Available for the following Payroll plan: Standard, Premium
Reporting tax through Single Touch Payroll means employees provide their Tax File Number (TFN) declaration. Employers will not need to send copies to the ATO. The ATO can notify employees if they have given incorrect information, which could lead to a higher tax bill at the end of the financial year.
Phase two reporting will include a six-character tax treatment code for each employee. The tax treatment code is an abbreviated way of telling the ATO about the factors that can influence the amount withheld from payments to employees. The six-character tax treatment code consists of a combination of:
- Tax scale category.
- Options within each category.
- Study and Training Support Loan (STSL) status.
- Medicare Levy settings.
Important
From a user perspective, it is essential that each employee has the correct settings applied. The Payroll classic platform will then automatically generate the code combination based on those settings and report that code through the STP event for each employee.
Possible combination of options
The ATO has specific rules around the possible combination of options, STSL and Medicare Levy applicable to each tax scale category. As such, inbuilt validations exist in the platform that will prevent users from applying a particular setting against an employee. For example, a foreign resident cannot claim any Medicare Levy settings. As such, if an employee does not have the Australian Resident for Tax Purposes option selected then you can not select the Does the Employee want to Claim an Exemption from the Medicare levy option for that employee.
All the settings that determine an employee's tax treatment for STP purposes are located in the employee's Tax File Declaration screen. You can configure the settings via either of the following:
- Tax calculation options section.
- STP tax category' section.
- Medicare levy' section.
Tax scale categories
Below is a description of each tax scale category and instructions on how to assign a category against an employee. The below also will walk you through how to view your roster and also how to edit a rule if it needs updating, and how to delete a record if it is no longer needed.
Australian residents for tax purposes who have provided a valid TFN or TFN exemption reason and are actors, variety artists and other entertainers who receive payments for their performances. It includes employees performing promotional activities.
Warning
Employees classified in this tax scale category have a specific tax table that is currently not catered for in the Payroll classic platform.
You can set up a recurring tax adjustment so that the withholding amount is automatically calculated in the pay run. To classify an employee under this category:
- Select the Actor option from the dropdown in the STP tax category section.
- Select a sub-category option from the dropdown list that reflects the employee's scenario:
- With tax free threshold.
- No tax free threshold.
- Three or less performances per week.
- Promotional.
The category applies to employees working for a continuous period not exceeding six months in any horticultural process associated with the production, cultivation or harvest of a horticultural crop or in the shearing industry, such as shearers, crutchers, wool classers, cooks, shed hands and pressers that have provided a valid TFN or TFN exemption reason. It includes foreign residents but excludes working holiday makers or seasonal worker programme employees.
Warning
Employees classified in this tax scale category have a specific tax table that is currently not catered for in the Payroll classic platform.
You can set up a recurring tax adjustment so that the withholding amount is automatically calculated in the pay run. To classify an employee under this category:
- Select the Horticulturist & Shearer option from the dropdown in the STP tax category section.
- Select a sub-category option from the dropdown list that reflects the employee's scenario:
- With tax free threshold.
- Foreign resident.
The category applies to employees aged 66 years or older, or veterans receiving a service pension and/or war widows/widowers receiving an income support supplement from the Department of Veterans’ Affairs who are at least 60 years of age.
Warning
Employees classified in this tax scale category have a specific tax table that is currently not catered for in the Payroll classic platform.
You can set up a recurring tax adjustment so that the withholding amount is automatically calculated in the pay run. To classify an employee under this category:
- Select the Senior & Pensioner option from the dropdown in the STP tax category section.
- Select a sub-category option from the dropdown list that reflects the employee's scenario, as follows:
- Single.
- Married.
- Couple.
- Separated.
- Due to illness.
Foreign residents for tax purposes who are working in Australia under a subclass 417 or subclass 462 visa or other bridging visa arrangement. Working holiday makers are identified as such when you select the Is Approved Working Holiday Maker tick box within the Tax Calculation Options section.
The category applies to non-residents of Australia for tax purposes engaged under the SWP administered by the Department of Foreign Affairs and Trade. The category also applies to payees within the Pacific Australia Labour Mobility scheme who have indicated on a TFN declaration that they are a non-resident.
Seasonal workers are identified as such when you select the Is a Seasonal Worker tick box within the Tax Calculation Options section. Refer to the ATO website for further information on this category.
Employees who have not provided a tax file number declaration, or employees who have provided a tax file number declaration but have not supplied a tax file number, or employees who have provided a tax file number declaration but have supplied an incorrect/invalid tax file number and also not claimed an exemption from having to provide a tax file number. It excludes seasonal worker programme employees. Employees are classified under this category if their tax file number is entered as 000000000.
