STP2 Step 2 - Allowances
Allowance Maintenance Screen Changes
Prior to switching to STP2 the Allowance Screen contains the following information.
Once STP2 is shown, the screen changes as shown below:
Allowance Maintenance Screen Changes:
Stricter definitions of the Types of Allowance allowed and how these should be treated in terms of PAYGW and SGC are introduced under STP2.
This means each Allowance Setup needs to be checked to ensure that the Type of the Allowance is properly reported.
1. Identifying Allowances that are not STP2 compliant.
The Allowance List will show any Allowance that is not STP2 Compliant in red font. When the Allowance is selected and displayed on the right hand panel, note that the panel Header will also be displayed in red font to indicate that the Allowance is not compliant.
2. Allowance Type information
STP2 introduces new definitions for Allowances. For each Allowance you will need to choose the appropriate Allowance Type code for it.
If the Allowance Type selected is Other or Special Leave, a Category is required and potentially also a Category Code.
See below for a full description of the Allowance Types available.
3. Allowance Type - Category
As noted, if you select Other or Special Leave as the Allowance Type you must enter a Category that describes the Other or Special Leave Allowance Type in more detail.
4. Allowance Options
Note that only the following Options can be overridden at Employee level for STP2 compliant Allowances:
- Apply this allowance automatically each Payrun
- Show on Payslip
Note also that for many of the Allowance Types provided by the ATO, the rules around whether it is Taxed and/or contributes to SGC is specified by the ATO. Where this is the case, you will not be able to change the relevant Option flags. Where they are enabled you must exercise care to ensure you set the flags in accordance with ATO guidelines. Note that if Tax is NOT paid on an Allowance you may need to pay Tax for it using some other mechanism such as Extra Tax or FBT.
Note that the Is shown on PAYG Summary and Is part of Gross flags are not relevant in STP2. How the allowance is reported is governed by the rules for the given Allowance Type. These flags are shown for informational purposes only. Once you have transitioned to STP2 these flags will disappear from the screen.
5. OLD Allowance Type
Note that the OLD Allowance Type code is shown at the bottom of the Allowance Maintenance Screen. This is shown for reference only. Once STP2 is activated in the Payrun this field will disappear from view.
Allowance Type
Overview
The most significant change relating to Allowances in STP2 is to the recording of the Type of Allowance.
Note that to this end a new set of Allowance Types is available and one must be selected for each Allowance in the system. The old Allowance Type code is also shown for reference at the bottom of the Allowance Screen. Your challenge it to map this to the correct NEW Allowance Type.
Also, before the payer can pay an Allowance to a payee, the ATO requirements for PAYGW and superannuation guarantee and reporting must be observed. These requirements differ depending on the income category of the allowance as either:
- Services - allowances paid to employees to recognise or compensate for certain conditions relating to their employment due to site displacement, disability (adverse conditions), recognition of skill or qualification, additional duties, inconvenience, infringement on personal time or other reward for performing services. These allowances are not intended to cover any expense and are a genuine reward for performing services.
- Expenses - allowances paid to an employee with a reasonable expectation that the employee will expend the money in the course of providing services. These expenses may be further classified as either:
Non-deductible – those expenses that are of a capital, private or domestic nature that have not been expended in gaining or producing their assessable income or are specifically not deductible (for example, entertainment expenses).
Deductible - the payee is expected to incur costs that may be able to be claimed as a tax deduction at least equal to the amount of the allowance. This is limited to the extent that the expense is incurred in gaining or producing their assessable income.
Tax and SGC requirements for Allowances
For allowances that are categorised as Services or non-deductible Expenses, the PAYGW is as per salary and wages. For superannuation guarantee, these allowances are assessed on their relevance to the ordinary span of hours. Reporting of these allowances is handled by the following Allowance Types:
- Services – Allowance Type KN (Task Allowances)
- Non-deductible expenses – Allowance Type OD (Other Allowances) > Other Allowance Type Description: Non-deductible
For allowances that are categorised as deductible Expenses, the following assessment applies:
- PAYGW:
- ATO measures (reasonable rates and/or limits defined) – no PAYGW applies
- In excess of the ATO measures – PAYGW applies only to the amount in excess of the rates and/or limits
- No measures defined by the ATO – PAYGW applies to the full amount
- Superannuation Guarantee:
- ATO measures (reasonable rates and/or limits defined) – not salary and wages
- In excess of the ATO measures or no measures defined by the ATO – the payer must assess if the payee will fully expend the money in the course of providing their services. If the assessment is that the monies will be fully expended, it is not salary and wages. However, if the payer assesses the monies are not to be or likely to be expended in full, the full amount is salary and wages. With relevance to the ordinary span of hours, the payer must determine if it is also ordinary time earnings.
