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 additional information 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. This means 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:
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.
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 to more flexibly:
There are instances where you might need to report a country code. For example, if you make a payment to 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 to be issued.
Paid leave won't be included as part of gross earnings when reporting earnings via STP. You’ll still need to report leave payments made to your employees in your STP report.
In STP Phase 1 reporting, some allowances are reported separately, but others are reported as part of gross. You’ll now 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.
If you pay directors’ fees, you must separately include these in your STP Phase 2 report. Directors’ fees include payments to:
Xero has already implemented the director's fees pay item.
A return to work amount is paid to induce an employee to resume work. For example, to end industrial action or to return from working for another employer. This is a new category of lump sum payments that is being 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.
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.
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.
This is used when you make lump sum payments for back pay from prior income years.
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 recording of the Lump Sum E tax year in preparation for STP Phase 2.
For more information on these requirements, visit the ATO website.