Factors to consider
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 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.
You must now report this information in each STP report.
Relationship between STP and the TFN declaration
STP Phase 2 doesn't change the way your employees give you information about their tax circumstances. Your employees should still give you a completed TFN declaration.
When you start reporting through STP Phase 2, the employment and taxation information in your STP report will replace sending TFN declarations to us. This means you don't need to send us a copy of the TFN declaration your employee has given you. However, you can continue to send TFN declarations to us online if it supports your other business processes, such as establishing an employment relationship before requesting stapled super fund details.
Before, TFN declaration information sent to us was never updated. Now with STP Phase 2, the employment and taxation information you report through STP is updated when your employees' circumstances change. Sometimes, the information may change even though the employee has not given you a new TFN declaration form.
You don't need new TFN declarations from your existing employees to start reporting using STP Phase 2.
Example: reporting employment and taxation information using STP
Barbara started working for Elise on 18 August 2011 and has been a full-time employee the whole time. When Barbara started, she provided a TFN declaration form where she said she was claiming the tax-free threshold and didn't have a higher education loan.
When reporting through STP Phase 2, the employment and taxation information Elise reported was:
- commencement date of 18 August 2011
- employment basis of F (full time)
- tax treatment of RTXXXX.
In March, Barbara started studying at university. Barbara and Elise have now agreed that from the next pay period, Barbara will change from full time to part time work. Barbara has also given Elise a withholding declaration form, telling Elise that she now has a higher education loan.
Elise updates her payroll with the information about Barbara's changed circumstances so she can continue to correctly withhold from her pay. The employment and taxation information in Elise's STP reporting changes to:
- commencement date of 18 August 2011
- employment basis of P (part time)
- tax treatment of RTSXXX.
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.
Commencement date
You must report the commencement date for all your employees.
Generally, the date you report will be the commencement date that you recognise to meet your industrial obligations.
Often, this will be the date your employment relationship with the employee started. However, different situations may lead to adjusted commencement dates, such as:
- service with multiple related entities in a group
- recognised prior service following transfer of a business
- breaks in service
- leave without pay.
Transferring or rehiring an employee may also impact on the commencement date you report.
If you don't know your employees' commencement date, you can report a default date of '01/01/1800'.
Employment basis
You must report information about your employees’ employment basis each pay according to their work type. This information helps:
- provide context to the amounts you've reported
- reduce the need for us or agencies like Services Australia to contact you when changes in your reporting can be explained in the employment basis.
The following table shows the employment basis types you can report through STP.
|
Employment basis type |
Description |
|---|---|
|
Full time (F) |
A person who is engaged for the full ordinary hours of work as agreed between the payer and the payee or set by an award (or both), 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 or set by an award (or both), 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'll be employed or engaged, or for the days or hours they'll work. A casual payee also doesn't 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. Don't use this employment basis in relation to workers that are your 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 (NAT 2772) 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 contractor who is not in scope of STP for payments but may be included in STP for voluntary reporting of super liabilities only. If you report this employment basis, you must include the ABN of the contractor and you can't report any payments you have made to them. |
When an employee's employment basis changes, such as from casual to part-time, you need to include the new employment basis in your STP reporting, even if they don't give you a new TFN declaration.
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
- casual
- 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.
Tax treatment
Your STP Phase 2 report will include a 6-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.
The following 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? |
|---|---|---|
|
R (regular) |
|
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.
|
|
A (actors) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F (foreign resident) |
|
|
|
N (no TFN) |
|
|
|
D (ATO-defined) |
|
|
|
|
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 form (NAT 3093) which claims an offset amount to reduce the amount you withhold from their pay. You will need to report the annual tax offset amount the employee has told you on their form. Don't apportion or pro-rate the amount across pay periods and don't report a YTD amount.
You can only report the annual tax offset amount for employees with a tax treatment code beginning in RT or S.