ATO readies to implement tax cuts, employers on standby

After the government’s Stage 2 tax cuts breezed through Parliament on Friday, the ATO has confirmed the updating tax withholding schedules will be ready this week.

Once the tax withholding schedules have been updated and published, employers will need to make adjustments in their payroll processes and systems in order for the tax cuts to be reflected in people’s take home pay. 

The Tax Office noted that the complexity of implementing these adjustments may be different for each employer.

“This means that some people may notice the tax cuts reflected in their take home pay within a few days or weeks, while for others it may be longer,” the ATO said.

“Any ‘over-withholding’ that occurred prior to the employer updating their payroll software and processes will be included in the tax assessment of the employee at the end of the income year.”

The ATO earlier confirmed that excess tax workers paid from 1 July will be included in their tax assessment at the end of the 2020 financial year.

“The adjustments to the withholding schedules are designed to ensure that taxpayers have the correct amount of tax withheld from their pay going forward.

“It is not possible for the ATO to determine the extent of ‘over-withholding’ that may have occurred for each and every taxpayer as this is highly dependent on individual circumstances and will be different for everyone,” it said.

Last week, the Institute of Public Accountants warned that the retrospective component of the tax cuts may not translate into ringing cash register sales as soon as Treasury expected.

“The ATO is unable to retrospectively deal with the PAYG overpaid for the first quarter of the financial year. Therefore, many salary and wage earners may not get the ‘backpay’ for the months of July, August and September as instantly as first thought," said IPA chief executive Andrew Conway.

“If you take someone who was going to receive the maximum benefit of $2,564, one quarter of this amount i.e. $641 has already accrued and will not be immediately available to stimulate the economy as intended."

Treasury’s ideal scenario, Mr Conway pointed out, is that this money would be out in the economy as soon as possible and being spent so that the sugar hit delivered by the tax cuts was more immediate.  

“We had hoped that single touch payroll may have allowed for the flexibility to deliver the desired outcome. However, this does not seem to be the case,” said Mr Conway.

“However, all is not lost. Taxpayers earning income outside of wages and salaries can immediately take advantage of Stage 2 tax cuts by varying down their quarterly instalment in the September BAS which is due on 28 October 2020. Small business entrepreneurs are mostly unincorporated entities and therefore are also beneficiaries of the Stage 2 tax cuts.

“We are encouraging all our members to vary down PAYG to take advantage of this initiative.”