Show download pdf controls
  • Reporting the amounts you have paid

    STP Phase 2 doesn't change the payments you need to report through STP, but it does change how those amounts need to be reported.

    These changes will make it easier to identify amounts that have specific tax, super or social security treatments. It will also help us with pre-fill, which will make it easier for your employees when they lodge their individual tax return.

    Income types

    Each amount you pay to an employee will now be assigned to an income type, and you can report amounts assigned to multiple income types throughout the year.

    The reporting of income types helps us identify when:

    • the employee’s income may be taxed differently (such as for working holiday makers)
    • you are using a concessional reporting arrangement (such as for closely held payees)
    • there may be other factors influencing the amounts you are reporting (such as foreign tax obligations and applicable tax treaties).

    The following table shows the different income types for STP Phase 2 and when to use them.

    Income types for STP Phase 2 and when to use them

    Income type

    When to use this income type

    SAW (salary and wages)

    Most STP reporting will use this income type. It covers the most common kinds of payments to an employee like regular salary and wages.

    If the payments you are making to your employee don't belong in one of the other specific income types, use the SAW income type.

    CHP (closely held payees)

    If you have 19 or fewer employees and are using the concession available for reporting closely held payees through STP in relation to the individual, then you must use this income type to tell us that you're using the concession.

    If you are not using the concession available for reporting closely held payees, then you don't need to use the CHP income type and may use the SAW income type instead. This includes where you aren't eligible for the concession or have chosen not to use it.

    WHM (working holiday makers)

    This income type tells us about the income a person has earned while they were a working holiday maker. Use this income type when you're making payments to a person that is a working holiday maker. This means they're a temporary visitor to Australia holding a subclass 417 (working holiday) or subclass 462 (work and holiday) visa.

    FEI (foreign employment income)

    This income type tells us about the income an Australian tax resident has earned while working overseas where the qualifying period for foreign employment income is met. This information assists them to identify where tax has been paid on income in a foreign country and to complete their tax return.

    There are rules for reporting foreign employment income.

    IAA (inbound assignees to Australia)

    You must use this income type to tell us that you're using the concession available for reporting inbound assignees to Australia through STP in relation to the individual.

    If you're not using the concession available for reporting inbound assignees to Australia, you don't need to use the IAA income type and may use an appropriate other income type instead.

    SWP (seasonal worker programs)

    This income type tells us about the income a person has earned while they were participating in certain labour mobility programs.

    Use this income type to report payments to participants in the Seasonal Worker Program and participants in the Pacific Australia Labour Mobility (PALM) scheme who have told you on a TFN declaration that they are a non-resident.

    Don't use this income type to report payments to participants in the Pacific Labour Scheme and participants in the PALM scheme who have told you on a TFN declaration that they are a resident. Use the SAW income type instead.

    JPD (joint petroleum development area)

    This income type is used for making amendments to your previous STP reporting about payments made to workers in the Joint Petroleum Development Area (JPDA).

    You can only use this income type to make amendments to your STP reporting for the 2019–20 or earlier financial years, because the tax arrangements relating to the JPDA changed in 2019.

    VOL (voluntary agreement)

    Use this income type to report payments that are subject to a voluntary agreement for PAYG withholding. This income type relates to contractors that have a voluntary agreement in place. Don't use this income type to report amounts paid to employees. Use the relevant income type such as SAW.

    LAB (labour hire)

    Use this income type to report payments by a labour hire firm that arranges for persons to perform work or services, or performances, directly for their clients.

    This income type relates to contractors only. It doesn't include amounts paid to employees of labour hire firms. Employees of labour hire firms should be reported as the relevant income type, such as SAW.

    OSP (other specified payments)

    Use this income type if the payments you are reporting are the specific payments specified by regulation 27 of the Taxation Administration Regulations 2017External Link.

    Different payroll solutions will handle changes to income types differently. If you need to change an income type during the year, you should follow your DSP’s instructions.

    Example: income type reporting

    Backpacker Farms Pty Ltd employs Jane, who is from Europe and has come to Australia on a working holiday maker visa. They include the amounts they pay to Jane in their STP reporting under the income type of WHM (working holiday maker).

    Jane’s working holiday maker visa is about to expire, and she applies for a different type of visa that will allow her to remain in Australia. She is granted a new visa which comes into effect on 1 February.

    The payroll solution used by Backpacker Farms Pty Ltd enables the same Payroll ID to have multiple income types. When they pay Jane after 1 February, they include:

    • a YTD amount against the WHM income type that is the amount they paid Jane before 1 February, and
    • another YTD amount against the SAW income type that is the amount they paid her after 1 February.

    At the end of the financial year, Jane logs in to ATO online services to complete her tax return. She is able to easily identify the amount she needs to report as working holiday maker income, which is taxed differently. This is because her income statement shows the amount she earned as a working holiday maker before 1 February and also the amount she earned as regular salary and wages after 1 February.

    Note: if your payroll solution requires you to use separate Payroll IDs for different income types then your employee will see separate income statements in ATO online services.

    End of example

    Country code

    You must report a country code when you make payments to employees with the following income types:

    • foreign employment income (FEI)
    • inbound assignees to Australia (IAA)
    • working holiday maker (WHM).

    If you make a payment to an Australian resident working overseas using the FEI income type, you must provide information about the host country.

    If you make a payment to a working holiday maker or inbound assignee, you must provide information about their home country. The home country that you report may not always be the country where the person usually lives.

    • For the WHM income type, the home country you report is their country of nationality based on their working holiday maker visa.
    • For the IAA income type, the home country you report is the country of the payroll from which they are paid

    You must report a country code where it is required. You can't report 'Not Applicable'.

    If you use a product that displays the country code as a 2-letter abbreviation, don't use the code 'na' to mean 'Not Applicable'. For STP reporting we use the ISO 3166-1 standard country codes, and the code 'na' refers to the country of Namibia.

    Example: country code

    Bjorn is Danish. He has been living and studying at university in Sweden and is now travelling to Australia on a working holiday maker visa using his Danish passport.

    When he arrives, Bjorn's Australian employer checks to ensure that Bjorn has the right to work in Australia based on his Danish passport and working holiday maker visa.

    When Bjorn's Australian employer uses the working holiday maker (WHM) income type to report amounts she has paid to Bjorn, she reports the country code 'dk' to represent Denmark.

    End of example

    Disaggregation of gross

    In STP Phase 1, the gross amount you reported contained different types of amounts depending on the income type. This approach has changed in STP Phase 2, all payment types are now reported consistently for each income type.

    Instead of reporting a single gross amount, you will now separately report:

    There are rules about which separately reported amounts can be included against each income type.

    If your employee has an effective salary sacrifice arrangement, you previously would have reported post-sacrifice amounts to us. This has changed in STP Phase 2. You now must report pre-sacrifice amounts, and also report salary sacrifice separately.

    Your DSP will advise you on how to implement this change in your solution.

    Gross

    All remuneration you pay to employees that is reportable through STP, and is not separately itemised, should be reported as gross.

    Only pre-sacrifice amounts that are classified as ordinary time earnings (OTE) should be included as gross.

    If you are making a back payment or arrears payment, it may be included as gross.

    The following table outlines examples of what should and shouldn't be included in Gross.

    Gross reporting examples

    Include as gross

    Don't include as gross

    • ordinary hours worked
    • casual loading
    • shift penalties (including public holiday penalties)
    • payments to employees on Workers’ compensation who are at work performing duties
    • piece rates for work done during ordinary hours
    • daily rates for employees compensated using a flat daily rate
    • flexi time          
      • all ordinary hours paid to employees under a flexi time arrangement are part of gross
      • flexi time arrangements are considered different to Rostered days off (RDOs) and Time off in lieu (TOIL)
       
    • breach of rest break payments. When an employee does not get an appropriate rest break between shifts, some awards require employees to be paid at overtime rates until the employee is released from duty – even though the employee is being paid at overtime rates, they are working ordinary hours and payment is reported as gross
    • time for travel or training paid within the span of ordinary hours
    • charge rates for work performed, outcomes achieved, or targets met by contractors 

     

     

    Paid leave

    You will now need to separately report the following leave payments made to your employees in your STP Phase 2 report:

    You don't need to report unpaid leave through STP as there is no payment to report.

