch reports the salary paid to Priya through STP.
When she logs into myGov to complete her 2021-22 tax return Priya will see two income statements displayed, even though she has only worked for the same mining company during the year. This is because she was paid by more than one combination of ABN and branch.
- One income statement shows the salary paid to Priya when she was working for the main branch before 1 April 2022
- The other income statement shows the salary paid to Priya when she was working for the joint venture branch after 1 April 2022.
Multiple employee records
We use a combination of the employee identity information you supply (such as their TFN, name and date of birth) and the Payroll ID to match your STP report to the correct ATO taxpayer record so we can display the employee’s information in their income statement.
Where an employee is recorded more than once under the same ABN, branch and BMS ID then each payroll record of the employee must be reported using a unique payee payroll ID. This is so we can identify for which taxpayer you are reporting separate payroll records and display the correct information. Each payroll ID must have separate YTD amounts reported.
For example, where an employee works within an organisation under two separate roles or awards and has been created as if they are two unrelated employees, the employee can be reported under multiple payee payroll IDs within a single pay event.
Some payroll solutions may use the same payroll ID for more than one person, such as where the second person is a death beneficiary of the person originally assigned that payroll ID. In this situation you must ensure that you report unique payee identity information so that we can match the STP report to the correct person’s ATO taxpayer record.
Correcting information reported through STP
You have some time to correct information reported in a pay event without being liable to a penalty for making a false or misleading statement. We call this correction a ‘fix’.
This only relates to situations where the information you have already reported through STP is incorrect. It does not include situations where you should have lodged an STP report but failed to do so on time.
It is important that you make timely corrections because we may share the information you report through STP with Services Australia to assist your employee if they are a Services Australia customer. If you do not make a fix within the required period, you may also be liable to a penalty.
Correcting employee information
If the employee YTD information you last reported to us doesn’t reflect the information in your payroll system, you should give the updated information to us either:
- within 14 days of the need for a correction being identified
- in the next regular pay event within the same financial year where the affected employee has continuity of employment.
If we send an error message to you relating to the employee data you have reported, the same ‘fix’ rules apply to correcting those errors as above.
Corrections that impact your PAYGW liability
Sometimes when you identify that you need to make a fix to your STP reporting, you may also identify that the PAYG withholding you reported to us for a previous tax period was too high or too low.
When you correct employee information reported through STP in accordance with these guidelines, there are two ways you can report the correction to your PAYG withholding liability. You can:
- revise your Activity Statement for the earlier tax period to show the correct amount (or for large withholders, follow the existing process for notifying us of changes to your PAYG withholding liability in an earlier tax period)
- carry forward the correction to your reported PAYG withholding for the current tax period, subject to some limits.
If the PAYG withholding liability reported in the previous tax period was too low (meaning you’ve not reported and paid enough), you can only carry forward the correction if the total of all corrections for the current tax period doesn’t exceed the materiality threshold.
A materiality threshold is the upper limit on the amount of corrections to your PAYG withholding liability that you can carry forward to the current tax period. It varies based on how much you withhold each year.
The materiality thresholds are outlined below.
|Total withheld per annum||Materiality threshold|
Less than $100,000
Between $101,000 and $500,000
Between $500,000 and $1m
$50,000 or 0.5% of the amount withheld in the previous financial year
If the PAYG withholding liability reported in the previous period was too high (meaning you’ve reported and paid too much), there is no limit on the amount you can carry forward to offset your liability in the current tax period.
When you chose to include a correction to your reported PAYG withholding liability in the current tax period, you must record your choice in writing. This is so that you have business records which demonstrate that you made the choice.
Correcting child support information reported through STP
Special rules apply to correcting child support information that you have reported through STP.
- You must take action to correct child support amounts you have reported through STP immediately once you identify that a correction is required. You cannot wait until your next regular pay event for that employee.
- You must contact the Child Support RegistrarExternal Link for authorisation before you make any changes to your STP reporting that reduces the YTD amount you have already reported.
- When you receive authorisation, you must include the change in your first STP report after the authorisation is granted.
- If the correction you are making does not require authorisation, you must make the correction in your STP reporting immediately by lodging an update event.
Overpayment identified within the same financial year
If an overpayment is identified in the same financial year it was paid, the employee will only need to repay the net amount of the overpayment. The net amount is the amount received by the employee.
You will need to ensure we have the correct amounts recorded (the employee’s YTD values don’t include details of the overpayment). You can make these fixes in either:
- the next regular pay cycle report for the employee (by reducing the employee’s YTD figures and your employer-level gross payment and withholding figures)
- an update event, within 14 days of the overpayment being identified.
Misclassification with no additional payment
A misclassification is when information has previously been reported under an incorrect item. For example, a payment was reported as gross instead of as an allowance, and no additional payment is made to the employee.
You must correct your STP reporting by correcting the classification and you can make this fix in the next pay event or by lodging an update event.
