Overview

As an employer it is your responsibility to provide your employees with a TFN to help calculate how much tax needs to be withheld.

This article can be read in conjunction with Special Tax File Numbers, if information is required on an employer's obligation where an employee has not provided a tax file number.

Getting started

1. Log into your Payroll account.
2. Go to the employee menu
3. Click Employee list
4. Select which Employee's file you wish to open
5. Click the 'Tax File Declaration' tab on the left menu.

Important information on this page includes:

• Employing entity: This option will only appear if there is more than one employing entity set up in the business. If you want to change the employing entity that pays the employee click on "Change" and then select the employing entity from the drop down list that you want to be changed to. There is also the option to select when to change the employing entity as of e.g. "Today", "Employee's start date", "Custom Date".
• Employment type (required). Click on the drop down to select.
• Tax Calculation Options. Note that the first two boxes Australian Resident For Tax Purposes and Claim Tax Free Threshold are ticked by default. You must untick these if the employee is not an Australian Resident and/or they cannot claim the tax free threshold (second job etc). 
  • • Whether the other boxes should be ticked or not (seniors offset or STSL debt) will depend on the individual employee and what they have nominated on their tax file declaration form. 
    • If an employee is not an Australian resident for tax purposes, they cannot claim the tax free threshold. 
    • Only a non-Australian resident can be an approved working holiday maker. For more information on what an approved working holiday maker is, click here. If an employee is an approved working holiday maker, the country stated on the employee's visa must also be selected. This is essential for STP reporting. Further information on this can be found here. Refer to the section below "Changing an employee's working holiday maker status" for detailed instructions on this workflow. 
    • If an employee has an STSL debt and the 'Has accumulated STSL debt' checkbox is ticked, additional settings will display to determine the calculation method to be used when calculating the employee's STSL debt. The default method selected will be taxable earnings. For more information on the different calculation methods, refer to our detailed STSL support article.
    • Employees engaged in the seasonal worker program which is administered by the Department of Education, Skills, and Employment, have special tax arrangements and so it is important that the 'Is a seasonal worker (and business is an approved employer of the SWP)' checkbox is ticked for these employees. 
    • The "Has approved withholding variation" field should only be selected if the employee has written approval from the ATO that their tax rate should be set as per their instructions. Ticking this checkbox will then display a new % field where the tax rate % percentage should be added (as a number only). If the ATO has advised that no PAYG should be deducted for the employee, then enter '0' as the value. N.B. This variation amount will override any other setting in the additional information section.
• Date signed field is able to be left blank, otherwise input the date that the employee signed the hard copy tax file declaration. 
• Lodgement Status shows the date (and how) the declaration was lodged to the ATO.
• STP tax category. This setting can be used to specify whether an employee falls into one of the categories provided by the ATO that will affect their tax treatment (e.g Actors, Horticulturists and Shearers, etc). Further information on the STP tax categories can be found here.
• Medicare levy can be used to used to vary an employee's Medicare levy amount. An employee may be eligible for a reduction or exemption from paying the Medicare levy, depending on the circumstances of the individual and their spouse. Before these options are selected, an employee should communicate any Medicare circumstances by completing a Medicare levy variation declaration form and providing this form to their employer. More information on the Medicare levy settings can be found here.

Helpful Hint

For anyone assigned to the Contractor income stream the Contractor ABN field will appear and is is compulsory and the absence of this information will trigger a validation when lodging an STP event that includes these employees. To remind everyone of the possible validations that could be triggered with regards to superannuation income stream employees, refer to our validation warnings support article.

Click 'Save' when finished.

Lodging the Tax File Declaration Electronically

You may opt to lodge the tax file declaration electronically using Standard Business Reporting (SBR). To do so, click the Lodge with ATO button.

Doing so will display a dialog explaining the terms of the declaration:

The terms must be accepted before the declaration can be lodged. Once the terms are accepted, click 'Lodge Now' button and the tax file declaration will be lodged electronically.

N.B. If you are reporting via STP Phase 2, lodging employee Tax File Declarations manually using the listed process is no longer necessary, as this information will be reported via STP.