    Other paid leave (paid leave type O)

    All forms of paid absences should be reported as Other paid leave (paid leave type O) unless they are required to be itemised using another leave type.

    Only pre-sacrifice amounts that are classified as OTE should be included as other paid leave.

    If you are making a back payment or arrears payment, it may be included in other paid leave.

    The following table outlines examples of what should and shouldn't be included in Other paid leave.

    Other paid leave reporting examples

    Include

    Don't include

    • annual leave and leave loading
    • long service leave
    • personal or carer’s leave
    • RDOs (time taken and paid at ordinary rates)
    • TOIL (time taken and paid at ordinary time)
    • compassionate and bereavement leave
    • study leave
    • family and domestic violence leave
    • special paid leave
    • gardening leave 

     

     

    Paid parental leave (paid leave type P)

    All types of paid parental leave must now be reported separately.

    Only pre-sacrifice amounts that are not classified as OTE according to the Superannuation Guarantee Act 1992 (SGAA) should be included as paid parental leave. Some industrial instruments may require super to be paid on these amounts.

    If you are making a back payment or arrears payment, it may be included as paid parental leave.

    The following table outlines some examples of what should and shouldn't be included in Paid parental leave.

    Paid parental leave reporting examples

    Include

    Don't include

    • government paid parental leave (GPPL)
    • employer paid parental leave 

     

     

    Workers’ compensation (paid leave type W)

    Some employers pay workers' compensation to their employees, and in other circumstances the insurer makes the payment directly to the employee. Where you have made workers’ compensation payments, these must now be reported separately.

    When reporting workers' compensation (paid leave type W), only include amounts you pay in relation to compensation schemes administered by:

    • a federal, state or territory workers' compensation authority
    • a federal, state or territory road and transport accident authority.

    Don't include payments you make in relation to a commercially obtained insurance policy, such as private income protection or salary continuance policies.

    Only pre-sacrifice amounts that are not classified as OTE according to the SGAA should be included as workers’ compensation. Some industrial instruments may require super to be paid on these amounts.

    If you are making a back payment or arrears payment, it may be included in Workers’ compensation.

    The following table outlines some examples of what should and shouldn't be included in Workers’ compensation.

    Workers' compensation reporting examples

    Include

    Don't include

    • payments for any approved (or anticipated approval of) workers’ compensation absence paid by the employer to the employee
    • top-up payments made by the employer
    • workers’ compensation payments made after termination      
      • workers’ compensation payments may be required to continue to be paid, even after the employee is terminated, in accordance with insurer requirements
      • although no longer technically an employee absence, these payments should be reported as workers’ compensation (paid leave type W) 
       

     

    • payments to employees on workers’ compensation who are at work performing duties – this payment must be reported as gross
    • payments to employees under an income protection or salary continuance insurance policy - this is reported as other paid leave (paid leave type O)
    •  

     

    Ancillary and defence leave (paid leave type A)

    There are a range of leave types that are paid while employees participate in volunteer or community activities. If you make ancillary and defence leave payments, they must now be reported separately in your STP Phase 2 report.

    Only pre-sacrifice amounts that are not classified as OTE according to the SGAA should be included as ancillary and defence leave. Some industrial instruments may require super to be paid on these amounts.

    If you are making a back payment or arrears payment, it may be included in Ancillary and defence leave.

    The following table outlines some examples of what should and shouldn't be included in Ancillary and defence leave.

    Ancillary and defence leave reporting examples

    Include

    Don't include

    • community service leave, including voluntary emergency management activities for bodies such as a State Emergency Service, Country Fire Authority and the RSPCA
    • jury duty leave, including attendance for jury selection and jury duty
    • defence reserve leave paid to volunteers of the Australian Defence Forces to undertake defence services
    • all paid absences – including 'make-up pay' for ancillary and defence leave are to be reported as ancillary and defence leave 

     

    • defence leave taken by the employee using annual leave, long service leave (LSL) or rostered days off (RDOs) – this should be reported as other paid leave.

     

    Cash out of leave in service (paid leave type C)

    When you pay out leave entitlements in lieu of your employee taking the absence from work, you must now report this separately.

    The cash out of leave can only occur when it is allowed by Fair Work rules or other legislative sources.

    Only pre-sacrifice amounts that are classified as OTE should be included as cash out of leave in service.

    If you are making a back payment or arrears payment, it may be included as cash out of leave in service.

    The following table outlines some examples of what should and shouldn't be included in Cash out of leave in service.

    Cash out of leave in service reporting examples

    Include

    Don't include

    • cashed out annual leave and leave loading
    • cashed out long service leave
    • cashed out personal leave
    • cashed out rostered days off 

     

    • cash out of TOIL – this is reported as overtime
    • cash out of annual leave loading that is clearly linked to a loss of overtime – this is reported as overtime

     

    Unused leave on termination (paid leave type U)

    If you make payments to your employees for unused leave on termination, you must separately include these payments. For more information, see termination payments.

    Overtime

    You need to report overtime amounts paid to your employees.

    Overtime is when an employee works extra time.

    It can include work done:

    • beyond their ordinary hours of work
    • outside the agreed number of hours
    • outside the spread of ordinary hours (the times of the day ordinary hours can be worked).

    Only pre-sacrifice amounts that are not classified as OTE according to the SGAA should be included as overtime.

    If you are making a back payment or arrears payment, it may be included as overtime.

    The following table outlines some examples of what should and shouldn't be included in Overtime.

    Overtime reporting examples

    Include

    Don't include

    • overtime worked
    • leave loading that is demonstrably referable to a loss of overtime (both taken and cashed out)
    • cash out of accrued TOIL hours. If the absence is not taken, the employee may request that the accrued time be paid out as overtime – the cash out of TOIL in service is reported as overtime
    • on call, stand-by or availability allowances to remain in readiness for a return to work, payable outside the employees normal working hours
    • call back payments. If an employee is called back into work for overtime
    • overtime bonuses that relate entirely to time worked outside of normal hours
    • identifiable overtime component of annualised salary – for those annualised salary or wages amounts that have distinctly identifiable components within the outer limits that are expressly referable to overtime hours
    • excess travelling time for travel to an alternative place of work outside the ordinary span of hours
    • hourly driving rates or rates per km –the excess of the total ordinary hours per period, if no regard to the terms of the award, or the stipulated overtime rate for piece-rate awards that include hourly driving rates and rates per kilometre
    • part-time additional hours – this is payable in accordance with industrial instruments that stipulate those additional hours are paid at a penalty or overtime rate that do not accrue leave entitlements 

     

    • shift penalties – these are reported in gross
    • breach of rest break payments          
      • when an employee does not get an appropriate rest break between shifts, some awards require employees to be paid at overtime rates until the employee is released from duty
      • even though the employee is being paid at overtime rates, they are working ordinary hours and payment is reported as gross
       

     

    Bonuses and commissions

    You may pay some employees bonus and commission payments to reward their performance, service or for meeting a specific goal. These are typically paid as a lump sum.

    Only pre-sacrifice amounts that are classified as OTE should be included as bonuses and commissions.

    If you are making a back payment or arrears payment, it may be included as bonuses and commissions.

    The following table outlines some examples of what should and shouldn't be included in Bonuses and commissions.

    Bonuses and commissions reporting examples

    Include

    Don't include

    • Christmas bonus
    • retention bonus
    • sign-on bonus for new employees
    • performance bonus
    • referral bonus
    • bonus labelled as ex-gratia but in respect of ordinary hours work
    • return-to-work bonus after parental leave
    • commission payment 

     

    • bonuses and commissions that relate entirely to work performed outside normal hours – these are reported as overtime

     

    Directors’ fees

    If you pay directors’ fees you must separately include these in your STP Phase 2 report.

    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.

    Directors’ fees may include payment to cover travelling costs, costs associated with attending meetings and other expenses incurred in the position of a company director.

    Only pre-sacrifice amounts that are classified as OTE should be included as directors’ fees.

    If you are making a back payment or arrears payment, it may be included as directors’ fees.

    The following table outlines some examples of what should and shouldn't be included in Directors’ fees.

    Directors' fees reporting examples

    Include

    Don't include

    • remuneration you pay to a working director
    • remuneration you pay to a non-working director 

     

     

    Lump sum W (return to work payment)

    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). These payments have a different tax rate to other payments.

