A payee’s tax type and payee type, also known as income type, determine the following:
whether tax is withheld from the payee’s earnings
if the payee’s earnings are classified as personal income or business income
if the payee’s earnings are reported via Single Touch Payroll (STP) reporting.
There are two tax types available in FastTrack360:
PAYG
Company
These tax types are described in more detailed below.
PAYG Tax Type
The PAYG tax type applies to payees who are subject to PAYG withholding. There are two types of payees to whom this applies:
Individual Non Business
Labour Hire.
The Individual Non Business (INB) payee type applies to payees who are engaged as direct employees of your business and therefore any payments made to them by your business are considered to be personal income for the payee.
Payments made to INB payees, and tax withheld from those earnings, are reported to the ATO via STP. In STP reporting financial year-to-date gross payments made to INB payees are itemised according to the following payment category types:
overtime payments
leave payments
bonus and commission payments
allowance payments
lump sum payments
employment termination payments
ordinary time earnings/other gross earnings.
The Labour Hire (LAB) payee type applies to payees who are engaged by your business as contractors as opposed to direct employees. By law, labour hire companies must withheld tax from payments made to contractors and therefore payees who are classified as LAB are taxed in the same way as INB payees.
The exception to this is contractors who work under a company ABN. Such contractors are not required to have tax withheld from payments that they receive. For more information, see Company Tax Type below.
Because LAB payees are subject to PAYG withholding, payments they receive and any associated tax withheld is reported to the ATO via STP. However, payments made to LAB payees are considered business income as opposed to personal income. Because of that, financial year-to-date gross payments made to INB payees are reported in STP as an aggregated gross amount and are not itemised by category of payment in the way that they are for INB payees.
LAB payees may have a personal Australian Business Number (ABN). However, their earnings are reported to the ATO under their tax file number and not their ABN.
Company Tax Type
The tax type of Company applies to payees who are engaged by your business as contractors and work under a company ABN. Such payees are not subject to PAYG withholding and therefore are excluded from STP reporting.
Contractors who are sole traders may have a personal ABN as opposed to a company ABN. Such contractors are required to have tax withheld and should be categorised as LAB payees and not Company contractors. For more information, see PAYG Tax Type above.
There are no separate payee/income types for payees with a tax type of Company and as such the payee type setting for this type of payee is defaulted to Company.