- Reporting – the types of allowances to be reported are defined below.
Allowance Type Definitions
Below the available Allowance Types are explained in full including the PAYGW and SGC implications for each.
Cents per KM (CD)
Deductible expense allowances at a set rate for each kilometer travelled for business that represents the vehicle running costs, including registration, fuel, servicing, insurance and depreciation into account. This should not include any cents per kilometer allowances that are paid for travel between the payee’s home and place of work unless it is a home-based business and the trip was for business purposes. Services Australia categorise this as Expense Allowance.
- Is Taxed: This allowance has ATO defined measures/limits controlling it. Amounts paid under these measures should not be taxed. Amounts paid over the measures should be taxed.
- Is OTE: This Allowance is not considered OTE and does not typically attract SGC.
- Reporting: Yes always.
Award Transport Payments (AD)
Deductible expense allowances for the total rate specified in an industrial instrument to cover the cost of transport (excluding travel and cents per kilometer reported in other separately itemised allowances), as defined in section 900-220 of the Income Tax Assessment Act 1997. It is an allowance:
- included in an award in force on 29 October 1986 – this is the ATO measure for the rate and/or limit for PAYGW purposes
- paid under an award that can be traced back to the 1986 award
- paid to cover transport expenses – these being the actual transport costs which may be other than car expenses
- Is Taxed: This allowance typically should not be taxed.
- Is OTE: This Allowance is not considered OTE and does not typically attract SGC.
- Reportable: Yes
Laundry (LD)
A deductible expense allowance for washing, drying and/or ironing uniforms required for performing work or services. These allowances are typically paid as a regular rate for each week of work or services performed and cannot include dry cleaning expenses or reimbursements. Services Australia categorise this as Expense Allowance.
- Is Taxed: This allowance typically has ATO defined measures/limits controlling it. Amounts paid under these measures should not be taxed. Amounts paid over the measures should be taxed
- Is OTE: Not considered OTE and does not typically attract SGC
- Reportable: Yes
Overtime Meal Allowances (MD)
A deductible expense allowance defined in an industrial instrument that is in excess of the ATO reasonable allowances amount, paid to compensate the payee for meals consumed during meal breaks connected with overtime worked. Services Australia categorise this as Expense Allowance
- Is Taxed: This allowance typically has ATO defined measures/limits controlling it. Amounts paid under these measures should not be taxed. Amounts paid over the measures should be taxed
- Is OTE: Not considered OTE and does not typically attract SGC
- Reportable: This Allowance is reported through STP only if it is for Amounts above the ATO measure.
Domestic or Overseas Travel Allowances and Overseas Accommodation Allowances (RD)
A deductible expense allowance that is in excess of the ATO reasonable allowances amount (for domestic travel), that is intended to compensate payees who are required to be absent overnight from their ordinary place of residence. It is not a reimbursement of actual expenses, but a reasonable estimate to cover costs including meals, accommodation and incidental expenses. All overseas accommodation allowances are to be reported. Services Australia categorise this as Expense Allowance
- Is Taxed: This allowance typically has ATO defined measures/limits controlling it. Amounts paid under these measures should not be taxed. Amounts paid over the measures should be taxed
- Is OTE: Not considered OTE and does not typically attract SGC
- Reportable: This Allowance is reported through STP only if it is for Amounts above the ATO measure.
Tool Allowances (TD) (New)
A deductible expense allowance to compensate a payee who is required to provide their own tools or equipment to perform work or services for the payer. For example: chef’s knives, divers’ tanks, trade tools, phone allowances. This allowance was formerly required to be reported under “Other Allowances” with a description of the allowance type. This is now required to be reported separately. Services Australia categorise this as Expense Allowance . Non-deductible expense allowances are to be reported as OD (Other Allowances) > Other Allowance Type Description: Non-deductible.