To re-lodge select 'Clear lodgement' before submitting again. This can be done if you need to make changes to the original submission and need to lodge again. Any changes to an employee's tax settings will automatically clear any previous ATO lodgement status and change the status to "not lodged". This will allow you to lodge the employee's declaration again. Visit the Australian Tax Office for more information regarding tax file declarations.

Before lodging the tax file declaration, businesses (and each employing entity) must first enable electronic lodgement and register their software ID.

To do this, go to payroll settings -> ATO Supplier Settings and follow the instructions to enable electronic lodgement. 

You will not be able to electronically lodge a TFD without first completing this process.

Changing an employee's Working Holiday Maker status

It is essential that employees classified as working holiday makers (WHM) are marked accordingly in the platform. The reasons for this include:

• WHMs are taxed differently to Australian residents so an incorrect classification can over/under tax the employee. Under taxing a WHM will then have consequences at tax time for that employee;
• When reporting pay events and/or lodging payment summaries to the ATO, employees classified as WHMs must be indicated as such with an "WHM" income type. This happens automatically in the platform and uses the "Is approved working holiday maker" checkbox (in the employee's Tax File Declaration) screen to correctly classify.

Once an employee has been set up in the platform and a change to their WHM status is required (due to incorrect classification or an update to their tax status), you can do this using the following instructions:

1. Click on the "Is approved working holiday maker" checkbox to tick/untick the existing setting.
2. A modal will then appear so you can choose when the updated status is to take effect. This allows you to "back date" the setting so that the employee is then classified correctly from when they were/were not a WHM. You can choose from applying the updated setting from today, the employee's start date or a specific historic date. N.B. We intentionally do not cater for setting this date in the future.
3. You will also need to specify the employee's visa country.
4. Select the applicable 'as of' date and then click "Save".    

Please note the following:

• Changing this setting does not automatically adjust an employee's historic PAYG amount. If you wish to adjust PAYG calculated in previous pay runs you will need to do this manually and process a PAYG adjustment in a pay run.
• This 'back date' functionality only works directly when updating via the UI. If you are changing the WHM status for an employee using the employee file import or via API, the 'as of' date will be the date the change was made when using those methods.
• If choosing a custom historic date, take note that the date entered here will take effect from the pay run where the date is within the pay run's pay period. For example, if the 'as of' date entered is 12/2/20 and the employee is paid on a weekly pay frequency, the WHM updated setting will take effect, for ATO reporting purposes, from the pay run where the pay period includes 12/2/20.

Updating STP reporting where WHM status is 'back dated'

Say you are in the process of completing your finalisation event (or any event type for that matter) and notice that an employee's WHM status is incorrect, you should update as per the above instructions before lodging the event. Then you will need to refresh the event so that the update takes effect. For example, in the following event the employee has YTD earnings applied as both Salary and Wages (Income Type = SAW) and as a Working Holiday Maker (Type = WHM):

The employee has always been a WHM but it was only updated part way through the financial year. To fix this you will need to update the employee's WHM setting again ensuring it is marked a WHM and choose the 'as of' date as their start date.

Then, go back into the created event and click on Actions > Refresh Data:

The employee's YTD earnings will then consolidate into one line and the employee will correctly be classified as a WHM, ie Income Type = WHM:

If a finalisation event has already been lodged with the incorrect WHM settings, you will need to fix accordingly for the affected employee and lodge an amended finalisation event. 

Updating an employee's payment summary where WHM status is 'back dated'

Similarly with STP events, you will know the classification of each employee from the "Type" value. "S" indicates the employee is a non-WHM and "H" indicates they are a WHM. In the example below, the employee's earnings have all been recorded as a non-WHM (Type = S):

Problem is that the employee is actually a WHM so the employee's tax status will need to be updated as per the instructions provided and the 'as of' date should be their start date. 

Prior to doing this though make sure that you unpublish the employee's payment summary if it has already been published. Once the change has been made, go back to the Payment Summaries screen and click on "Show Payment Summaries". This will refresh the data so that the earnings are then reflecting the updated WHM setting:

If a payment summary has already been published and lodged to the ATO with the incorrect WHM settings, you will need to fix accordingly for the affected employee and publish/lodge an amended payment summary. Refer to "What if I need to amend the payment summaries after I’ve published them?" in this article.

If you have any questions or feedback, please let us know via support@yourpayroll.com.au.