Australian Taxation Office (ATO) Requirements

An Australian Business Number is a unique 11-digit number that identifies your business to the government and the community. Note the following in establishing and maintaining payroll systems:

• A business must register for an ABN in order to lodge and pay PAYG installment and withholding taxes for its employees. 
• An ABN is needed in order for a business with a total annual taxable wage payment exceeding the threshold to be able to lodge and pay payroll tax.
• A business must register for an ABN in order to meet its super obligations for eligible employees. 

A payment summary is a document given by the employer to the employee outlining the employee's total earnings during the financial year.  There are a number of different payment summaries for the following:

• There are a number of different payment summaries for the following:
  • Individual non-business
  • Foreign employment
  • Business and personal services income
  • Withholding where ABN not quoted
  • Employment termination payment
  • Superannuation lump sum
  • Superannuation income stream
  • Interest, dividend and royalty payments paid to non-residents
  • Departing Australia superannuation payment (DASP)
  • Foreign residents
  • Natural resource payments to foreign residents
  • PAYG withholding payment summary statement
• Businesses are required to provide each of its employees a payment summary.
• Businesses at the end of the year should lodged a PAYG withholding annual report which includes the following:
  • all payments made to payees during the financial year
  • the amounts withheld from those payments
• If a business in the building and construction industry will need to report the total payments made to each contractor for building and construction services on the Taxable payments annual report, due every August 28 of each year.

Employment Termination Payments (ETPs) are specific payments that are made to an employee when they stop working for you.

• There are 2 types of ETPs:
  • A "life benefit ETP" paid to an employee
  • A "death benefit ETP" paid to an employee's estate if they have died.
• The ETP must include things like gratuities and severance pay. It will not include payments for accrued annual leave or the tax-free part of genuine redundancy payments. 
• If the termination is because of a genuine redundancy or an early retirement scheme, the payment is tax-free but only up to a certain limit. This will not be a part of the employee's ETP.
• An ETP has a tax-free component if part of payment is for invalidity or work done before July 01, 1983. A business cannot withhold from this component.
• There are caps to an ETP. A cap is the limit where an ETP can be taxed. There are two caps and its application depends on the type of payment. 
• A payment must be generally made within 12 months of termination to qualify as an ETP and receive concessional tax treatment. If not done, the payment becomes part of the recipient's taxable income and is taxed at their marginal rates.

The Tax File Number (TFN) Declaration is done before an employee starts to receive payments from a new employer. This is what the employer bases their calculations of withholding amounts from the payments to the employee.

Note the following:

• Each employee should complete a TFN declaration.
• These TFN declarations should be lodged with the ATO.
• If lodged electronically, the employer must also complete an electronic TFN declaration form. 
• A new and updated declaration will override the previous one. 
• If this is not done within 14 days of beginning an employer/employee relationship, the employer must complete a TFN declaration with all available details of the employee and send it to the ATO.

The Single Touch Payroll (STP) initiative is the Australian government's initiative to reduce the reporting burdens of employers to government agencies. Through STP-enabled software, employers can now report employee payroll information to the ATO every time. 

The payroll information lodged includes the following:

• salaries and wages
• Pay as you Go (PAYG) withholding
• superannuation

STP began on July 01, 2018 for employers with 20 or more employees and July 01, 2019 with those that have 19 or less employees. There are several concessions depending on the business, industry or employer types. Most of these concessions end on July 01, 2021 and by then, reporting has to be done via STP every payday.