- Is Taxed: This allowance is always taxed.
- Is OTE: SGC applies if this Allowance relates to OTE.
- Reportable: Yes
Tasks (KN) (New)
A service allowance that is paid to a payee to compensate for specific tasks or activities performed that involve additional responsibilities, inconvenience or efforts above the base rate of pay. For example, higher duties allowance, confined spaces allowance, dirty work, height money, first aid etcetera. These allowances were formerly included in Taxable Gross but are now required to be reported separately. Expense allowances cannot be reported as this allowance type. Services Australia categorises this as Employment Income
- Is Taxed: This allowance is always taxed.
- SGC: SGC applies if this Allowance relates to OTE
- Reportable: Yes
Qualifications/Certificates (QN) (New)
A deductible expense allowance that is paid for maintaining a qualification that is evidenced by a certificate, licence or similar. For example, allowances to cover registration fees, insurance, licence fees etcetera that are expected to be expended to maintain a requirement of the job. Services Australia categorise this as Expense Allowance . Non-deductible expense allowances are to be reported as OD (Other Allowances) > Other Allowance Type Description: Non-deductible.
- Is Taxed: This allowance is Taxed
- Is OTE: SGC applies if this Allowance is OTE
- Reportable: Yes
Other Allowances (OD)
Any expense allowance that is not otherwise separately itemised:
- Deductible expenses – for those expenses not specifically addressed in the above allowance types. For example: car allowances (other than cents per kilometre), uniform allowances etcetera. Services Australia categorise this as Expense Allowance .
- Non-deductible expenses – for those expenses that are for private use. For example: cents per kilometre for travel between home and the regular place of work, transport allowance that cannot be traced back to an award in force on 29 October 1986. Services Australia categorises this as Employment Income.
Rather than providing the description of the pay code for Other Allowance Description, the ATO-preferred method is to report the category of other allowances, using pre-determined category descriptions. This will allow the ATO to assist the payee when completing their IITR.
If you choose
Note that JOBKEEPER/JOBMAKER allowances are also reported using the Other Allowance Type and the relevant JK/JM Code can also be entered.
- Is Taxed: This allowance is always Taxed as far as the ATO is concerned. If you choose NOT to tax an allowance of this type it will NOT be reported to the ATO in STP. You may need to pay tax for this Allowance some other way if you choose not to Tax it.
- Is OTE: May attract SGC if related to OTE.
- Reportable: This Allowance is reported through STP only if it is Taxed.
Allowance Categories for Allowance Type Other
- General
- Home Office
- Non-deductible
- Transport / Fares
- Private Vehicle
- Uniform
- Special ATO Code (When this option is selected, a Code can also be stipulated. JOBKEEPER/JOBMAKER codes are entered here).
Special Leave (ZA)
If you need to pay for special leave taken by an Employee and while they are on this Leave you do NOT any other Leaves to accrue (Annual, Sick etc), then you can use these allowances to pay the Employee and still have then tracked and reported appropriately to the ATO. You must select the Category of Leave.
Allowance Categories for Allowance Type Special Leave
- Paid Parental Leave
- Ancillary Defense Leave
- Workcare Leave
Directors Fees (ZD)
Directors’ fees include payments to:
the director of a company, or to a person who performs the duties of a director of the company; or
if the company is not incorporated – as a member of the committee of management of the company, or as a person who performs the duties of such a member
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.
The full amount of the payment must be reported, specifically the full pre-sacrifice value of the fees, before any salary sacrifice may be deducted from the amount.
- Is Taxed: Taxed
- Is OTE: Considered to be OTE.
- Reportable: Yes
Return to Work Payment (ZR)
A return to work amount is paid to induce a person to resume work, for example, to end industrial action or to leave another employer. It does not matter how the payments are described or paid, or by whom they are paid. This was previously reported in gross. Services Australia categorise these payments as Lump Sum.
