16/12/21 Written by Rob Brint

STP works by sending employee tax and super information from your STP-enabled payroll or accounting software to the Australia Tax Office (ATO) as you run your payroll. STP reporting is mandatory for almost all Australian businesses, unless you have an exemption.

Changes in STP Phase 2

STP Phase 2 is mandatory from 1 January 2022 unless you or your digital service provider have a deferral. It reduces the burden for payroll providers who need to report information to multiple government agencies, eg: Centrelink, Department of Social Services, etc as it removes the need for manual reporting to these agencies.

STP Phase 2 doesn't change the way you submit an STP report/finalisation or the payments you need to report through STP, but it does change how those amounts need to be reported.

Benefits of STP Phase 2

There are many time-saving benefits and efficiencies with STP Phase 2:

For payroll providers

No more manual processes such as lodging TFN declarations or providing Lump Sum E letters to employees
Reduced manual reporting of events such as child support payments and termination reasons, as many of these are now done via STP reporting
Reduced admin time as information reported to the ATO will now be shared with Services Australia for confirming employment and payroll information about employees
Streamlined reporting through the ability to report closely held payees or in bound assignees via income types
Simplified processes such as changing software or an employee’s payroll ID, as this can now be reported via STP to eliminate income statements being duplicated

For employees

Centralised access to information through MyGov
Increased visibility over how how they’re being paid and the types of income received
Decreased risk of owing tax, as the ATO will now be able to tell employees if they’ve provided incorrect information (such as not disclosing a Study and Training Support Loan or other loans)
Less paperwork to keep track of as information will now be digitally recorded and streamlined reporting will mean less documents to be supplied
Time saved by STP data being used to pre-fill employee details when filling out claims and reports

Summary of the key changes in STP Phase 2

Tax file number declaration
Reporting tax file number declarations as a separate process is now redundant, as employee tax information is included in the STP report.
Tax treatment codes
Tax treatment codes are now included in STP reports to indicate the PAYG tax scales and other components applied to the employee to determine the withholding amount.

Termination reason
A reason for termination is now mandatory when an employee finishes their employment.
Child support garnishee/deduction amount
Employers can now elect to report child support garnishee/deduction amounts directly to the ATO via STP.
Income type and country codes
Employers will now report income types and country codes to identify payments with specific tax consequences. This makes it easier for employees to complete their income tax return.

Disaggregation of gross
Components of gross earnings are now itemised separately due to the different income assessments required by government agencies.
Salary sacrifice
Salary sacrificed amounts are now included in your STP report and superannuation salary sacrifice contributions can no longer be used to reduce ordinary time earnings or count towards minimum superannuation obligations.
Lump sum E letters
Employers no longer need to provide lump sum E (backpay due more than 12 months prior to payment) letters to employees each financial year as this is now included in the pay event prior to finalisation of the payee’s income statement.
Transitioning employees from another payroll system
Businesses transitioning from one payroll system to another can now enter the previous Business Management Software IDs and Payroll IDs in their STP reports. The ATO links the information so that there is only one income statement reported for each employee. This replaces the need for creating $0 events and ensures that employee YTD earnings are not overstated.
Negative YTD reporting
Negative YTD amounts can now be submitted in the STP report.