Tax Treatment


(from the ATO's Business Implementation Guide)



There are a range of triggers that inform the rate of withholding a Payer applies to the Payees’ payments that are subject to withholding. These triggers, whilst initially advised by the Payee upon employment or engagement, may change over the employment/engagement life cycle to influence the rate of withholding each pay.


The Payer considers information known or provided by the Payee, or not provided in the case of TFN, to determine the specific tax rates to apply. The Payer must have additional data about the worker to ascertain the correct tax arrangements to establish for the Payee. The Payee may also have advised of eligibility for tax concessions. The ATO provides a range of tax tables that represent the withholding rates for the range of possible Payee circumstances. Certain payments have specific ATO-defined rates of withholding that are not influenced by Payee-provided information, such as for unused leave on termination.


Whilst the YTD amount of PAYGW is reported to the ATO, the Tax Treatment code is required to identify the factors that influenced the calculation of the PAYGW and that the Payee had identified all of their circumstances to the Payer, such as having a Study Training Support Loan (STSL).


If Payees have not provided the correct information to the Payer, the Payer may not withhold enough tax to meet the payees’ obligations. Payees may be presented with a tax debt at the end of financial year when they complete their Individual Income Tax Return (IITR). To avoid these adverse impacts to Payees, a 6-character Tax Treatment code representing these components will be mandatorily required each Pay Event and Update Event.


This 6-character code is comprised of ATO-defined values for each character, where the first 2 characters have specific values for every Payee, but characters 3-6 are specific values only if the Payee notifies choices, else “X”:





STP Creator - MYOB Users

In STP Creator, the above information is entered/selected on the Employment Details screen, accessible from the Payee Details screen. STP Creator will extract the details from the Employee's Card in MYOB and this can be used to pre-fill the selections. Also if changes are made to the Employee Card, you will be required to update the Employment Details screen to ensure it reflects the changes.



STP Creator - non MYOB Users

In STP Creator, the above information is entered/selected on the Employment Details screen, accessible from the Payee Details screen. .



Business Rules for Tax Treatment

The business rules for tax treatment are:

  1. The tax treatment code must be reported in every Pay Event and Update Event.


  1. Only valid tax treatment codes may be reported.

  2. The tax treatment code applicable to the person must be reported as at pay/update date for Pay Event/current FY Update Event and as at run date/time stamp for prior FY Update Event.

  3. Study and Training Support Loans (STSL) is not permissible for:

    1. Tax Categories – Horticulture and Shearers (C), Working Holiday Makers (H), Seasonal Worker Programme (W), No TFN (N), ATO-Defined (D) or Voluntary Agreement (V) or Actors (A).

    2. Tax Categories/Options – Regular/Daily Casuals (RD).

  4. Medicare Levy Surcharge (MLS) is not permissible for:

    1. Tax Categories – Horticulture and Shearers (C), Working Holiday Makers (H), Seasonal Worker Programme (W), Foreign Resident (F), No TFN (N), ATO-Defined (D) or Voluntary Agreement (V) or Actors (A).

    2. Tax Categories/Options – Regular/Daily Casuals (RD).

  5. Medicare Levy Surcharge (MLS) is mutually exclusive from Medicare Levy Exemptions (MLE)/Reductions (MLR). That is, a Payee who qualifies for MLS is ineligible for MLE/MLR.

  6. MLS may apply, regardless of tax-free threshold options.

  7. If a Payee is claiming a full MLE, they cannot also claim an MLR, nor qualify for the MLS.

  8. If a Payee is claiming a half MLE, they can still apply for a further reduction if they meet the reduction criteria.

  9. A Payee may only claim the MLE if they have claimed the tax-free threshold.

  10. Medicare Levy Exemption is not permissible for:

    1. Tax Categories – Horticulture and Shearers (C), Working Holiday Makers (H), Seasonal Worker Programme (W), Foreign Resident (F), No TFN (N), ATO-Defined (D) or Voluntary Agreement (V) or Actors (A).

    2. Tax Categories/Options – Regular/Daily Casuals (RD).

12. A Payee may claim MLR without claiming any MLE.

13. If the Payee has a STSL, they may claim an MLR that will halt the repayment of the STSL, but both options must be reported.

14. A Payee with a STSL may only additionally claim an MLR if they have claimed the tax-free threshold option in their tax category.

15. MLR is not permissible for:

    1. Tax Categories – Horticulture and Shearers (C), Working Holiday Makers (H), Seasonal Worker Programme (W), Foreign Resident (F), No TFN (N), ATO-Defined (D) or Voluntary Agreement (V) or Actors (A).

    2. Tax Categories/Options – Regular/Daily Casuals (RD), or Seniors and Pensioners/Single (SS) for the spouse option (as they have no spouse).

16. If a Payee has an ATO-Defined/Downwards Variation (DV) that does not apply to salary and wages (but to a specific payment type only), report the Payees underpinning tax treatment.

17. The Payer must report the tax treatment in accordance with the Payee instructions, not the technical interpretation of the resulting calculation. For example; a Payee on a Regular/Tax-Free Threshold option with an STSL that also claims a reduction for two dependants will be reported as RTSXX2.

18. If a Payee is a death beneficiary that has provided their TFN, then report their tax treatment as ATO-Defined/Death Beneficiary (DB).

19. If a Payee is a Non-Employee (employment basis = “N”), then the Tax Treatment code must be reported as DZXXXX.