- Is Taxed: Taxed
Is OTE: Yes
- Reportable: Yes
Bonuses/Commissions (ZB)
Bonuses and commissions are typically paid as lump sum payments rather than at each regular pay period, as is the case for salary and wages:
Bonuses – usually made to an employee in recognition of performance or services and may not be related to a particular period of work performed
Commissions – usually made to an employee in recognition of performance or services and may be calculated as a portion of the proceeds or volume of sales
- Is Taxed: Taxed
- Is OTE: Yes
- Reportable: Yes
Reimbursements (RE)
These a non-deductible reimbursements of expenses to an Employee. Typically most businesses do not handle these payments within their Payroll system. But this Allowance type is available if you wish to.
- Is Taxed: Not taxed. Not considered to be income.
- Is OTE: Not considered OTE.
- Reportable: No. This Allowance Type is never reported.
Lump Sum E (Back pay)
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). When you report lump sum E payments through STP, 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.
- Is Taxed: Yes
- Is OTE: May attract SGC if related to OTE.
- Reportable: Yes
Gross Adjustment
This Allowance Type is not really an Allowance. Any payments made of this Allowance Type will be bundled into the normal Gross pay for the Employee and reported to the ATO as part of the gross figure. Use this allowance type if you need to adjust a persons gross Pay outside of their normal earnings.
- Is Taxed: You can set this allowance to Taxed or not Taxed. If you do not Tax it you may need to pay Tax through some other mechanism to account for the Payment.
- Is OTE: May attract SGC if related to OTE.
- Reportable: Yes as part of Gross
What needs to change in the Allowance for STP2
Choose the correct Allowance Type.
For the “Other” Allowance Type note that you must also select a Category code. Note also that where you are setting up a Jobkeeper or JobMaker Allowance that the special Code provided by the ATO for those Allowances is to be specified in the Other Code field.
Make sure the Pay Tax and Pay Compulsory Super flags are set appropriately for the allowance.
Save your Allowance and confirm that the Allowance no longer shows in a red font in the Allowance List. This means that the Allowance is STP2 Compliant.
Changes made to Allowances are propagated to Employees
When you change an Allowance, if there are any Grades or Employees referencing the Allowance, note that the new configuration for the Allowance will be propagated to the Grade and/or Employee setup.
This happens when you Save the Allowance Setup. At that point if there are Employees or Grades referencing the Leave you will be presented with the following dialog requesting that you confirm how the propagation of Allowance settings occurs.
Tax and OTE settings are ALWAYS propagated. These settings cannot be overridden at Employee or Grade level.
All other settings are changeable at the Grade or Employee level and you can set whether or not to propagate the Allowance settings so they overwrite the value at Grade/Employee level.
Important
The Confirm Allowance Updates screen is presented to you whenever you change an Allowance to show you the effect those changes will have on Individuals and Grades with that Allowance attached.
You should use this confirmation screen to assess the impact of your changes on individual pay packets.
How to Handle Special ATO Allowances like JobKeeper and JobMaker
To set up a special Allowance that needs a special code passed to the ATO, such as JobMaker or JobKeeper, follow these instructions.
- Name the Allowance as instructed in the ATO guidelines. Provide a suitable Description for it also.
- Set the Allowance Type as follows:
- Set the Allowance Type to Other
- Set the Other Category to Special ATO Code
- Set the (Other Category) Code to be the code specified in the ATO Guidelines.
Save your changes and assign the Allowance to the Employees that require it.
How to handle Allowances that have ATO defined measures/limits controlling its application
The following Allowance Types have ATO defined measures/limits that control how it is applied.
- Cents per KM
- Laundry
- Overtime Meal Allowance
- Domestic or Overseas Travel Allowances and Overseas Accommodation Allowances
- Award Transport Payment
For these allowance types you may need to create two separate Allowances of each Type - one to handle un-taxed payments under the measure/limit defined by the ATO and one to handle taxed payments over the limit.
Allowance Templates
Allowance Templates can be accessed from the main menu bar. Templates allow you to quickly set up a new Allowance of a specific Type.
Links
Training video for Allowances under STP2
Training video for Allowance Screen changes
Training video for Allowances with ATO Measure
Training video for Allowance Type Other
Back to STP2 Step 1 - Show STP2
ATO Single-Touch-Payroll-Phase-2-employer-reporting-guidelines
Allowance Maintenance Screen Changes
Prior to switching to STP2 the Allowance Screen contains the following information.