    This is a new category of lump sum payments which is being introduced as part of STP Phase 2. Previously, they were reported as gross and not separately identified.

    Only pre-sacrifice amounts that are classified as OTE should be included as lump sum W.

    If you are making a back payment or arrears payment, it may be included as lump sum W.

    The following table outlines some examples of what should and should not be included in Lump sum W.

    Lump sum W reporting examples

    Include

    Don't include

    • bonus paid to an ex-employee to encourage them to return to the employer
    • bonus payments made to end industrial action and have employees resume work
    • bonus paid to an employee who has resigned and is encouraged to withdraw their resignation 

     

    • sign-on bonus for new employees – this is reported as Bonuses and commissions
    • payments to employees returning to work after workers’ compensation 

     

    Allowances

    In Phase 1 reporting, some allowances are reported separately, and some are reported as part of Gross. This has changed for STP Phase 2.

    There are 3 steps you should follow to work out how to report allowances in STP Phase 2:

    1. Identify whether the amount is a reportable allowance
    2. Identify whether the allowance needs to be disaggregated
    3. Identify the purpose of the allowance.

    Identify whether the amount is a reportable allowance

    Generally, allowances are reportable through STP. There are some things which you may know as allowances which don't need to be reported through STP because:

    • they are not allowances, or
    • there are special rules about reporting them.

    To work out whether you need to report allowances you've paid, consider these questions:

    • Are you paying an amount to your employee?
      • STP is reporting about payments that you make. If you are not paying an amount, there's nothing to report through STP.
      • However, if you are providing a fringe benefit, you may need to consider your fringe benefits tax (FBT) obligations and you may need to include reportable fringe benefits in your STP reporting.
       
    • Is the amount you're paying your employee, reimbursing an expense that can be verified by receipts?
      • There's a difference between allowances and reimbursements. Reimbursements typically compensate an employee exactly for an expense they have incurred on your behalf and the recipient generally needs to verify that they did incur that expense.
      • Reimbursements should not be reported through STP.
       
    • Is the amount you're paying your employee a living away from home allowance fringe benefit?
      • Living away from home allowance fringe benefits are not reportable as allowances through STP.
      • Some industrial instruments may use the name 'living away from home allowance' to describe a payment that is actually a travel allowance, so it's important to understand which one you're paying.
       
    • Is the amount you're paying your employee an overtime meal allowance or travel allowance which also exceeds the relevant ATO reasonable amount for the financial year?
      • There are special rules for reporting overtime meal allowances or travel allowances. You don't need to report overtime meal allowance and travel allowance if it's up to and including the ATO reasonable amount. If the amount you pay exceeds the ATO reasonable amount, you must report the whole amount that you paid.
       

    Example: identify whether the amount is reportable

    Harry's business has a large piece of equipment which needs to be moved to a different location. This involves hiring a trailer and one of Harry's employees using their own car to tow that trailer.

    The award which covers Harry's employees, provides for an allowance of 88 cents per kilometre to be paid when an employee is required to use their own car for work purposes.

    On the day that the equipment is moved, Harry's employee drives their car 8 kilometres from the workplace to the trailer hire lot. They use their own money to pay the trailer hire fee and receive a receipt. They drive 8 kilometres back to the workplace. The equipment is loaded into the trailer and Harry's employee drives 10 kilometres to the equipment’s new location where it is unloaded. They drive 3 kilometres to the trailer hire lot to return the trailer and then drive another 8 kilometres back to the workplace.

    Harry's employee provides him with their odometer readings showing that they travelled a total of 37 kilometres and the trailer hire receipt showing the cost of $126.37.

    Harry pays his employee a total cents per kilometre allowance of $32.56 and the total trailer hire cost of $126.37.

    The $32.56 cents per kilometre allowance is an allowance Harry needs to include in his STP reporting. It's not a reimbursement because it is an estimate of an expense, neither Harry or his employee measured whether or not the decline in value, registration, insurance, maintenance, repairs and fuel costs for each of those 37 kilometres was actually 88 cents and there are no receipts.

    The $126.37 trailer hire fee is a reimbursement and Harry doesn't need to include it in his STP reporting. This is because it is precisely compensating a verified business expense.

    End of example

    Identify whether the allowance needs to be disaggregated

    You must report allowances separately in STP, unless an exception applies. This ensures Government agencies that receive your STP reporting can identify amounts which are treated differently for different purposes, such as PAYG withholding, super or income tested payments and benefits.

    The 2 exceptions to disaggregating allowances are if:

    • the allowance forms part of an amount you need to report as overtime
      • As overtime is treated differently for super guarantee purposes, you should include the amount as overtime in your STP report.
       
    • you're paying the employee amounts which are cash out of leave in service (paid leave type C) or unused leave on termination (paid leave type U)
      • Cashing out of leave entitlements is treated differently in the tax, super and social security systems compared to allowances paid when work is performed or would have been performed.
      • Use the applicable leave type to report allowances that form part of cashed out leave entitlements.
       
    All-purpose allowances

    Many awards include allowances that are added to an employee's hourly rate and are paid for all purposes, such as when calculating payments for leave or overtime.

    In STP Phase 2, you must separately report all-purpose allowances against the relevant allowance type unless one of the exceptions above applies.

    Some employers may have historically set up their payroll using a single rate that includes the employees’ hourly rate and all-purpose allowances. However, it is important that those allowances can be identified because they are treated differently in different situations and not being able to identify them may disadvantage your employee. For example, how the ATO treats allowances in a tax return is not the same as how Services Australia treats those allowances when assessing a benefit claim.

    You should follow your DSP's instructions about setting up your payroll solution to continue to meet your Fair Work obligations and report all-purpose allowances correctly in STP.

    Example: all-purpose allowances

    Deanna employs James. James is employed under the Crocodile Award, and is entitled to be paid:

    • a base rate of pay of $840.10 per week
    • an industry allowance of $33.28 per week
    • a tool allowance of $20.02 per week.

    The award expresses that both the industry allowance and the tool allowance are to be paid 'for all purposes', including when calculating overtime.

    It is an ordinary work week and James has been at work. On top of his ordinary hours, he worked 2 hours of overtime on one weekday, for which he is entitled to be paid at 150% of his all-purpose rate.

    When Deanna reports the wages she paid James for his week of work through STP, she includes:

    • gross: $840.10 – this is James' base pay for his ordinary work hours
    • allowance type KN tasks: $33.28 – she has disaggregated the industry allowance relating to the time James was at work doing ordinary hours to the relevant allowance category
    • allowance type TD tools: $20.02 – she has disaggregated the tool allowance relating to the time James was at work doing ordinary hours to the relevant allowance category
    • overtime: $70.53 – she doesn't need to separate the components which are part of the calculated overtime payment.
    End of example

    Identify the purpose of the allowance

    Understanding the purpose of an allowance is important because it influences how you withhold from it and how you calculate your employee’s super entitlements. It also influences how you report those allowances in STP, because STP allowance categories are based on:

    • where there are PAYG withholding considerations (such as an ATO reasonable amount or limit)
    • where there are special rules for an employee when completing their tax return (such as substantiation of deductions they claim corresponding to the allowance)
    • whether super applies to the allowance (such as allowances relating to working conditions during the employee’s ordinary hours).

    Sometimes, awards and industrial instruments may give some allowances names which don't clearly describe the purpose of an allowance. It's important to consider the substance of the allowance and not just what it's called.

    When you are identifying how to report allowances in STP, you should consider these questions:

    • Is the purpose of the allowance to compensate for an expense? If so, what is the expense and why will the employee incur it?
    • Is the purpose of the allowance to compensate for the employee’s work conditions or for doing specific activities? If so, which ones?

    Example: identifying the purpose of allowances

    The Pond Standing Award provides for the payment of a wet work allowance.

    The clause about wet work allowance in the award is surrounded by other clauses dealing with working conditions, such as confined spaces and heights.

    Mason begins to think that the purpose of the wet work allowance is also related to working conditions.

    Mason reads the clause about wet work allowance more closely. He finds out that 'A wet work allowance of $0.69 per hour must be paid to an employee working in any place where their clothing or boots become saturated by water, oil or another substance. This allowance is paid only for the part of the day or shift that the employee is required to work in wet clothing or boots'.

    With all this information, Mason can see that the purpose of this allowance is to compensate employees for the difficult working condition of being in wet clothes.

