Reporting of taxable allowances under STP Phase 2

Under STP Phase 2, there is a change in the way that allowance must be reported for payees with a payee type/income type of Individual Non Business.

Prior to STP Phase 2, the ATO required some taxable allowances to be included in gross earnings while some allowances were required to be itemised separately in STP reporting. In STP Phase 2 the reporting rules for taxable allowances have been streamlined so that taxable allowances are required to be itemised rather than included in gross earnings, irrespective of the allowance type.

Because of this, options in FastTrack360 that control how payments made against an allowance pay code are treated for the purposes of STP reporting will be simplified. A new option labelled Itemise in STP Reports will be added to all taxable allowance pay codes, including threshold-based allowance pay codes, and this option will be turned on for all existing taxable and threshold-based allowance pay codes by default on upgrade.

This means that, by default, all taxable allowances will be itemised for the purposes of STP reporting unless you turn off the Itemise in STP Reports option after upgrading on individual allowance pay codes. If you do turn off the Itemise in STP Reports option, a secondary option labelled Include in gross earnings in STP Reports will be available and if turned on, that option will allow payments made against that allowance pay code to be reported as gross earnings rather than being itemised separately. That will cater for exceptions such as the Living Away From Home allowance, which is currently the only allowance that is required to be treated as ordinary income (i.e. reported as part of gross earnings) and is not itemised in STP Phase 2 reporting.

For payees who have a payee type/income type of Labour Hire, taxable allowances continue to be reported as part of the gross earnings amount and are not itemised separately.

Allowances that are itemised in STP reporting must be mapped to an allowance type. Allowances that were not separately itemisable in STP Phase 1 reporting may not currently be mapped to an allowance type and therefore you will need to map those allowances, as shown in the screenshot below, once your system has been upgraded to an STP Phase 2 compatible version of FastTrack360 (expected late November 2022).

If you have pay agreements/rates configured to pay all purpose allowances against a normal time earnings pay code as part of a loaded pay rate, you will need to update the pay agreements/rates to split out the allowance component of such payments so that allowances are paid against a separate allowance pay code so that the allowances can be reported separately to other earnings as per the STP Phase 2 reporting requirements.

Note that the ATO have advised FastTrack that leeway will be granted so that if an employer cannot update their rate configuration accordingly prior to upgrading to STP Phase 2, they can continue to report the loaded pay rates until such time when they can update their rate configuration accordingly. However, please note that retrospective adjustments will need to be done to realign the payment of allowances against the relevant allowance pay codes and that must be done prior to finalising payments for the 2022-23 financial year.

New allowance types

Under STP Phase 2, there is a requirement to itemise the following types of allowances separately from other allowances and gross earnings:

Tools
Tasks
Qualifications/Certifications.

An enhancement was added in the v12.10 Patch 3 release, which was released mid 2022, to add the abovementioned new allowance types to FastTrack360 so that allowance pay codes could be pre-configured with mapping to the new allowance types (fore more information, see New Allowance Types - FastTrack360 Online Help - Confluence (atlassian.net)).

Once your system is upgraded to an STP Phase 2 compatible version of FastTrack360 (expected late November 2022) you should commence using allowance pay codes that are mapped to the new allowance pay codes if you pay those types of allowances to payees.

What can you do to prepare?

It is recommended that you review all existing taxable and threshold-based allowance pay codes, under Rates and Rules > Maintenance > Pay Code, and identify which of these allowances do not have the Show on Individual Non Business Payment Summary option ticked. For each such allowance you identify, you will need to identify the allowance type to which the allowance must be mapped.

Once your system is upgraded to an STP Phase 2 compatible version of FastTrack360, you will need to map each of the allowances you have identified to the relevant allowance types, including those that are flagged as inactive. You will need to do this before you process any pay batches after the upgrade.

For more information, also see the following ATO link that provides a guide on how common payment types are required to be reported in STP Phase 2: STP Phase 2 reporting – Quick reference guide | Australian Taxation Office (ato.gov.au)