Once STP2 is shown, the screen changes as shown below:
Allowance Maintenance Screen Changes:
Stricter definitions of the Types of Allowance allowed and how these should be treated in terms of PAYGW and SGC are introduced under STP2.
This means each Allowance Setup needs to be checked to ensure that the Type of the Allowance is properly reported.
1. Identifying Allowances that are not STP2 compliant.
The Allowance List will show any Allowance that is not STP2 Compliant in red font. When the Allowance is selected and displayed on the right hand panel, note that the panel Header will also be displayed in red font to indicate that the Allowance is not compliant.
2. Allowance Type information
STP2 introduces new definitions for Allowances. For each Allowance you will need to choose the appropriate Allowance Type code for it.
If the Allowance Type selected is Other or Special Leave, a Category is required and potentially also a Category Code.
See below for a full description of the Allowance Types available.
3. Allowance Type - Category
As noted, if you select Other or Special Leave as the Allowance Type you must enter a Category that describes the Other or Special Leave Allowance Type in more detail.
4. Allowance Options
Note that only the following Options can be overridden at Employee level for STP2 compliant Allowances:
- Apply this allowance automatically each Payrun
- Show on Payslip
Note also that for many of the Allowance Types provided by the ATO, the rules around whether it is Taxed and/or contributes to SGC is specified by the ATO. Where this is the case, you will not be able to change the relevant Option flags. Where they are enabled you must exercise care to ensure you set the flags in accordance with ATO guidelines. Note that if Tax is NOT paid on an Allowance you may need to pay Tax for it using some other mechanism such as Extra Tax or FBT.
Note that the Is shown on PAYG Summary and Is part of Gross flags are not relevant in STP2. How the allowance is reported is governed by the rules for the given Allowance Type. These flags are shown for informational purposes only. Once you have transitioned to STP2 these flags will disappear from the screen.
5. OLD Allowance Type
Note that the OLD Allowance Type code is shown at the bottom of the Allowance Maintenance Screen. This is shown for reference only. Once STP2 is activated in the Payrun this field will disappear from view.
Allowance Type
Overview
The most significant change relating to Allowances in STP2 is to the recording of the Type of Allowance.
Note that to this end a new set of Allowance Types is available and one must be selected for each Allowance in the system. The old Allowance Type code is also shown for reference at the bottom of the Allowance Screen. Your challenge it to map this to the correct NEW Allowance Type.
Also, before the payer can pay an Allowance to a payee, the ATO requirements for PAYGW and superannuation guarantee and reporting must be observed. These requirements differ depending on the income category of the allowance as either:
- Services - allowances paid to employees to recognise or compensate for certain conditions relating to their employment due to site displacement, disability (adverse conditions), recognition of skill or qualification, additional duties, inconvenience, infringement on personal time or other reward for performing services. These allowances are not intended to cover any expense and are a genuine reward for performing services.
- Expenses - allowances paid to an employee with a reasonable expectation that the employee will expend the money in the course of providing services. These expenses may be further classified as either:
Non-deductible – those expenses that are of a capital, private or domestic nature that have not been expended in gaining or producing their assessable income or are specifically not deductible (for example, entertainment expenses).
Deductible - the payee is expected to incur costs that may be able to be claimed as a tax deduction at least equal to the amount of the allowance. This is limited to the extent that the expense is incurred in gaining or producing their assessable income.
Tax and SGC requirements for Allowances
For allowances that are categorised as Services or non-deductible Expenses, the PAYGW is as per salary and wages. For superannuation guarantee, these allowances are assessed on their relevance to the ordinary span of hours. Reporting of these allowances is handled by the following Allowance Types:
- Services – Allowance Type KN (Task Allowances)
- Non-deductible expenses – Allowance Type OD (Other Allowances) > Other Allowance Type Description: Non-deductible
For allowances that are categorised as deductible Expenses, the following assessment applies:
- PAYGW:
- ATO measures (reasonable rates and/or limits defined) – no PAYGW applies
- In excess of the ATO measures – PAYGW applies only to the amount in excess of the rates and/or limits
- No measures defined by the ATO – PAYGW applies to the full amount
- Superannuation Guarantee:
- ATO measures (reasonable rates and/or limits defined) – not salary and wages
- In excess of the ATO measures or no measures defined by the ATO – the payer must assess if the payee will fully expend the money in the course of providing their services. If the assessment is that the monies will be fully expended, it is not salary and wages. However, if the payer assesses the monies are not to be or likely to be expended in full, the full amount is salary and wages. With relevance to the ordinary span of hours, the payer must determine if it is also ordinary time earnings.
