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leebath's avatar
leebath
Experienced User
2 years ago

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

I have looked through the forum and can see this issue has been raised previously, but with no resolution. I have also been on the phone to both MYOB and the ATO to try and resolve the issue with no luck.

 

All pre-tax deductions are set up correctly. Those deductions in the ATO Category 'Not Reportable' have been marked as PAYG exempt.

 

The issue is that the amounts are in fact not being deducted from employees 'Gross Income' - and are not reducing their taxable income. 

 

Is there are resolution to this?

 

 

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  • leebath's avatar
    leebath
    Experienced User
    2 years ago

    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!

    • SamaraM's avatar
      SamaraM
      Former Staff
      2 years ago

      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.

      • leebath's avatar
        leebath
        Experienced User
        2 years ago

        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?