    End of example

     

    Example: identifying the purpose of allowances

    Thomas operates a business involved in the raising, slaughter and sale of livestock. The Enterprise Bargaining Agreement (EBA) which applies to his employees, provides for the payment of 'cow allowance' and he is trying to identify how to report this allowance in STP.

    Thomas cannot only rely on the name of the cow allowance as that could refer to many things. He has employees that are required to:

    • provide and maintain equipment to care for cows
    • obtain specialised qualifications in the management of cows
    • transport cows
    • perform duties relating to slaughter of cows
    • work in conditions soiled by cows or their slaughter
    • wear a cow costume when performing advertising related duties.

    Thomas refers to the EBA covering his employees. It tells him that:

    • the kind of employees who are entitled to receive cow allowance are those with veterinary qualifications
    • the allowance is payable in connection with a requirement to undertake continuing professional development (CPD) in bovine care required as a condition of their professional registration.

    With all of this information, Thomas can see that the purpose of this allowance is to compensate his employees for the expense of training required to maintain their professional registration or qualifications.

    End of example

    STP reporting includes allowances paid for:

    Transport (in a car, on public transport, or in a different kind of vehicle)

    There are many different types of allowances which are paid for the purpose of compensating an employee for the costs of transport. These can include the cost of:

    • driving a car, ute, van or motorcycle
    • ride-share and ride-sourcing
    • catching a train, plane, taxi, boat, bus or other vehicle.

    These kinds of allowances don't relate to travel expenses, such as the costs of accommodation.

    When working out how to report in STP about allowances you pay for the purpose of compensating an employee for the costs of transport, consider these questions:

    1. Is the transport for business purposes?  
    2. Is the amount of the allowance measured on a cents per kilometre basis?
      • Yes – go to question 5.
      • No – continue to the next question.
       
    3. Is the allowance traceable to an award that was in force on 29 October 1986?  
    4. Is the mode of transport used public transport?  
    5. Is the vehicle a car?  
    Obtaining or cleaning uniforms and clothing

    There are many different types of allowances which are paid in relation to an employee’s clothing. When working out how to report in STP about these allowances, consider these questions:

    1. Is the allowance being paid to compensate for the cost of purchasing a uniform or work-related clothing?  
    2. Is the clothing being cleaned for work related purposes? For example, because the clothing is uniform required at work.  
    3. What kind of clothing is being cleaned?  
    Employees needing to buy a meal during work time

    There are many different types of allowances which are paid for the purpose of compensating an employee for the cost of meals that they consume at work. When working out how to report in STP about these allowances, consider these questions:

    1. Is the meal break for which the meal was bought connected with overtime worked?  
    2. Does the amount of the allowance exceed the ATO reasonable amount for overtime meal expenses?  
    Employees travelling away from home

    There are many different types of allowances paid to employees to compensate for the costs of travelling on work. These include allowances for accommodation, meals or incidental expenses. When working out how to report in STP for these allowances, consider these questions:

    1. Is the travel for business purposes or due to their personal circumstances?  
    2. Was the employee required to sleep away from home?  
    3. Is the employee travelling on work or living at a location?
      • Travelling on work – continue to the next question.
      • Living at a location – you do not need to report this as an allowance in STP. However you should consider whether you have reportable fringe benefits that you need to report.
       
    4. Is the allowance being paid to compensate the employee for the cost of accommodation overseas?  
    5. Does the amount of the allowance exceed the ATO reasonable amount for travel expenses?
      • Yes – report as travel allowance (allowance type RD).
      • No – you do not need to report this allowance.
       
    Employees needing to supply something to do their work

    There are many different types of allowance which are paid for the purpose of compensating an employee for the costs of supplying and maintaining tools and equipment required for their work. When working out how to report in STP about these allowances, consider these questions:

    1. Is the amount you are paying a reimbursement for the cost of the tools or equipment?
      • Yes – you do not need to report this reimbursement through STP.
      • No – continue to the next question.
       
    2. Are the tools or equipment used for business purposes?  
    Getting or keeping a qualification, certificate or licence

    There are many different types of allowance which are paid for the purpose of compensating an employee for the costs of getting or keeping a qualification or licence.

    These kinds of allowances don't relate to situations where the employee is being compensated for performing extra duties, just because those duties might require a certificate for the employee to be eligible to perform them, such as being the first aider on duty.

    When working out how to report in STP about allowances you pay for the purpose of compensating an employee for the costs of getting or keeping a qualification or licence, consider these questions:

    1. Is the amount you are paying the employee a direct reimbursement of their costs in getting, renewing or keeping their qualification?
      • Yes – you don't need to report this reimbursement through STP.
      • No – continue to the next question.
       
    2. Is the allowance relating to the employee getting or renewing an ordinary car driver's licence?  
    3. Is the qualification, certificate or licence obtained, maintained or renewed for business purposes?  
    Performing extra duties or working in difficult conditions

    Awards and other industrial instruments provide for a wide range of allowances that are paid to compensate the employee for specific tasks or activities performed that involve additional responsibilities, inconvenience, or efforts above the base rate of pay. These allowances are known as services allowances because they are not paid to compensate an employee for expenses they may incur.

    When working out how to report in STP about allowances you pay for the purpose of compensating an employee for specific tasks or activities, consider these questions:

    1. Is the amount you are paying relating to an expense the employee has incurred or will incur?  
    2. Does the allowance you are paying relate to working conditions or performing additional duties?  
    3. Are you paying the employee for the additional duties with an allowance, an increase to base salary (for example, an employee performing higher duties may either receive a higher duties allowance or be advanced to a higher pay point), or a different kind of payment?  
    Employee incurring an expense that was not for business purposes

    Generally, an employee is not entitled to claim a deduction in their tax return for expenses which were not work-related.

    A common example is when an award or industrial instrument provides for the employee to be paid an allowance for the costs of transport between their home and their usual workplace. An employee usually won't be entitled to claim a deduction for those costs, as travel between home and work is not considered to be transport for business purposes, except in limited circumstances.

    If the allowance you are paying relates to an expense that is not work-related, you should report it as other allowances (allowance type OD) with the allowance code 'ND'.

    Other purposes not already covered

    While there are 8 specific allowance categories to report in STP, industrial instruments provide such a wide variety of allowances that it is not possible to have categories for all of them.

    If you're paying an allowance that isn't covered in the sections above, you should report it as other allowances (allowance type OD) and determine an appropriate description.

    Allowance types in STP Phase 2

    The allowance types you will separately report in STP Phase 2 are:

    Cents per km allowance (allowance type CD)

    This applies to deductible expense allowances paid to employees using their own car at a set rate for each kilometre travelled for business purposes that represents the vehicle running costs including registration, fuel, servicing, insurance and depreciation.

    The amounts you report using this allowance type are the same cents per kilometre allowances which have a varied rate for PAYG withholding based on the ATO rate and business kilometres limit. For reporting through STP, use this allowance type to report both:

    • cents per kilometre allowances that exceed the ATO rate or business kilometre limit or both, and
    • cents per kilometre allowances that don't exceed the ATO rate or business kilometre limit or both.

    You may also pay other kinds of allowances to your employees relating to transport (in a car, on public transport, or in a different kind of vehicle), such as flat rate car allowances. Don't report those as cents per kilometre allowances in STP.

    The following table outlines some examples of what should and shouldn't be included in Cents per km allowance.

    Cents per km allowance reporting examples

    Include

    Don't include

    • cents per km payments for a car up to the ATO rate and limit for business related travel
    • cents per km payments for a car in excess of the ATO rate and limit for business related travel 

     

    • cents per km payments for private travel such as travel between home and work – this should generally be reported as other allowances (allowance type OD) with the description ND (non-deductible)
    • cents per km payments for vehicles other than a car such as a motorbike or van – this should be reported as other allowances (allowance type OD) with the description V1 (private vehicle)
    • flat rate car allowance that is not referable to kilometres travelled – this should be reported as other allowances (allowance type OD) with the description V1 (private vehicle) 

     

    Award transport payments (allowance type AD)

    Award transport payments are deductible expense allowances for the total rate specified in an industrial instrument to cover the cost of transport (excluding travel or cents per kilometre reported as other separately itemised allowances) for business purposes, as defined in section 900-220 of the Income Tax Assessment Act 1997.

