The tax treatment code is a new way of notifying the ATO about the factors that influenced the calculation of the PAYGW and that the employee had specified all of their circumstances to the employer, such as having a Study Training Support Loan (STSL), Medicare Levy Exemption Claimed etc.
From a user perspective, it is necessary that each employee has the correct settings applied. The payroll software will then automatically generate the code based on those settings and send that code to the ATO through the STP event for each employee.
To assign the correct categories to the employees refer to the steps below -
Step 1 - Click on "Employees"
Step 2 - Select the employee from the all the employee's list
Step 3 - Click on "Taxes"
Step 4 - Scroll down the "Other Criteria" section.
Step 5 - Select the appropriate tax offset
Step 6 - Click on Save
Tax scale categories
Following is a description of each tax scale category and instructions on how to assign a category against an employee:
Tax-free Threshold Claimed - It means the amount of money that the government is allowing an Australian resident to earn without paying income tax.
Enable tax-free threshold claimed to calculate the right tax amount
Study and Training Support Loan (STSL) - An employee would indicate they have an STSL debt by answering "yes" to the question "Do you have a Higher Education Loan Program (HELP), VET Student Loan (VSL), Financial Supplement (FS), Student Start-up Loan (SSL) or Trade Support Loan (TSL) debt?" on their tax file number declaration. This results in an obligation for the employee to repay a higher rate of withholding when income thresholds are reached.
STSL is not permissible for all tax scale categories.
Seasonal Worker Programme: This is a new setting that will be available to users in Phase 2 reporting. This category applies to non-residents of Australia for tax purposes engaged under the SWP administered by the Department of Employment, Skills, Small and Family Business.
Seasonal workers are identified as such when the 'Seasonal worker Programme' checkbox within the 'Other criteria' section is selected. Refer to the ATO website for further information on this category of employees.
Medicare Levy Exemption Claimed: The Medicare levy helps fund some of the costs of Australia's public health system known as Medicare. The Medicare levy is 2% of an employee's taxable income and is in addition to the tax paid on taxable income. The Medicare levy is automatically calculated as part of the PAYG amount withheld in the pay run. An employee's actual Medicare levy is calculated upon lodging their income tax return.
An employee may be eligible for a reduction or exemption from paying the Medicare levy, depending on the circumstances of the individual and their spouse. Determining eligibility for a reduction or exemption is the responsibility of the employee.
An employee should communicate any Medicare circumstances by completing a Medicare levy variation declaration form and providing this form to their employer. Only then should any of these settings be configured for an employee. The 2 settings are as follows:
Medicare Levy Exemption: Selecting either a full or half exemption from the Medicare Levy for those who meet eligibility requirements will result in an automatic reduction of PAYG withheld in the pay run for that employee, i.e. the exemption will be automatically calculated in the pay run.
If an employee is claiming a full Medicare Levy exemption they cannot also claim a reduction
Medicare Levy Reduction: This is a new setting that will be available to users from Phase 2 reporting and represents a reduction in the rate of Medicare Levy based on family taxable income below a certain threshold and consideration of the number of dependents if any. Claiming this variation may also absolve the employee from repaying any STSL debt that would otherwise be payable, for the period of reduction. This would be made clear from the employee's completed Medicare levy variation declaration form. Selecting the Medicare Levy reduction option will result in an automatic reduction of PAYG withheld in the pay run for that employee, i.e. the reduction will be automatically calculated and applied in the pay run.
Has approved withholding variation: This field should only be selected if the employee has written approval from the ATO that their tax rate should be set as per their instructions
Seniors and Pensioner Tax Offset Claimed: This category applies to employees aged 66 years or older, or veterans receiving a service pension and/or war widows/widowers receiving an income support supplement from the Department of Veterans Affairs who are at least 60 years of age. To classify an employee under this category, select the 'Senior & pensioner tax offset claimed' option from the 'Other Criteria' section.
Horticulturists and Shearers: This is a new setting that will be available to users in Phase 2 reporting. This category applies to employees working for a continuous period not exceeding six months in any horticultural process associated with the production, cultivation, or harvest of a horticultural crop or in the shearing industry such as shearers, Crutcher's, wool classers, cooks, shed hands and pressers that have provided a valid TFN or TFN exemption reason. It includes foreign residents but excludes working holiday makers or Seasonal Worker Programme employees. To classify an employee under this category, select the 'Horticulturist & shearers' option from the 'Other Criteria' section.
Unregistered Work Holiday Makers: There are two types of Working holidaymakers, Registered and unregistered.
If the employer is registered as a working holidaymaker with the ATO, then there is no need to select any options from the 'Other Criteria'
If the employer is not registered as a working holidaymaker with the ATO, to identify them, you need to select the "Unregistered Work Holiday Maker' option from the 'Other Criteria'
Foreign Resident/Non-Resident: Employees who answered “no” to the question “Are you an Australian resident for tax purposes?” on their Tax file number declaration or Withholding declaration. It excludes working holidaymakers.
No TFN: Employees who have not provided a tax file number declaration, or employees who have provided a tax file number declaration but have not supplied a tax file number, or employees who have provided a tax file number declaration but have supplied an incorrect/invalid tax file number and also not claimed an exemption from having to provide a tax file number. Employees are classified under this category if their tax file number is entered as 000000000
Voluntary Agreement: A contractor under a voluntary agreement to withhold under section 12-55 of Schedule 1, Part 2-5 of the TAA 1953, including those who have informed the payer of their CIR, that they don’t have a CIR and if the payment includes an amount for GST.
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