- Reporting – the types of allowances to be reported are defined below.
Allowance Type Definitions
Below the available Allowance Types are explained in full including the PAYGW and SGC implications for each.
Cents per KM (CD)
Deductible expense allowances at a set rate for each kilometer travelled for business that represents the vehicle running costs, including registration, fuel, servicing, insurance and depreciation into account. This should not include any cents per kilometer allowances that are paid for travel between the payee’s home and place of work unless it is a home-based business and the trip was for business purposes. Services Australia categorise this as Expense Allowance.
- Is Taxed: This allowance has ATO defined measures/limits controlling it. Amounts paid under these measures should not be taxed. Amounts paid over the measures should be taxed.
- Is OTE: This Allowance is not considered OTE and does not typically attract SGC.
- Reporting: Yes always.
Award Transport Payments (AD)
Deductible expense allowances for the total rate specified in an industrial instrument to cover the cost of transport (excluding travel and cents per kilometer reported in other separately itemised allowances), as defined in section 900-220 of the Income Tax Assessment Act 1997. It is an allowance:
- included in an award in force on 29 October 1986 – this is the ATO measure for the rate and/or limit for PAYGW purposes
- paid under an award that can be traced back to the 1986 award
- paid to cover transport expenses – these being the actual transport costs which may be other than car expenses
- Is Taxed: This allowance typically should not be taxed.
- Is OTE: This Allowance is not considered OTE and does not typically attract SGC.
- Reportable: Yes
Laundry (LD)
A deductible expense allowance for washing, drying and/or ironing uniforms required for performing work or services. These allowances are typically paid as a regular rate for each week of work or services performed and cannot include dry cleaning expenses or reimbursements. Services Australia categorise this as Expense Allowance.
- Is Taxed: This allowance typically has ATO defined measures/limits controlling it. Amounts paid under these measures should not be taxed. Amounts paid over the measures should be taxed
- Is OTE: Not considered OTE and does not typically attract SGC
- Reportable: Yes
Overtime Meal Allowances (MD)
A deductible expense allowance defined in an industrial instrument that is in excess of the ATO reasonable allowances amount, paid to compensate the payee for meals consumed during meal breaks connected with overtime worked. Services Australia categorise this as Expense Allowance
- Is Taxed: This allowance typically has ATO defined measures/limits controlling it. Amounts paid under these measures should not be taxed. Amounts paid over the measures should be taxed
- Is OTE: Not considered OTE and does not typically attract SGC
- Reportable: This Allowance is reported through STP only if it is for Amounts above the ATO measure.
Domestic or Overseas Travel Allowances and Overseas Accommodation Allowances (RD)
A deductible expense allowance that is in excess of the ATO reasonable allowances amount (for domestic travel), that is intended to compensate payees who are required to be absent overnight from their ordinary place of residence. It is not a reimbursement of actual expenses, but a reasonable estimate to cover costs including meals, accommodation and incidental expenses. All overseas accommodation allowances are to be reported. Services Australia categorise this as Expense Allowance
- Is Taxed: This allowance typically has ATO defined measures/limits controlling it. Amounts paid under these measures should not be taxed. Amounts paid over the measures should be taxed
- Is OTE: Not considered OTE and does not typically attract SGC
- Reportable: This Allowance is reported through STP only if it is for Amounts above the ATO measure.
Tool Allowances (TD) (New)
A deductible expense allowance to compensate a payee who is required to provide their own tools or equipment to perform work or services for the payer. For example: chef’s knives, divers’ tanks, trade tools, phone allowances. This allowance was formerly required to be reported under “Other Allowances” with a description of the allowance type. This is now required to be reported separately. Services Australia categorise this as Expense Allowance . Non-deductible expense allowances are to be reported as OD (Other Allowances) > Other Allowance Type Description: Non-deductible.