    The current award transport payment must be traceable to an award in force on 29 October 1986.

    The amounts you report using this allowance type are the same award transport payments which have a varied rate for PAYG withholding based on whether the transport expenses are deductible. For reporting through STP, use this allowance type to report only award transport payments that are deductible transport expenses.

    You may also pay other kinds of allowances to your employees relating to transport (in a car, on public transport, or in a different kind of vehicle), such as cents per kilometre allowances or payments for transport that are not traceable to an award in force on 29 October 1986. Do not report those as award transport payments in STP.

    The following table outlines some examples of what should and shouldn't be included in Award transport payments.

    Award transport payments reporting examples

    Include

    Don't include

    • allowance payments for the cost of transport for business related travel traceable to a historical award in force on 29 October 1986

     

    • allowance payments for the cost of transport for business related travel not traceable to a historical award in force on 29 October 1986 – this should be reported as other allowances (allowance type OD) with the description T1 (transport or fares)
    • allowance payments for the cost of transport for private purposes – this should be reported as other allowances (allowance type OD) with the description ND (non-deductible)
    • cents-per-kilometre allowances – this should be reported as cents per kilometre allowance (allowance type CD)

     

    For more information see Claiming a deduction for car expenses – award transport payments.

    Laundry allowance (allowance type LD)

    This is a deductible expense allowance paid to employees for washing, drying and ironing uniforms required for business purposes.

    You should only include laundry allowances for the cleaning of clothing that falls into one or more of the following categories:

    • Compulsory uniform – unique and distinctive to identify the employer with a strictly enforced policy that makes it compulsory for the uniform to be worn at work.
    • Non-compulsory uniform – only if the design of the uniform has been entered on the Register of approved occupational clothing.
    • Occupation-specific clothing – that isn't everyday in nature and allows the public to easily recognise the occupation.
    • Protective clothing and footwear – to protect against the risk of illness or injury posed by the activities undertaken to earn the income.

    The amounts you report using this allowance type are the same laundry allowances which have a varied rate for PAYG withholding based on the ATO approved threshold.

    For reporting through STP, use this allowance type to report both:

    • laundry allowances that exceed the ATO approved threshold
    • laundry allowances that don't exceed the ATO approved threshold.

    You may also pay other kinds of allowances relating to uniforms or clothing, such as allowances which help an employee purchase new uniforms. Don't report those allowances as 'laundry allowances' in STP.

    The following table outlines some examples of what should and shouldn't be included in Laundry allowance.

    Laundry allowance reporting examples

    Include

    Don't include

    • laundry allowance for cleaning of approved uniforms up to the ATO approved limit
    • laundry allowance for cleaning of approved uniforms in excess of the ATO approved limit 

     

    • laundry allowances for the cost of laundering deductible conventional clothing – this should be reported as other allowances (allowance type OD) with the description G1 (general).
    • laundry allowance for the cost of laundering uniforms for private purposes – this should be reported as other allowances (allowance type OD) with the description ND (non-deductible) 

     

    Overtime meal allowance (allowance type MD)

    This applies to deductible expense allowances defined in an industrial instrument that are in excess of the ATO reasonable amount, paid to compensate the employee for meals consumed during meal breaks connected with overtime worked.

    The amounts you report using this allowance type are the same overtime meal allowances which have a varied rate for PAYG withholding based on the ATO reasonable amount for the financial year. For reporting through STP, use this allowance type to report only overtime meal allowances that exceed the ATO reasonable amount.

    You may pay other allowances because the employee needed to buy a meal during work time that are not overtime meals, such as allowances for meals paid to workers doing their ordinary hours on a night shift. Do not report those as overtime meal allowances in STP, report them as other allowances (allowance type OD) with the allowance code ND instead.

    The following table outlines some examples of what should and shouldn't be included in Overtime meal allowance.

    Overtime meal allowance reporting examples

    Include

    Don't include

    • overtime meal allowances that exceed the ATO reasonable amount

     

    • overtime meal allowances paid up to the ATO reasonable amount – this payment continues to be exempt from PAYG withholding and from STP reporting

     

    Travel allowances (allowance type RD)

    This applies to deductible expense allowances that are paid for domestic or overseas meals and incidentals and domestic accommodation, undertaken for business purposes, which is intended to compensate employees who are required to sleep away from home.

    It is not a reimbursement of actual expenses, but a reasonable estimate to cover costs including meals, accommodation and incidental expenses.

    The amounts you report using this allowance type are the same travel allowances which have a varied rate for PAYG withholding based on the ATO reasonable amounts for the financial year. For reporting through STP, use this allowance type to report only travel allowances that exceed the ATO reasonable amount.

    As travel allowances for overseas accommodation don't have a varied rate for PAYG withholding, don't report them using this allowance type. Report these as other allowances (allowance type OD) instead.

    Don't use this allowance type to report a living away from home allowance fringe benefit, but be careful as some industrial instruments use the name 'living away from home allowance' to mean a travel allowance that you do need to report here.

    The following table outlines some examples of what should and shouldn't be included in 'travel allowances'.

    Travel allowances reporting examples

    Include

    Don't include

    • allowance that exceeds the ATO reasonable amount for domestic or overseas meals and incidentals and domestic accommodation, undertaken for business purposes, which is intended to compensate employees who are required to sleep away from home 

     

    • allowance that does not exceed the ATO reasonable amount for domestic or overseas meals and incidentals and domestic accommodation, undertaken for business purposes, which is intended to compensate employees who are required to sleep away from home – this is not reported at all through STP
    • allowance that is paid for overseas accommodation for business purposes where the employee is required to sleep away from home – this should be reported as other allowances (allowance type OD) with the description G1 (general)
    • part-day travel allowances – this should be reported as other allowances (allowance type OD) with the description ND (non-deductible)
    • allowances paid for travel that is for private purposes – this should be reported as other allowances (allowance type OD) with the description ND (non-deductible) 

     

    Tool allowance (allowance type TD)

    This applies to deductible expense allowances to compensate an employee who is required to provide their own tools or equipment for business purposes. This allowance was formerly required to be reported under other allowances with a description of the allowance type.

    The following table outlines some examples of what should and shouldn't be included in Tool allowance.

    Tool allowance reporting examples

    Include

    Don't include

    • tool allowances paid to trades staff who are required by their employer to supply and maintain their own tools of trade
    • allowances paid to an employee required to supply equipment for business purposes 

     

    • home office equipment – this should be reported as other allowances (allowance type OD) with the description H1 (home office)
    • internet allowances – this should be reported as other allowances (allowance type OD) with the description H1 (home office)
    • private purposes – this should be reported as other allowances (allowance type OD) with the description ND (non-deductible) 

     

    Qualification and certification allowances (allowance type QN)

    This applies to deductible expense allowances that are paid for obtaining or maintaining a qualification, which is evidenced by a certificate, licence or similar, and is required to perform the work or services. For example, this includes allowances to cover registration fees, insurance, licence fees, which are expected to be expended to maintain a requirement of the job.

    It doesn't include allowances paid for performing additional duties just because those duties require a qualification or certificate. It also does not include a direct reimbursement of the cost.

    The following table outlines some examples of what should and shouldn't be included in Qualification and certification allowance.

    Qualification and certification allowance reporting examples

    Include

    Don't include

    • allowances paid to contribute to the cost of obtaining and maintaining a working with children check
    • ambulance drivers are entitled to a driving licence allowance to cover the cost of maintaining their non-standard drivers licence
    • air pilots are entitled to a loss of licence allowance to help the pilot to hold adequate insurance against loss of licence
    • under the general retail award, employees that are required to maintain a liquor licence are entitled to a liquor licence allowance 

     

    • first aid allowance – this allowance is for performing duties as a first aider and should be reported as task allowance (allowance type KN)
    • allowances paid to recognise a higher level of skill, rather than an allowance to get or maintain a qualification itself – this should be reported as task allowance (allowance type KN

     

    Task allowances (allowance type KN)

    This applies to a services allowance that is paid to compensate an employee for specific tasks or activities performed that involve additional responsibilities, inconvenience or circumstances above the base rate of pay.

    These allowances were included in gross in STP Phase 1 reporting but are now required to be reported separately.

    It doesn't include allowances paid for obtaining or maintaining a qualification even if the qualification is a pre-requisite for performing the task.