The category applies when the ATO issues a written notice to an employer to vary the Pay as You Go (PAYG) withholding downwards, for gross income or specific payments only, of an employee, or where the payee is a death beneficiary who is not also an employee, or where the employee is not covered by any other tax table such as for a non-employee for superannuation guarantee purposes only. To classify an employee under this category:
- Select the ATO Defined option from the dropdown in the STP tax category section.
- Select a sub-category option from the dropdown list that reflects the employee's scenario
- Death beneficiary.
- Downward variation.
- Non-employee.
The category applies to employees whose work patterns are irregular and have no job certainty, such as casuals who may only rely on daily income, regardless of the frequency of paydays. It excludes working holiday makers, seasonal worker programme employees and foreign residents.
Warning
Employees classified in this tax scale category have a specific tax table that is currently not catered for in the Payroll classic platform.
You can set up a recurring tax adjustment so that the withholding amount is automatically calculated in the pay run. To classify an employee under this category, select the Daily Casual option from the dropdown in the STP tax category section.
All employees not otherwise covered by the above categories, including:
- Directors.
- Office holders.
- Religious practitioners.
- Labour hire workers.
- Pacific Labour Scheme workers..
There is no specific setting that users need to configure for this tax scale category. The platform will recognise and report this category automatically. If your employee does not fall into the specific categories listed above, then select the Not Applicable setting within the employee's STP tax category settings page.
Employees who answered No to the question Are you an Australian resident for tax purposes on their tax file number declaration or withholding declaration. It excludes working holiday makers, employees otherwise classified as Horticulturists and Shearers, and seasonal worker programme employees.
Foreign residents are identified as such when the:
- You do not select the Australian Resident for Tax Purposes tick box within the Tax Calculation Options section.
- You do select the Is a Seasonal Worker tick box within the Tax Calculation Options section.
- You not select the Is Approved Working Holiday Maker tick box within the Tax Calculation Options' section .
- You have not selected any STP tax category options.
A contractor under a voluntary agreement to withhold under section 12-55 of Schedule 1, Part 2-5 of the TAA 1953, including those who have informed the payer of their CIR, that they do not have a CIR and if the payment includes an amount for GST.
Warning
We do not support this category in this Payroll classic platform.
Study and Training Support Loan (STSL)
An employee would indicate they have an STSL debt by answering Yes to the question Do you Have a Higher Education Loan Programme (HELP), VET Student Loan (VSL), Financial Supplement (FS), Student Start-up Loan (SSL) or Trade Support Loan (TSL) debt?" on their tax file number declaration. It will result in an obligation for the employee to repay a higher rate of withholding when they reach the income thresholds. STSL is not permissible for all tax scale categories.
Medicare Levy
The Medicare levy helps fund some of the costs of Australia's public health system known as Medicare. The Medicare levy is 2% of an employee's taxable income and is in addition to the tax paid on taxable income. The platform automatically calculates the Medicare levy as part of the PAYG amount withheld in the pay run. An employee's actual Medicare levy is calculated upon lodging their income tax return.
An employee may be eligible for a reduction or exemption from paying the Medicare levy, depending on the circumstances of the individual and their spouse. Determining eligibility for a reduction or exemption is the responsibility of the employee.
An employee should communicate any Medicare circumstances by completing a Medicare levy variation declaration form and providing this form to their employer. Only then should you configure any of these settings for an employee.
The settings are as follows.
It represents any additional rates of Medicare Levy imposed on those who do not have an appropriate level of private patient hospital cover and earn above a certain income. The rates are dependent upon domestic circumstances (single/family) and combined family income thresholds.
Applying any one of the tier settings in the platform will not result in additional PAYG automatically being withheld from the employee in the pay run. Rather, you can set up a recurring tax adjustment using the Percentage of Taxable Earnings option. With the percentage amount reflecting the option chosen by the employee in the Medicare levy variation declaration form. So that the additional withholding amount requested automatically calculates and applies to the pay run.
Selecting either a full or half exemption from the Medicare Levy for those who meet eligibility requirements will result in an automatic reduction of PAYG withheld in the pay run for that employee. i.e., the platform will automatically calculate the in the pay run.
It represents a reduction in the rate of Medicare Levy based on family taxable income below a certain threshold and consideration of the number of dependants, if any. Claiming this variation may also absolve the employee from repaying any STSL debt that would otherwise be payable, for the period of reduction.
You will see this from the employee's completed Medicare levy variation declaration form. Selecting the Medicare Levy reduction option will result in an automatic reduction of PAYG withheld in the pay run for that employee, i.e., the platform will automatically calculate the reduction and apply it in the pay run
Payroll Best Practice
Only employees with a tax scale category of Regular and Seniors and Pensioners are eligible to select one of the Medicare Levy options. Additionally, if an employee is claiming a full Medicare Levy exemption, they cannot also claim a reduction.
Overview of tax treatment permissions
Withholding options permissible for each tax category
Income types permissible for each tax category