Pre-tax Deductions not being Deducted from an Employees Gross Payment (Taxable Income)

Hi,

Thanks for the reply. I understand the STP Phase2 requirements for reporting Gross Income and or what I sent was a link to an old  post - but it is consistent with current advice and even the link you sent, which has under 'Not Reportable' - "This includes payroll categories like loan or car payments."

What isn't explained by MYOB is how we ensure that the Salary Sacrifice is coded as type 'O' so that it is distinguished from an 'S' type deduction (which is for superannuation).

Can you shed some light on how MYOB sends the information to the ATO so the deduction is recognised as an 'O' type?

And how do we reverse/fix what has been sent to the ATO so that the employees taxable income can be reduced by the deductions?  

To correct the situation presented by leebath the following steps were taken:

1. The Pre-tax Salary Sacrifice deduction was assigned the ATO Reporting Category "Salary Sacrifice - Other Employee Benefits" in MYOB.
2. The end of year finalisation for the 21-22FY was removed for the affected employee(s) 
3. A $0 pay was run for the affected employee(s) and reported to the ATO  
   Note:  Even if you are set up for STP Phase 2, do not recommend using the "Send update event" as this caused more issues needing to be corrected in MYOB
   
4. Once the STP report has been accepted by the ATO, re-finalise the employee(s) for the 21-22 year.

The correct records will now be appearing with the ATO.  If the employee has commenced their tax return they may have to contact the ATO to update their payment summary details.

Hi There,

Sorry for the delay in response, hopefully this helps:

Brilliant - thank you for this information, very helpful! :)

Hi,

I have the same issue (only realised it when an employee enquired why their taxable income was higher than it should be), did MYOB resolve the problem? I have been on the phone to them with no success. I am now on the phone to the ATO to see if we can provide something so that the individual can do their tax return!

Hi leebath 

Thank you for your post. PAYG (tax exempt) will not show on STP reports if you have selected the ATO Category as 'Not Reportable'.

So if you have an amount e.g. a wage category being reported, and a deduction category not being reported, only the wage category is being sent through to STP, and it doesn't know to reduce by the deduction amount because that amount is not being reported. 

To have it show on the report you would need to change the ATO category to the relevant category instead of not reportable.

For more on how to assign categories correctly see our Help Article: Assign ATO reporting categories for Single Touch Payroll reporting.

If my response has answered your enquiry please click "Accept as Solution" to assist other users find this information.

Thanks for the reply.

This only partly addresses the issue. I understand that the category is not reported to the ATO, but why is the 'pre-tax' amount not being deducted from the 'reportable taxable income'. MYOB is still reporting to the ATO through STP a taxable income that is over stated.

If the pre-tax deductions were being applied then I would expect that the 'Salary and Wages' amount in the MYOB Payroll activity report for the individual would be MORE than the 'Gross Payments' reported to the ATO and in the Summary of Payments for the individual.

In the instructions from MYOB on how to deal with pre-tax deductions for vehicle leases we set up the pre-tax deduction as 'not reportable' and then select the 'PAYG exempt' option. See this link and advice https://community.myob.com/t5/Single-Touch-Payroll-STP-Q-A/STP-ATO-reporting-category-Novated-lease-deduction/td-p/590276

However, the ATO indicates that the deductions should be set up as a 'Salary Sacrifice' type 'O' and reported to the ATO so that Gross Income is reported as well as salary sacrifice amounts that are then deducted by the ATO from the 'taxable income  - see this link (scroll down to 'salary sacrifice')

https://www.ato.gov.au/Business/Single-Touch-Payroll/In-detail/Single-Touch-Payroll-Phase-2-employer-reporting-guidelines/?page=4#Salarysacrifice

However, MYOB does not have a type 'O' category/option to set up these decutions in STP2? Can you please advise how to set up MYOB correctly and how to fix the problem for FY 21/22?

Hey Leebath,

I'm having the same issue, have you solved your problem?

Unfortunately no!

I think we may have to change all of the 'not reportable' deductions for lease payments to Salary Sacrifice - and hope that they are reported as 'O' type?

It is really not good enough that MYOB instructions on how to create deductions and set up STP Phase 2 is not clear. The advice on the website (which i suspect most people followed) is that 'car payments' are 'Not reportable' and then to make sure the deduction is PAYG exempt - and that the deduction from the Gross Income is made (behind the scenes). Well, in our case it has not worked.

Hi leebath 

The reason I mentioned to changing the category from Not Reportable to an ATO Reporting category is because previously, (and for users who are still on that version) For STP Phase 1 the Salary Sacrifice would not show on the verification report, but will just reduce the wages amount as it is a deduction.

However, the ATO changed the reporting requirements for salary sacrifice arrangements in STP Phase 2. They now require the full gross amount to be reported, not the reduced amount. If a deduction reduces the employee's gross income you need to select the applicable ATO reporting category to ensure the deduction is reported in STP.

The ATO reporting category, Salary sacrifice - other employee benefits, should be used for deductions that are for benefits from an effective salary sacrifice arrangement. If you're not sure which ATO reporting category applies to your situation we recommend speaking to the ATO or your accountant.

I've had a look at the instructions you referred to. That is a Community Forum post dated from before STP Phase 2 was introduced with advice from another user. This MYOB Help Article, has instructions and information on how to set up and process Deductions amounts: Assign ATO reporting categories for Single Touch Payroll reporting.

If my response has answered your enquiry please click "Accept as Solution" to assist other users find this information.