    Awards and enterprise agreements contain many different types of task allowances.

    The following table outlines some examples of what should and shouldn't be included in Task allowance.

    Task allowance reporting examples

    Include

    Don't include

    • additional responsibilities
    • first aid allowance
    • leading hand allowance
    • higher duties
    • supervisor allowance
    • on call during ordinary hours allowance
    • inconvenience or disability
    • height allowance
    • dirt allowance
    • danger allowance
    • wet weather allowance
    • confined spaces allowance
    • other circumstances
    • industry allowance
    • site, district or locality allowance
    • secondment
    • recognition of skill level 

     

    • shift allowance or penalty – this should be reported as gross
    • travel time allowance during ordinary hours – this should be reported as gross
    • travel time allowance outside of ordinary hours – this should be reported as overtime
    • on-call allowance outside of ordinary hours allowance – this should be reported as overtime
    • expense allowances 

     

    Other allowances (allowance type OD)

    These are other allowances that are not otherwise separately itemised. These can either be deductible or non-deductible expenses. If the allowance belongs in one of the more specific allowance types detailed above, you must report it in the specific allowance type and not as other allowances.

    Anything you report as 'other allowances' needs to have a description for the category of expense. These categories will help us assist each of your employees to complete their individual tax returns.

    The following table outlines the description codes descriptions you can use.

    Other allowances description codes and examples

    Allowance code

    Description

    H1 (home office)

    Use this code for deductible expense allowances related to the employee maintaining a home office (such as allowances to assist with initial set up or running costs). Do not use this code to report allowances that relate to specific tools and equipment that are reported as tool allowance (allowance type TD).

    ND (non-deductible)

    Use this code for non-deductible expense allowances. Generally, these will be allowances related to an expense which is not work-related, not for business purposes, or is for private purposes.

    T1 (transport or fares)

    Use this code for deductible expense allowances related to the employee travelling on public transport, or in taxis and rideshare services. Do not use this code to report allowances that relate to transport that was not for business purposes, use ND instead.

    U1 (uniform)

    Use this code for deductible expense allowances related to uniforms, as long as they are not for non-deductible expenses (use ND instead).

    V1 (private vehicle)

    Use this code for deductible expense allowances related to the employee travelling in a private vehicle. This includes cents per kilometre allowances for vehicles that are not cars.

    Don't use this code to report allowances that relate to transport that was not for business purposes (use ND).

    G1 (general)

    Use this code for deductible expense allowances that don't belong in one of the other codes above.

    Specific description we tell you to use

    Sometimes we will tell you to use specific descriptions in relation to certain programs, such as the specific descriptions relating to the JobMaker Hiring Credit scheme. If we tell you to use a specific description, use it instead of the main allowance codes.

    Depending on the product you use, these will appear in your STP report as either:

    • the code only (for example, G1)
    • the code and name (for example, U1 uniform)
    • the code and the pay code description you have used in your payroll (for example, H1 internet allowance).

    The following table outlines some examples of what should and should not be included in Other allowances.

    Other allowances reporting examples

    Include

    Don't include

    G1 (general)

    • laundry allowances for the cost of laundering deductible conventional clothing

    H1 (home office)

    • home office equipment allowances
    • internet allowances

    ND (non-deductible)

    • cents per km payments for private travel such as travel between home and work
    • allowance payments for the cost of transport for private purposes
    • laundry allowance for the cost of laundering uniforms for private purposes
    • allowances paid for travel that is for private purposes
    • part-day travel allowances
    • allowances paid in relation to equipment used for private purposes

    T1 (transport or fares)

    • Allowance payments for the cost of transport for business related travel not traceable to a historical award in force on 29 October 1986

    U1 (uniform)

    • allowances paid for the purchase of a uniform

    V1 (private vehicle)

    • cents per km payments for vehicles other than a car such as a motorbike or van
    • flat rate car allowance that is referable to the kilometres travelled 

     

    • direct reimbursement of business expenses – this is not reported
    • living away from home allowance – this falls under the FBT legislation and is not reported here
    • tool allowances – this should be reported as tool allowances (allowance type TD)
    • cents per kilometre – this should be reported as cents per km allowance (allowance type CD)
    • qualification and certificate allowances – this is reported in qualification and certification allowances (allowance type QN

     

    Back pays

    Sometimes there may have been an oversight or delay and you need to make a back payment to an employee. As back payments are not a single type of payment, there is no single way to report them through STP. Instead, you need to consider the circumstances of the back payment.

    In some cases, the back payment you are making may be a lump sum E payment. Lump sum E is a separately reported payment type for STP.

    If you are making a back payment to an employee and it is not lump sum E, then report it in STP as the relevant payment type (such as gross, allowances or overtime).

    Lump sum E

    Lump sum E is an amount of back payment of remuneration that accrued, or was payable, more than 12 months before the date of payment and is greater than or equal to the Lump sum E threshold amount ($1,200).

    Your payroll solution may report Lump sum E:

    • in each STP report, or
    • only when you finalise your reporting at the end of the financial year.

    Both ways are acceptable.

    You must report Lump sum E YTD amounts by specifying each prior financial year to which the amount relates.

    When you report lump sum E payments, you will no longer need to issue employees with a lump sum E letter at the end of the financial year. This information will now be available on their income statement.

    The following table outlines some examples of what should and shouldn't be included in Lump sum E.

    Lump sum E reporting examples

    Include

    Don't include

    • back payments which accrued, or were payable, more than 12 months before the date of payment and are greater than or equal to the lump sum E $1,200 threshold

     

    • back payments that total below the lump sum E threshold
    • back payments that accrued or were payable less than 12 months before the date of payment 

     

     

    Example: lump sum E reporting

    Ross' employer identified on 15 February 2022 that Ross has not been paid his higher duties allowance for the past 22 months totalling $3,300 due to an administration error. Using the normal ATO backpay rules, the pay office has split the payment into the following categories:

    • The past 12 months of backpay (15 February 2021 to 15 February 2022) totals $1,800. This is taxed and reported in the current financial year. As the backpay is for an allowance, it will be reported in the appropriate allowance field.
    • The amount that is greater than 12 months old (14 February 2021 and earlier) totals $1,500 which means it must be reported as Lump sum E because it is greater than the lump sum E threshold of $1,200. The Lump sum E component must be allocated to the appropriate financial year. $600 relates to the 2020–21 financial year and $900 relates to the 2019–20 financial year.

    This is reported in STP Phase 2 as follows:

    • KN tasks $1,800
    • Lump sum E 2021 $600
    • Lump sum E 2020 $900.

    Ross’ employer does not need to provide him with a letter as the lump sum E amounts have been allocated to the appropriate financial years in the STP report.

    End of example

    Exempt foreign employment income

    Any amount you pay to an employee that is exempt foreign employment income must be reported as exempt foreign employment income.

    You must report these amounts even if they are the only income paid to the employee for the financial year. This is a new reporting requirement for STP Phase 2. It was not required to be reported under previous reporting phases such as STP Phase 1 or payment summaries.

    If the employee’s foreign service qualifies as exempt foreign income, it is not subject to withholding and must be reported in STP Phase 2 against the income type SAW as exempt foreign income.

    Exempt foreign employment income is the exception to the reporting of pre-sacrificed amounts. You must only report post-sacrifice amounts as exempt foreign employment income, and you must not report any amount sacrificed from exempt foreign employment income as salary sacrifice in your STP report.

    If the employee’s foreign service does not qualify as exempt foreign income, it must be reported against the income type FEI.

    Salary sacrifice

    If your employee had an effective salary sacrifice arrangement, you previously reported post-sacrifice amounts to us. This changes as part of STP Phase 2.

    You now need to report the salary sacrifice amounts and separately include the pre-sacrificed income amounts in your STP report. Reporting the salary sacrifice amounts separately helps:

    • us to assist your employees complete their tax return correctly by identifying pre-tax deductions from the payments you have reported through STP
    • us identify where salary sacrifice arrangements may affect your employees’ super guarantee entitlements
    • other government agencies identify where income is sacrificed that may affect your employees’ obligations or entitlements to other income tested payments.

    When reporting salary sacrificed amounts, you report the actual amount of salary and wages which was sacrificed as one of the following salary sacrifice types:

    • super (salary sacrifice type S) – for super to a complying fund or retirement savings account (RSA)
    • other employee benefits (salary sacrifice type O) – for benefits other than super.