- Is Taxed: This allowance is always taxed.
- Is OTE: SGC applies if this Allowance relates to OTE.
- Reportable: Yes
Tasks (KN) (New)
A service allowance that is paid to a payee to compensate for specific tasks or activities performed that involve additional responsibilities, inconvenience or efforts above the base rate of pay. For example, higher duties allowance, confined spaces allowance, dirty work, height money, first aid etcetera. These allowances were formerly included in Taxable Gross but are now required to be reported separately. Expense allowances cannot be reported as this allowance type. Services Australia categorises this as Employment Income
- Is Taxed: This allowance is always taxed.
- SGC: SGC applies if this Allowance relates to OTE
- Reportable: Yes
Qualifications/Certificates (QN) (New)
A deductible expense allowance that is paid for maintaining a qualification that is evidenced by a certificate, licence or similar. For example, allowances to cover registration fees, insurance, licence fees etcetera that are expected to be expended to maintain a requirement of the job. Services Australia categorise this as Expense Allowance . Non-deductible expense allowances are to be reported as OD (Other Allowances) > Other Allowance Type Description: Non-deductible.
- Is Taxed: This allowance is Taxed
- Is OTE: SGC applies if this Allowance is OTE
- Reportable: Yes
Other Allowances (OD)
Any expense allowance that is not otherwise separately itemised:
- Deductible expenses – for those expenses not specifically addressed in the above allowance types. For example: car allowances (other than cents per kilometre), uniform allowances etcetera. Services Australia categorise this as Expense Allowance .
- Non-deductible expenses – for those expenses that are for private use. For example: cents per kilometre for travel between home and the regular place of work, transport allowance that cannot be traced back to an award in force on 29 October 1986. Services Australia categorises this as Employment Income.
Rather than providing the description of the pay code for Other Allowance Description, the ATO-preferred method is to report the category of other allowances, using pre-determined category descriptions. This will allow the ATO to assist the payee when completing their IITR.
If you choose
Note that JOBKEEPER/JOBMAKER allowances are also reported using the Other Allowance Type and the relevant JK/JM Code can also be entered.
- Is Taxed: This allowance is always Taxed as far as the ATO is concerned. If you choose NOT to tax an allowance of this type it will NOT be reported to the ATO in STP. You may need to pay tax for this Allowance some other way if you choose not to Tax it.
- Is OTE: May attract SGC if related to OTE.
- Reportable: This Allowance is reported through STP only if it is Taxed.
Allowance Categories for Allowance Type Other
- General
- Home Office
- Non-deductible
- Transport / Fares
- Private Vehicle
- Uniform
- Special ATO Code (When this option is selected, a Code can also be stipulated. JOBKEEPER/JOBMAKER codes are entered here).
Special Leave (ZA)
If you need to pay for special leave taken by an Employee and while they are on this Leave you do NOT any other Leaves to accrue (Annual, Sick etc), then you can use these allowances to pay the Employee and still have then tracked and reported appropriately to the ATO. You must select the Category of Leave.
Allowance Categories for Allowance Type Special Leave
- Paid Parental Leave
- Ancillary Defense Leave
- Workcare Leave
Directors Fees (ZD)
Directors’ fees include payments to:
the director of a company, or to a person who performs the duties of a director of the company; or
if the company is not incorporated – as a member of the committee of management of the company, or as a person who performs the duties of such a member
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.
The full amount of the payment must be reported, specifically the full pre-sacrifice value of the fees, before any salary sacrifice may be deducted from the amount.
- Is Taxed: Taxed
- Is OTE: Considered to be OTE.
- Reportable: Yes
Return to Work Payment (ZR)
A return to work amount is paid to induce a person to resume work, for example, to end industrial action or to leave another employer. It does not matter how the payments are described or paid, or by whom they are paid. This was previously reported in gross. Services Australia categorise these payments as Lump Sum.
