A few years back Single Touch Payroll (STP) was introduced in Australia to help streamline the reporting obligations for employers, moving towards electronic/paperless lodgements in order to reduce the reporting burden on employers. Of course it also has quite a few benefits for the ATO, making it easier for them to match data between employers and employees (and catching out anyone trying to avoid declaring income and paying the correct tax!).
Following the successful implementation of Phase 1, the rollout of Phase 2 will be starting from 1 January 2022 and this extension of the existing reporting framework focuses on more detailed reporting of payments. Whilst Phase 2 is still under development, the following broadly outlines what you need to know as an employer.
Firstly, why is STP Phase 2 necessary?
Phase 2 is basically an expansion of the information that is already being reported through the STP system. The additional details that are being reported will mean that employers only have to report payroll information once, and won’t be required to liaise with multiple government agencies. It also helps to support the administration of the social security system.
When do I have to start STP Phase 2 reporting?
As I mentioned, the mandatory start date is 1 January 2022. However, the ATO is taking a reasonably pragmatic approach to the rollout and have already announced that employers who report by 1 March 2022 will be considered to be reporting ‘on-time’. This is to allow for any delays in the development of the software from the payroll providers.
What is going to change?
To start with, let’s talk about what ISN’T going to change. You can rest assured that there aren’t going to be any changes to the way you lodge STP data, the due dates, the types of payments that need to be processed through STP, tax and super obligations or the end of year finalisation processes. So, much of the process will remain exactly the same as it is now.
However, what IS changing is the level of detail you need to enter into each pay event and each payment you process will have a specific code attached to it that identifies different information to the ATO. By including this information in each pay event, you will no longer need to send a TFN declaration to the ATO when your employees commence or change circumstances. This provides a far more specific way to determine the tax treatment of different types of payments, and ensuring that there isn’t too much or too little tax being withheld.
To give you an example, for my employee Jim, we will report a tax treatment code where each character represents the following:
- 1 – the category of tax – eg regular employee (R), actor (A), senior/pensioner (S), working holiday-maker (H) etc
- 2 – the tax options – eg tax-free threshold (T), not claiming the tax-free threshold (N), daily casual (D), promotional activity (P) etc
- 3 – study & training support loans – eg has a study loan or STSL to repay (S), no study loans (X)
- 4 – medicare levy variations – eg if claiming a medicare levy surcharge then report a tier in character 4 (1,2 or 3), if not applicable then use X
- 5 – medicare levy exemption – if a medicare levy exemption is claimed then report either half (H) or full (F) in character 5, if not applicable then use X
- 6 – medicare levy reduction – if a medicare levy reduction is claimed then report number of dependents in character 6, if not applicable then use X
As a practical example, for a regular employee who is claiming the tax free threshold, has no study loans and does not have any medicare levy variations or exemptions, the code to use for their wages would be RTXXXX. If you have a regular employee who is not claiming the tax-free threshold and has an outstanding STSL and no medicare levy variations, then the code would be RNSXXX. These codes would then be attached to each respective payment lodged to the ATO.
What do I need to do?
If you are already using payroll software to process your payroll and lodge to the ATO (eg QuickBooks or Xero) then you can rest assured that they will be making the necessary updates to their systems to ensure you will be compliant from 1 January. And for any software providers that aren’t ready on time, the ATO will be automatically granting an extension to it’s users.
For now, there isn’t really anything you need to do to prepare, just be aware that these change will be coming in the new year. I would strongly recommend that you keep an eye out for updates from your payroll software providers as they release more detailed information about how to set up your systems when it’s available. If Wingr currently manages your payroll, please be assured that we will handle all the appropriate updates so you will meet all your STP reporting obligations. And we’ll be sure to let you know if there is anything you need to do 😁
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