    In your STP report, salary sacrifice components appear as positive amounts regardless of the salary packaging method you use. It's important to understand how your product manages salary sacrifice because some products may require you to enter negative amounts into your payroll so that calculations can be completed correctly.

    You must not report amounts sacrificed from exempt foreign employment income as salary sacrifice in your STP report.

    There are different rules if you are making post-tax deductions.

    Example 1: reporting pre-sacrificed income

    Adam earns $60,000 per annum and would like to sacrifice $3,000 into super.

    In STP Phase 1 you reported the post-sacrificed income of $57,000.

    In STP Phase 2 you are required to report the pre-sacrificed income as well as the amount of salary sacrifice. This is how you should report this in STP Phase 2:

    • gross: $60,000
    • salary sacrifice type S (super): $3,000.

    This new method of reporting will show that Adam’s full income is $60,000 with $3,000 being sacrificed to super, leaving a taxable income of $57,000.

    End of example

     

    Example 2: reporting both types of salary sacrifice

    Anita earns $100,000 and sacrifices $5,000 into super and $20,000 to a novated lease.

    In STP Phase 1 you reported the post-sacrificed income of $75,000.

    In STP Phase 2 you are required to report the pre-sacrificed income as well as the amount of salary sacrifice. This is how you should report this in STP Phase 2:

    • gross: $100,000
    • salary sacrifice type S (super): $5,000
    • salary sacrifice type O (other employee benefits): $20,000.

    This new method of reporting will show that Anita’s full income is $100,000 with $5,000 being sacrificed to super and $20,000 being sacrificed to other employee benefits, leaving a taxable income of $75,000.

    End of example

    Relationship between reporting RESC and salary sacrifice type S

    Often the amounts you report as salary sacrifice super (salary sacrifice type S) are also considered reportable employer super contributions (RESC). There are other contributions you may make to super for an employee that are RESC but not salary sacrificed.

    It's important to remember that salary sacrifice type S and RESC are different things and used for different purposes.

    Salary sacrifice type S helps us identify the pre-tax deduction so that we can:

    • help your employee complete their tax return correctly
    • ensure you are meeting your super guarantee obligations.

    RESC:

    • can include some additional kinds of super contributions that are not made under an effective salary sacrifice arrangement
    • is used in income tests for various obligations and entitlements administered by the ATO and Services Australia, including study and training support loan repayments and Family Tax Benefit.

    If an amount is both salary sacrifice type S and RESC, you need to report it as both in STP. When reporting salary sacrifice type S amounts, you must include them in your STP report during the financial year. You can continue to choose whether you report RESC during or at the end of the financial year.

    Relationship between reporting RFBA and salary sacrifice type O

    Reportable fringe benefits amounts (RFBA) may be related to the amounts you report as salary sacrifice other benefits (salary sacrifice type O) but can differ because some:

    • benefits an employee receives from salary sacrificing may not also be RFBA
    • benefits an employee receives may be RFBA but were not obtained from salary sacrificing
    • actions, such as employee contributions, may change the value of RFBA relative to the salary sacrifice.

    It's important to remember that salary sacrifice type O and RFBA are different things and used for different purposes:

    • Salary sacrifice type O helps us identify the pre-tax deduction so that we can help your employee complete their tax return correctly.
    • RFBA
      • is used in income tests for various obligations and benefits administered by the ATO and Services Australia, including study and training support loan repayments and Family Tax Benefit
      • helps us ensure you are meeting your FBT obligations.
       

    If an amount is both salary sacrifice type O and a RFBA, you need to report both:

    • the amount of salary or wages which was sacrificed as salary sacrifice type O, and
    • the grossed up taxable value of the benefits as RFBA.

    When reporting salary sacrifice type O amounts, you must include them in your STP report during the financial year. You can continue to choose whether you report RFBA during or at the end of the financial year.

    When you are reporting Salary sacrifice type O don't apply the same FBT rules you would for reporting RFBA.

    • Don't gross up amounts you are reporting as Salary sacrifice type O.
    • Make sure you report the actual amount your employee has sacrificed from salary and wages, even if sacrificed for a benefit that may be exempt or otherwise not taxable for FBT purposes.

    Salary sacrifice super (salary sacrifice type S)

    You should include salary sacrifice to a complying super fund or RSA from an effective salary sacrifice arrangement.

    The following table outlines what should and shouldn't be included in salary sacrifice super (salary sacrifice type S).

    Salary sacrifice super reporting examples

    Include

    Don't include

    • amounts sacrificed to a complying super fund or RSA due to an effective salary sacrifice agreement

     

    • compulsory SG – this should be reported as Super liability
    • additional extra super paid at the employer's discretion – this should be reported as super liability and may also be included in reportable employer super contributions (RESC)
    • non-effective salary sacrifice arrangements – this should be reported as gross

     

    Salary sacrifice other employee benefits (salary sacrifice type O)

    You must include salary sacrifice of all benefits from an effective salary arrangement. This includes where the sacrifice relates to benefits that are exempt from FBT, such as living-away-from-home allowance and laptops used primarily for business purposes.

    The following table outlines what should and shouldn't be included in Other employee benefits salary sacrifice (Salary sacrifice type O).

    Salary sacrifice other employee benefits reporting examples

    Include

    Don't include

    • benefits from an effective salary sacrifice agreement including:          
      • novated leases
      • airline lounge memberships
      • portable electronic devices 
       

     

    • non-effective salary sacrifice arrangements – this should be reported as gross
    • employee benefits given to an employee that have not been sacrificed such as entertainment fringe benefits 

     

    Salary sacrifice through a third-party provider

    Some employers outsource the management of their salary sacrifice arrangements to a third-party provider rather than managing those arrangements themselves. In this situation you must still include salary sacrifice amounts in your STP reporting.

    We understand that this might mean your provider has not given you all the information you need in time for your STP reporting. You know that your employee has sacrificed an amount, but you might not know whether it is salary sacrifice to super, salary sacrifice to other employee benefits, or a combination of both.

    We have a concessional approach to help you report in this situation:

    • You can report the whole amount sacrificed as salary sacrifice type O (Other benefits).
    • Make a correction to your reporting when you know how much salary was sacrificed towards super.
    • Ensure that when you finalise at the end of the financial year your STP reporting is showing the correct amounts.

    This is a concession for STP reporting only – it does not change your super guarantee obligations. You still need to make sure that you are paying at least the minimum super guarantee on your employee’s OTE base (including amounts salary sacrificed to super) each quarter.

    Example: salary sacrifice with a third-party provider

    Each fortnightly payday, one of Kim's employees sacrifices $150 from their salary. Kim uses a third-party provider to manage salary sacrifice for her employees, and each fortnight she sends $150 to mher chosen provider to be applied in accordance with the instructions provided by the employee.

    When Kim sends the sacrificed amount to the third-party provider, she does not know how her employee has instructed them to apply the amount. Kim chooses to use the ATO’s concessional approach, so she includes the sacrificed $150 as Salary sacrifice type O in her STP reporting.

    At the end of each quarter, the third-party provider sends Kim a report showing how the amounts sacrificed by her employee have been applied. Kim uses this report to identify that from each of the 6 fortnightly pays during the quarter, her employee sacrificed $50 to super and $100 to other benefits. Kim lodges an update event to correct her STP reporting by increasing the YTD amount reported at salary sacrifice type S by $300 and reducing the YTD amount reported at Salary sacrifice type O by $300 so that it shows the correct amounts.

    Kim also reviews her super guarantee records to ensure she has paid enough for this employee for the quarter.

    At the end of the financial year, Kim uses the reports her third-party provider has sent her to make sure that she has reported correct amounts as Salary sacrifice type S and Salary sacrifice type O before she finalises.

    End of example

    Refunds of salary sacrifice

    Some circumstances may result in a refund of salary sacrifice amounts to an employee. The way to report this correctly depends on whether the refund of salary sacrifice occurs in the same, or in a different, financial year from when the amount was initially sacrificed.

    The steps you need to take in your product to make these changes correctly will differ between payroll solutions. It is important to make sure you understand your DSPs instructions.

    The following table shows the actions you need to take when reporting a refund of salary sacrifice if it occurs within the same financial year as the initial sacrifice.