- Is Taxed: Taxed
Is OTE: Yes
- Reportable: Yes
Bonuses/Commissions (ZB)
Bonuses and commissions are typically paid as lump sum payments rather than at each regular pay period, as is the case for salary and wages:
Bonuses – usually made to an employee in recognition of performance or services and may not be related to a particular period of work performed
Commissions – usually made to an employee in recognition of performance or services and may be calculated as a portion of the proceeds or volume of sales
- Is Taxed: Taxed
- Is OTE: Yes
- Reportable: Yes
Reimbursements (RE)
These a non-deductible reimbursements of expenses to an Employee. Typically most businesses do not handle these payments within their Payroll system. But this Allowance type is available if you wish to.
- Is Taxed: Not taxed. Not considered to be income.
- Is OTE: Not considered OTE.
- Reportable: No. This Allowance Type is never reported.
Lump Sum E (Back pay)
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). When you report lump sum E payments through STP, 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.
- Is Taxed: Yes
- Is OTE: May attract SGC if related to OTE.
- Reportable: Yes
Gross Adjustment
This Allowance Type is not really an Allowance. Any payments made of this Allowance Type will be bundled into the normal Gross pay for the Employee and reported to the ATO as part of the gross figure. Use this allowance type if you need to adjust a persons gross Pay outside of their normal earnings.
- Is Taxed: You can set this allowance to Taxed or not Taxed. If you do not Tax it you may need to pay Tax through some other mechanism to account for the Payment.
- Is OTE: May attract SGC if related to OTE.
- Reportable: Yes as part of Gross
What needs to change in the Allowance for STP2
Choose the correct Allowance Type.
For the “Other” Allowance Type note that you must also select a Category code. Note also that where you are setting up a Jobkeeper or JobMaker Allowance that the special Code provided by the ATO for those Allowances is to be specified in the Other Code field.
Make sure the Pay Tax and Pay Compulsory Super flags are set appropriately for the allowance.
Save your Allowance and confirm that the Allowance no longer shows in a red font in the Allowance List. This means that the Allowance is STP2 Compliant.
Changes made to Allowances are propagated to Employees
When you change an Allowance, if there are any Grades or Employees referencing the Allowance, note that the new configuration for the Allowance will be propagated to the Grade and/or Employee setup.
This happens when you Save the Allowance Setup. At that point if there are Employees or Grades referencing the Leave you will be presented with the following dialog requesting that you confirm how the propagation of Allowance settings occurs.
Tax and OTE settings are ALWAYS propagated. These settings cannot be overridden at Employee or Grade level.
All other settings are changeable at the Grade or Employee level and you can set whether or not to propagate the Allowance settings so they overwrite the value at Grade/Employee level.
Important
The Confirm Allowance Updates screen is presented to you whenever you change an Allowance to show you the effect those changes will have on Individuals and Grades with that Allowance attached.
You should use this confirmation screen to assess the impact of your changes on individual pay packets.
How to Handle Special ATO Allowances like JobKeeper and JobMaker
To set up a special Allowance that needs a special code passed to the ATO, such as JobMaker or JobKeeper, follow these instructions.
- Name the Allowance as instructed in the ATO guidelines. Provide a suitable Description for it also.
- Set the Allowance Type as follows:
- Set the Allowance Type to Other
- Set the Other Category to Special ATO Code
- Set the (Other Category) Code to be the code specified in the ATO Guidelines.
Save your changes and assign the Allowance to the Employees that require it.
How to handle Allowances that have ATO defined measures/limits controlling its application
The following Allowance Types have ATO defined measures/limits that control how it is applied.
- Cents per KM
- Laundry
- Overtime Meal Allowance
- Domestic or Overseas Travel Allowances and Overseas Accommodation Allowances
- Award Transport Payment
For these allowance types you may need to create two separate Allowances of each Type - one to handle un-taxed payments under the measure/limit defined by the ATO and one to handle taxed payments over the limit.
Allowance Templates
Allowance Templates can be accessed from the main menu bar. Templates allow you to quickly set up a new Allowance of a specific Type.
Links
Training video for Allowances under STP2
Training video for Allowances with ATO Measure
Training video for Allowance Type Other
Back to STP2 Step 1 - Show STP2
ATO Single-Touch-Payroll-Phase-2-employer-reporting-guidelines