ATO tells employers to update their payroll processes to apply tax cuts

“It’s time for employers to update their payroll processes to apply tax cuts,” the ATO has said, having updated tax withholding schedules to reflect the 2020-21 income year personal tax cuts.

With updated schedules available at ato.gov.au/taxtables, employers have been asked to make adjustments in their payroll processes and systems in order for the tax cuts to be reflected in employees' take-home pay.

“Employers must make sure they are withholding the correct amount from salary or wages paid to employees for any pay runs processed in their system from no later than 16 November onwards,” the ATO said.

It reiterated that the complexity of implementing these adjustments may be different for each employer.

“As such, some employees 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 withholding on the old scales will be taken into account in the employee’s tax return.”

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 confirmed.

“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.”

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 the 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.