    Reporting a refund of salary sacrifice in the same year

    Action

    Reason

    Reduce the YTD amounts you have reported as:

    • Salary sacrifice type S by the amount of the refund relating to sacrifice to super, and
    • Salary sacrifice type O by the amount of the refund relating to sacrifice to other benefits.
     

    We use the pre-sacrifice income amounts you report together with the salary sacrifice amounts to determine the post-sacrifice income that needs to be included in an employee's tax return.

    Refunding a salary sacrifice amount means that your employee has actually sacrificed less of their salary than what you have reported. Reducing the salary sacrifice amount ensures the post-sacrifice income can still be correctly determined.

    Withhold from the salary sacrifice refund and include the additional PAYG withholding in your STP report

    If the amount had originally been paid to the employee as salary or wages, you would have withheld from it and reported the withholding in your STP report. However, you didn't because the amount was sacrificed.

    As you are now paying this amount to the employee, you still need to withhold and report the withholding in your STP report.

    Check whether you have paid super on the refunded amount in a previous quarter. If you haven't, pay the additional super and include the amount in your STP reporting.

    As an employer, you need to make sure that you have met your super obligations relating to the salary sacrifice refund amount. Depending on the circumstances you may already have paid super on it (such as where the sacrifice was to super), or you may need to pay additional super. It is important to confirm this (and if you need to, pay the additional super) so that your employee receives the super they are entitled to.

    Check the RESC and RFBA you have reported to ensure you have not overstated them due to the refund of salary sacrifice.

    If you have already reported RESC or RFBA relating to the same amount which is now being refunded, you need to make sure you correct that reporting so the amount is not double counted as income and as RESC or RFBA.

    RESC and RFBA are included in your employee’s income for calculating some things like study and training support loan repayments and certain benefits, so double counting the salary sacrifice refund amounts can disadvantage your employee.

     

    Example: refund of salary sacrifice within the same financial year

    Oscar's employee sacrifices part of their salary towards a novated lease. So far in this financial year, they have sacrificed $20,000 and Oscar has reported $20,000 as Salary sacrifice type O through STP.

    A reconciliation has identified that Oscar's employee has sacrificed $500 more than they needed to, and they are receiving a refund of salary sacrifice.

    As the refund of salary sacrifice is occurring in the same financial year as the sacrifice, Oscar corrects his STP reporting to show $19,500 as the YTD amount for Salary sacrifice type O, and to include the additional PAYG withholding and super liability which applies to the refund.

    Oscar also reviews his reported RFBA to ensure he has taken the salary sacrifice refund into account.

    End of example

    The following table shows the actions you need to take when reporting a refund of salary sacrifice if it occurs in a different financial year as the initial sacrifice for both:

    • the current financial year when the refund of salary sacrifice occurs
    • the previous financial year when the amount was sacrificed.

    This is so your employees’ income can be treated correctly in their tax returns and when calculating their other entitlements or obligations, such as study and training support loan repayments, for both affected financial years.

    Reporting a refund of salary sacrifice in a different year

    Action

    Reason

    For the current financial year, increase the YTD amounts you have reported as Gross by the total amount of the refund.

    As the refund of salary sacrifice is occurring in the current financial year:

    • you have an obligation as an employer to report through STP that you have paid it
    • your employee has an obligation to include it in their tax return.

    Taking this step ensures the refunded salary sacrifice amount is included in your reporting and your employee's tax return for the correct financial year.

    Withhold from the salary sacrifice refund and include the additional PAYG withholding in your STP report for the current financial year.

    If the amount had originally been paid to the employee as salary or wages, you would have withheld from it and reported the PAYG withholding in your STP report. However, you did not because the amount was sacrificed instead.

    As you are now paying this amount to the employee, you still need to withhold and report the PAYG withholding in your STP report.

    Check whether you have paid super on the refunded amount in a previous quarter and, if you haven’t, pay the additional super and include the additional super amount in your STP reporting for the current financial year.

    As an employer, you need to make sure that you have met your super obligations relating to the salary sacrifice refund amount.

    Depending on the circumstances you may already have paid super on it (such as where the sacrifice was to super), or you may need to pay additional super. It is important to confirm this (and if you need to, pay the additional super) so that your employee receives the super they are entitled to.

    For the previous financial year, reduce the YTD amount you have reported as:

    • Gross by the total amount of the refund
    • Salary sacrifice type S by the amount of the refund relating to sacrifice to super, and
    • Salary sacrifice type O by the amount of the refund relating to sacrifice to other benefits.
     

    As both you and your employee have obligations to include the refunded salary sacrifice amount in the STP reporting and tax return for the current financial year, you need to correct your reporting for the previous financial year so that it isn't double-counted in both years.

    Reducing both Gross and the reported salary sacrifice amounts ensures that when we use the pre-sacrifice income amounts you reported together with the salary sacrifice amounts to work out the post-sacrifice income that needs to be included in your employee's tax return, we can still determine the correct amount.

    For the previous financial year, check the RESC and RFBA you have reported to ensure you have not overstated them due to the refund of salary sacrifice.

    If you have reported RESC or RFBA relating to the same amount which is now being refunded, you need to make sure you correct that reporting so the same amount is not double counted as RESC or RFBA in one financial year and as income in another.

    RESC and RFBA are included in your employee’s income for calculating some things like study and training support loan repayments and certain benefits, so double counting the salary sacrifice refund amounts can disadvantage your employee.

     

    Example: refund of salary sacrifice outside of the financial year

    Lisa's employee sacrifices part of their salary towards a novated lease. By 30 June 2022, the YTD amounts Lisa had reported through STP for this employee were:

    • Gross = $100,000
    • Salary sacrifice type O = $10,000
    • Super liability = $9,000.

    In July 2022, an end of lease reconciliation has identified that Lisa's employee sacrificed $500 more than they needed to during the financial year, and a refund of salary sacrifice is being provided to them in their first monthly pay on July 15.

    For the financial year which has just ended, Lisa:

    • decreases Gross to $99,500
    • decreases Salary sacrifice type O to $9,500
    • reviews the RFBA amount to identify and correct any impact.

    For the current financial year, Lisa:

    • increases Gross to $8,833.33 (the pay period 1 YTD amount plus the amount of the salary sacrifice refund)
    • includes the additional PAYG withholding on the salary sacrifice refund as PAYGW
    • increases Super Liability to $927.50 (the pay period 1 YTD super liability amount of $875 plus the super liability relating to the salary sacrifice refund of $52.50).
    End of example

    If the refund of salary sacrifice is being paid by a different entity within your economic group (whether within the same financial year or not) you should follow the steps above for refunds occurring outside of the financial year. Treat the references in those steps to ‘current financial year’ and ‘previous financial year’ as ‘current entity’ and ‘previous entity’, but if the salary sacrifice refund has crossed between financial years you also need to make sure your corrections relate to the correct financial year.

    Tax that has been withheld or paid

    The kinds of payments you need to report are also payments which are part of the PAYG withholding system. This means you are required to withhold amounts from these payments and pay the amount you have withheld to us. In some cases, you may also need to pay tax to a foreign government or tax authority. You need to include these amounts.

    PAYG withholding

    You must report the amounts you withhold from payments you make to employees. You must include separate YTD amounts you have withheld from each income type (and for income types that require a country code, for each combination of income type and country code).

    If you are reporting amounts you have withheld from payments you are reporting against the FEI income type, you must only report the residual amount withheld after the deduction of foreign tax paid. If you do not know the amount of foreign tax on or before each payday, you must report the full amount of PAYG withholding. When you know the amount of foreign tax you can correct your STP reporting so that you are reporting the residual amount.

    Foreign tax paid

    If you have paid amounts to an employee that you are reporting against the FEI income type, there are rules for reporting foreign employment income. One of these rules is that you must report the amount of foreign tax that you have paid or are required to pay to a foreign government or authority.

    This amount must be included in your STP reporting during the same financial year as the payment is reported even if you do not actually pay the foreign tax until after the end of the Australian financial year.

    The amount you report must be in Australian dollars. See how to convert foreign income into Australian dollars.

    If you do not know the amount of foreign tax on or before each payday, then you can report zero or estimate the amount of foreign tax. If you do this, you must still include the correct foreign tax amount in your STP report when you finalise your reporting at the end of the financial year.

    Find out about

    Last modified: 03 Jun 2022QC 66099