How to report employment and tax information through STP Phase 2

Under STP, some payments subject to withholding are in scope and some are out of scope.

This section provides the details on these payments, and the impact on business activity statements (BAS), PAYG withholding, payment summaries and annual reports.

Mandatory reporting

These withholding payments 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 finalisation declaration, you will not need to provide the corresponding payment summaries to your employees or a PAYG withholding payment summary annual report to the ATO.

A finalisation declaration is a declaration in the approved form lodged by 14 July each year, stating you have fully reported for the financial year and for each of your employees using STP. You are then not obliged to give payment summaries to your employees (although you may still choose to) or lodge a payment summary annual report.

If you don't report and finalise these amounts through STP, you are required to give a payment summary to your employees and lodge a payment summary annual report to the ATO.

Table 1: Mandatory reporting labels

Description	BAS labels (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	ETP1 (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 certain labour mobility programs	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 submit a pay event even if the amount you were required to withhold from any of these payments was nil.

Voluntary reporting

You may choose to include certain withholding payments in your STP reports. These are not mandatory. STP offers the ability to streamline your reporting to help you achieve efficiencies of real-time reporting and help with your compliance processes, compared to having a number of separate reporting processes.

You can also choose to include reportable employer superannuation contributions (RESC) and reportable fringe benefit amount (RFBA) for your employees. If you choose to include these amounts in a report by 14 July in the next financial year and complete a finalisation declaration you are not obliged to give payment summaries to your employees and lodge a payment summary annual report covering these amounts.

If you choose not to report these amounts through STP, you will be required to give payment summaries to your employees and lodge a payment summary annual report covering these amounts.

Table 2: Voluntary reporting labels

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)

Cannot be reported

Some payments cannot be reported through STP. These include:

• 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 cannot include any payment made through payroll software that is not a withholding payment – for example, partnership distributions and payments to suppliers.

Payments that cannot be reported

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	ESS
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.

Contractors

Payments made to contractors are not mandatory under STP. However, if you currently report contractors through your payroll solution, you should continue to do so under STP.

Where 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.

Where the contractors are managed outside of payroll using accounts payable you don't have to report payments to them under STP.

See The rules of reporting through STP for more information.