How Updating Payroll Systems Will Be Key To Complying With The New Income Tax Cuts
It’s that time of year again where the government announces income tax cuts. This time around, companies are being advised to update their payroll systems in order to account for the changes.
Promised as cuts intended to put more money into the pockets of hard-working individuals and their families, these revisions will have ramifications on businesses, their payroll systems, and therefore, their workers.
Defining key terms
When it comes time to figure out government charges, each term seems to blend into the other. It gets even more complicated when you have to factor in both individual and business charges.
With this in mind, below is a guide to the key terms in order to help both individuals and companies understand their legal requirements.
Tax
This is essentially defined as money that people and businesses pay to the government in order to provide for a range of services from health and education to defence and roads and railways.
The monetary amount for each individual will vary depending on a variety of factors. These factors include citizenship status, total income earned, number of jobs, and whether or not you have a tax file number (TFN).
Income tax
In a tariff system, salary fees are the most significant stream of revenue. It consists of personal earnings, business earnings, and capital gains. It is applied to an individual’s taxable salary and is paid on all forms of income.
This may include job wages, business profits, and returns from investments. It can also apply to assets such as when a house or shares are sold.
Payroll tax
This term is defined as a self-assessed, general purpose state and territory tax that is assessed on wages paid or payable by an employer to its staff when the total wage bill of an employer (or group of employers) exceeds a threshold amount. It’s important to note that this threshold varies between states and territories.
Returns are lodged and payment is made on an agreed-upon timeline to the respective revenue office in which the wage payment is deemed liable. For example, these payments can be made to the respective state or territory office on a monthly, quarterly or annual basis.
Tax withholding
This phrase refers to the amount that an employer withholds from a staff member’s wages in order to pay the government directly. The amount withheld is a credit against the income taxes the employee must pay during the course of the year.
It’s important to note that if too much money is withheld, the employee will receive a refund. On the other hand, if not enough is set aside, the individual will have to pay an additional bill.
Understanding the changes
The Australian Taxation Office has recently updated its tariff withholding schedules in order to reflect the personal levy cuts announced in the federal budget. These reductions apply to the 2020-21 financial year and were passed through parliament.
To comply with the changes, employers must make adjustments to their payroll systems in order to ensure that the changes are correctly and accurately reflected in all of the employee’s pay packets.
Companies will be required to implement payroll changes, no matter how complex their system is. For all businesses great and small, this means that workers may notice levy reductions reflected in their take-home pay within a few days, weeks or even months.
However, any withholding under the old scheme will be taken into account on the worker’s return. Workers won’t be refunded for any contributions already paid. Instead, the annual contribution will be evened out through reduced withholding via remuneration deductions for the rest of the financial year.
These changes flow on from the personal reductions instituted earlier in the year which sees lower and middle-wage earners get a backdated cut of up to $2,745 for singles. For dual-income families, this figure sits at $5,490.
Updating payroll systems
Implemented as a way to stimulate the economy, budget announcements pertaining to taxes always have ramifications. This time around, businesses will be looking for ways to update their remuneration systems while still remaining as efficient as possible.
Instead of re-training and upskilling existing staff, perhaps a more responsible option would be to outsource remuneration systems to ensure federal compliance, while also re-focusing time and expenditure on the daily operations of the office.