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Single Touch Payroll - Yes there is more to come ...

Updated: Jan 18, 2023

You may have heard or received notice from the taxman-ian devil (aka the ATO) that Single Touch Payroll (STP) Phase 2 is well underway (or not because you are not accountants and been bombarded by it daily like we have, haha). Anyway, we wanted to work through what this means for you.

So let’s start with the benefits as we know that’s important … Tax File Numbers will no longer need to be separately reported to the ATO (we can hear the cheering already). Phase 2 incorporates this info via STP reporting (all wrapped up in a neat little present for you, woohoo!)

And that’s about it from our perspective and look there may be more like streamlined sharing of information between government departments (but we see that as their benefit). So let’s get into the nitty gritty and focus on what’s changing:

  • Amounts paid to closely held employees will need to be highlighted and reported, think family members, directors or shareholders of a company, beneficiaries of a trust. Why you ask? The taxman-ian devil wants to check you are paying commercial remuneration, ie, not overpaying spouses (wink, wink). We highly recommend you make sure these arrangements are commercial with appropriate paperwork to support.

  • Reporting of employment type, ie full-time, part-time or casual, in addition to new categories such as labour hire or volunteer

  • When an employee finishes their employment, a reason for termination will need to be specified. You may already be familiar with this one, as Xero has already implemented this in preparation for Phase 2.

  • Any type of paid leave, allowances, bonuses and commissions won’t be included in gross earnings, however heads up, it will still need to be reported separately.

  • Each employee will have an individual tax treatment code (this will be a 6-digit number that helps the ATO identify amounts that are withheld from your employees pay)

  • Lump Sum E payments (or as we know it, back pay) from prior years will now need to be reported with the tax year they originated in before finalising an employee’s records at end of year but in good news you no longer need to provide the employee with a letter

  • Lump Sum W payments (Return to work, for those that don’t speak in taxman-ian devil lingo) has been introduced as a new category of lump sum payments. Previously they were reported as gross, they now need to be separated.

Now stay with us as we know there is a lot of accounting jargon in here but there's more ...

  • Director’s fees will need to be reported separately. This includes any payments to the Director of a company and yes these need to be reported through STP and tax paid (no year-end journals from your accountant will work here as the ATO deems that non-deductible – we repeat non-deductible so stop doing it)

  • Employee Separation Certificates are no longer required, as the reason why an employee has left the business will now be provided via STP reports.

  • You will have the option to include child support garnishees and deductions in their STP report, reducing the need to provide separate advice to the Child Support Registrar

Wow that’s a lot right! We get it … at this point you may be asking what’s not changing, and hey we hear you so here is something: The way you submit your STP report, the due date and the end-of-year finalisation declaration for each employee will not change (Yipee)!

So if you are not sitting in the corner rocking at this point you may be wondering how on earth you are going to implement the above?

Do not fear as the superhero Xero will swoop in to save the day ...

All Xero customers have an extension until 31st March 2023 and Xero will look after the technical back end for you. So, there is plenty of time to prepare AND not only have we got your numbers we also have your back and will support you every step of the way because we are payroll gurus too. Insert sigh of relief here ...

If you’re after more information about STP Phase 2 (because of course you are, haha) here is the link to the ATO’s breakdown: - go knock yourselves out.

Disclaimer: This blog is for general informational purposes only. For advice on your specific situation, please contact a tax professional, ie us 😊

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