by Melissa Probert, Associate Director.
As the end of the financial year draws closer it’s a great time for employers to start planning for the processes required to close out a payroll year. End of year finalisation is required to be lodged with the ATO by the 14th July.
Superannuation contributions are only deductible expenses in the current financial year for a business if they have been received by the employees fund prior to 30th June. This means that many employers will elect to make 2 super payments for the June superannuation quarter:
- one for all payruns completed prior to superannuation processing cutoff date determined by their super payment solution to get the maximum deduction
- and another in July for any later contributions required to be paid by the statutory due date.
The cutoff dates for June processing of super within common payroll systems are the 14th June for Xero, and Myob recommends 10 business days prior to the end of the financial year. Check with your payroll provider or super clearing house for other system dates.
There has been a recent merger of Statewide Superannuation Fund into Hostplus which is likely to affect many employers in both South Australia and the Northern Territory. Statewide Superannuation is no longer accepting contributions and the fund details for all impacted employees will need to be updated in your payroll system prior to making payments. Further information for employers can be found here.
Reconciling Payroll accounts
All payroll liability accounts should be reconciled to ensure that all required payments have been made.
Common accounts requiring reconciliation include:
- Wages Payable
- PAYG Withholding Payable
- Superannuation Payable
Wages expense accounts should also be reconciled to the STP finalisation report to ensure that all taxable amounts and allowances have been reported correctly to the ATO. STP finalisation reports can be run at any time during the year without lodging to allow any issues to be identified and rectified.
Recording Reportable Fringe Benefits
Employees who have been provided Fringe benefits during the year above the reportable limit will need to have these reported to the ATO with their end of year finalisation information. Amounts to be reported may have been provided by a salary packaging provider or calculated when preparing a Fringe Benefits Tax return and need to be manually entered to your payroll system. Collating this information early or even entering into the employees payroll record once received will streamline the end of year process.
Changed payroll system during the financial year?
End of year reporting becomes complicated when payroll data has been lodged from multiple systems. In this instance please contact us for advice as soon as possible to ensure lodgement obligations can be met.
Single Touch Payroll Phase 2
While the official start date for STP 2 was 1 January 2022 the major payroll providers have obtained a deferral until 31 December 2022 for customers to implement the new reporting requirements. The start of a new payroll year is a good time to consider this change and each software solution has detailed guides available on how to implement the new reporting.
Under STP Phase 2, you will be required to report additional information to the ATO under a few new areas. The main ones to be aware of relate to the following:
- Tax file number declaration: Currently, these declarations capture details on employment type (full time, part time or casual) and different tax factors that influence PAYG withholding, like a HELP debt, as well as the TFN itself. This will all be included in your STP report via an automated six-character tax treatment code for each employee and means TFN declarations will no longer need to be sent to the ATO after collection.
- Termination reason: The reason why someone leaves a business will need to be provided in your STP report, such as if it was voluntary or a redundancy. This means no more employee separation certificates.
- Employment basis: Previously optional, it will become mandatory to report an employee’s work type. This includes full-time, part-time or casual, along with new categories like labour hire, volunteer agreement or non-employee.
- Income stream collection: Phase 2 will require employers to break down payments into more detail under a new grouping called income stream collection. This has three main areas:
- Income types: Where before income was classified under one label, in Phase 2 each amount paid to an employee will now be assigned to an income type. These include salary and wages, closely held payees (e.g. family members), working holiday makers, and labour hire, among others.
- Country code: You will have to include a country code for employees who report to tax jurisdictions outside of Australia. This is most relevant for businesses with staff on certain visas (like working holiday) as you will need to provide their home country.
- Disaggregation of gross: Currently, STP reports include a gross (total) amount which is the sum of a number of payment types. This will now be broken into more detail to include: allowances (all must be separate); bonuses and commissions; directors’ fees; overtime; paid leave; salary sacrifice. Paid leave will also be categorised using leave type codes.
- Salary sacrifice: Since these contributions can no longer be used to reduce ordinary earnings or count towards superannuation obligations, they need to be separately reported in STP. You can no longer report the post-sacrificed amount via payroll.
- Lump sum E payments: This is used when you make lump sum payments for back pay from previous income years. Previously, it was shown on a separate line item in an employees’ payment summary. In Phase 2 it must be included in STP reports before finalising an employees’ records. This will remove the need to provide employees with Lump Sum E letters.
Payroll can be a complicated area, but our payroll specialists are here to help! If you need advice or assistance with any of the above, please contact us.
This information is current at the time of publication and further updates may have occurred since that date. Please contact us for the latest information.