In the 2019–20 Budget, the Government announced that Single Touch Payroll (STP) would be expanded to include additional information. Under STP Phase 2, the Australian Government will require all employers to report further details through STP on or before each payday.
The start date for STP Phase 2 was 1st January 2022. However, Xero has been granted a deferral by the ATO, meaning that Xero users have until 1st January 2023 to start reporting in a way that is compliant with STP phase 2.
The main changes include:
Tax file number declaration
Employers are currently required to submit a tax file number declaration to the ATO. Phase 2 will incorporate employee tax information via STP reporting, which eliminates the need to submit tax file declarations to the ATO as a separate process.
Income type and country codes
You already tell the ATO about the type of income your employees receive in your STP report. The reporting of income types is being introduced in Phase 2 as more flexibly:
- Identify payments you make to your employees with specific tax consequences
- Make it easier for them to complete their individual income tax return
- Help the ATO identify where you are using a concessional reporting arrangement
There are instances where you might need to report a country code. For example, if you pay an Australian resident working overseas, you need to provide information about the host country.
Specifying a reason for termination will be mandatory when an employee finishes their employment.
Currently, an employer may be asked to provide an employee with an employment separation certificate upon an employee’s termination of employment. Phase 2 will require the reason for termination to be included in the STP report sent to the ATO.
Xero has already implemented the termination reason in preparation for STP Phase 2, which removes the need for an employment separation certificate.
Paid leave won’t be included in gross earnings when reporting earnings via STP. You’ll still need to register leave payments made to your employees in your STP report.
Some allowances are reported separately in STP Phase 1 reporting, but others are reported as part of the gross. You’ll need to report all allowances separately in your STP Phase 2 report across most income types. This means that allowances previously reported as gross must now be separately itemised and reported.
Xero has already implemented the allowance types pay item.
You must separately include these in your STP Phase 2 report if you pay directors’ fees. 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
Xero has already implemented the director’s fees pay item.
Lump Sum W (Return to work) payments
A return to work amount is paid to induce an employee to resume work. For example, to end industrial action or return from working for another employer. This is a new category of lump sum payments introduced as part of STP Phase 2. Previously, they were reported as gross and not individually identified.
Xero has already implemented Lump Sum W (Return to work) payments.
Lump Sum E payments
This is used when you make lump sum payments from prior income years for back pay.
Previously, this was shown on a separate line item in an employee’s payment summary. STP Phase 2 requires these payments to be reported with the tax year they originated in before finalising an employee’s records. This removes the need to provide employees with Lump Sum E letters.
Xero has already implemented Lump Sum E payments and recorded the Lump Sum E tax year in preparation for STP Phase 2.
Tax treatment codes
Your STP Phase 2 report includes a six-character tax treatment code for each employee. The tax treatment code is an abbreviated way of telling the ATO about factors that can influence the amount you withhold from payments to your employees.
Bonuses and commissions
There might be times when you pay some employees bonus and commission payments, which are typically paid as a lump sum. Previously they were reported as part of gross payments, but for STP Phase 2, they’ll be reported separately.
Xero has already implemented bonuses and commissions.
For more information on these requirements, visit the ATO website.