STP Phase 2 – what is it?

STP Phase 2 start date

Employers reporting STP using an existing Payroll software have until 31 March 2023 to report their first STP Phase 2 pay run, instead of the 1 January 2022 ATO deadline.

Under STP Phase 2, you need to report additional information to the ATO in a few new areas. You can find the full details on the ATO website .

The main changes are:

Tax file number declaration

Employers are currently required to submit a tax file number declaration to the ATO. Phase 2 will incorporate employee tax information via STP reporting, which eliminates the need to submit tax file declarations to the ATO as a separate process.

Income type and country codes

You already tell the ATO about the type of income your employees receive in your STP report.

The reporting of income types is being introduced in Phase 2 to more flexibly:

  • Identify payments you make to your employees with specific tax consequences
  • Make it easier for them to complete their individual income tax return
  • Help the ATO identify where you are using a concessional reporting arrangement

There are instances where you might need to report a country code. For example, if you make a payment to an Australian resident working overseas, you need to provide information about the host country.

Termination reason

Specifying a reason for termination will be mandatory when an employee finishes their employment.

Currently, an employer may be asked to provide an employee with an employment separation certificate upon an employee’s termination of employment. Phase 2 will require the reason for termination to be included in the STP report sent to the ATO.

Cloud based accounting software such as Xero have already implemented the termination reason in preparation for STP Phase 2, which removes the need for an employment separation certificate to be issued.

Paid leave

Paid leave won’t be included as part of gross earnings when reporting earnings via STP. You’ll still need to report leave payments made to your employees in your STP report.

More information on paid leave (ATO website)

Allowance types

In STP Phase 1 reporting, some allowances are reported separately, but others are reported as part of gross.

You’ll now need to report all allowances separately in your STP Phase 2 report across most income types. This means that allowances previously reported as gross must now be separately itemised and reported.

Cloud based accounting software such as Xero have already implemented the allowance types pay item.

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

Cloud based accounting software such as Xero have already implemented the directors fees pay item.

More information on directors fees (ATO website)

Lump Sum W (Return to work) payments

A return to work amount is paid to induce an employee to resume work. For example, to end industrial action or to return from working for another employer. This is a new category of lump sum payments which is being introduced as part of STP Phase 2. Previously, they were reported as gross and not individually identified.

Cloud based accounting software such as Xero have already implemented Lump Sum W (Return to work) payments.

More information on Lump Sum W (Return to work) payments (ATO website)

Tax treatment codes

Your STP Phase 2 report includes a six-character tax treatment code for each employee. The tax treatment code is an abbreviated way of telling the ATO about factors that can influence the amount you withhold from payments to your employees.

More information on tax treatment codes (ATO website)

Bonuses and commissions

There might be times when you pay some employees bonus and commission payments, which are typically paid as a lump sum. Previously they were reported as part of gross payments, but for STP Phase 2 they’ll be reported separately.

Cloud based accounting software such as Xero have already implemented bonuses and commissions.

Lump Sum E payments

This is used when you make lump sum payments for back pay from prior income years.

Previously, this was shown on a separate line item in an employee’s payment summary. STP Phase 2 requires these payments to be reported with the tax year they originated in before finalising an employee’s records. This removes the need to provide employees with Lump Sum E letters.

Cloud based accounting software such as Xero have already implemented Lump Sum E payments and recording of the Lump Sum E tax year in preparation for STP Phase 2.

If you would like more information in relation to STP Phase 2, please reach out to the team.
e: advisors@hksrussell.com
t: (07) 3177 4120

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