Reporting under an incorrect ABN or PAYG withholding branch
You must correct your STP reporting if you have reported employees under an incorrect ABN or PAYG withholding branch. To fix this, you should:
- adjust any incorrectly reported amounts from the incorrect ABN or PAYG branch by zeroing out your YTD amounts
- report your employee under the correct ABN or PAYG withholding branch from the point you discovered the error.
To zero out your YTD amounts you should send us:
- an update event for the incorrect ABN and branch combination that shows all YTD amounts for your employees as zero. This tells us that you are making changes and that we should stop displaying your employees’ current income statement
- an STP report for your employees showing their YTD amounts against the correct combination of ABN and branch.
This will ensure we don’t display duplicate income statements for your employee and that you haven’t over-reported your PAYG withholding liability.
If you paid the employee and have reported through STP from one combination of ABN and branch but subsequently assign that expense to another combination of ABN and branch, then you don’t need to correct your STP reporting. This is because your STP reporting should show who actually paid the employee and your original report is correct.
If the adjustment moves PAYG withholding amounts between ABNs or branches you may need to revise your reported PAYG withholding liability (either on your activity statements or, if you are a large withholder, using your existing process).
Full file replacement
Some solutions may offer functionality which gives you the ability to completely replace the latest pay event file you sent to us in error, or which contained significant corrupt data. This is called a full file replacement.
Don’t use a full file replacement for corrections.
A full file replacement:
- may only be used to replace the latest pay event
- must contain the submission identifier of the pay event to be replaced
- cannot be lodged if any employee information has subsequently been changed in a payroll or update event
- cannot replace an update event – a new update event should be lodged.
Only one full file replacement can be lodged per 24-hour period.
End-of-financial-year finalisation declaration
The way you finalise your STP data is by making a finalisation declaration. A finalisation declaration is a declaration in the approved form lodged by 14 July each year indicating you have fully reported for the financial year for each employee. You make a finalisation declaration by providing a finalisation indicator for an employee (and directors, contractors, etc.) as part of your STP reporting.
When you have provided the finalisation indicator for the employee, we will prefill the employee’s income tax return and display the information as ‘tax ready’ in ATO online services, accessed through myGovExternal Link.
You can make a finalisation declaration for an employee at any time during the financial year (for example, for employees who have ceased employment), or after the end of the financial year up to 14 July. It is important to make a finalisation declaration so that your employees can be confident they are using accurate and complete information for their income tax return.
You can apply for an extended due date to make your finalisation declaration.
Interaction with payment summaries
You are not required to provide payment summaries (including part-year payment summaries) to your employees for the payments you report and finalise through STP. We make this information available to your employees in ATO online services accessed through myGov. This information is called an income statement. It is the equivalent of a payment summary.
Once you make a finalisation declaration, after the end of the financial year we will notify your employees that their income statement is ‘tax ready’ through myGov and they can use it to complete their tax returns.
Finalised STP information will be pre-filled after the end of the financial year into myTax for individuals who prepare and lodge their own tax returns. It will also be made available to tax agents.
You will still need to provide your employees with a payment summary and send a payment summary annual report to us for any payments not reported and finalised through STP.
Finalisation declaration during the financial year
If you make a finalisation declaration during a financial year, you don’t need to provide the employee with a part-year payment summary.
In some circumstances you may pay an employee after you have already made a finalisation declaration for them in the same financial year.
If it is a one-off payment, make another finalisation declaration when you report this payment.
If you expect to make another payment (for example, you rehire the employee), deselect or remove the finalisation indicator and wait until the end of the financial year to make another finalisation declaration.
Even if you finalise an employee record partway through the financial year, we will not pre-fill the information into your employee’s tax return until after the end of the financial year. The employee will need to follow the current process for lodging a part-year tax return. This commonly affects employees who are leaving Australia once their employment has terminated.
Amendments after finalisation
If you need to amend details after making a finalisation declaration, you should do this as soon as possible by lodging an update event. We will make updated information available to your employee through ATO online services. We also recommend that you notify your employee of any changes because they may need to correct their tax return if they used the previous information.
If you can’t lodge an update event with the correct details straight away, you should lodge an update event with the existing details with the finalisation indicator removed. This will advise us that the current information is not final and shouldn’t be used to pre-fill your employees’ individual tax returns. If you cannot lodge an update event with the correct details by the finalisation due date, you need to apply for a finalisation declaration deferral.
You must correct errors within 14 days of detection or, if your pay cycle is longer than 14 days (for example, monthly), by the date you would be due to lodge your next regular pay event.
When you’ve lodged the update event with the correct details and the finalisation indicator, revise the PAYG withholding information (labels W1 and W2) on your activity statement for that period. You can amend finalised information reported through STP up to five years after the end of financial year.
Overpayment in a previous financial year
If you overpay a worker in a previous financial year and only discover the overpayment in a later financial year, you should lodge an update event to advise us the amounts the employee should have received in the relevant financial year. You must not adjust the amount of tax withheld.
You should provide an update event for each financial year in which an overpayment occurred.
If the overpayment relates to a payment you did not report through STP you should provide your employee with an amended payment summary and send an amended payment summary annual report to us.