Institute of Certified Bookkeepers
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Bonus and PAYG treatment

  • Student
  • 1 post
  • # 117355

Hi

We have a bonus payment that is for the period Jan - Dec so is over seperate financial years so I am wondereing how we would treat the PAYG?

There will also be pay increases in January. Woud it be recommended we adjust the tax further then? I am worried some increases may be sizeable and with the bonus employees could have issues with tax at EOY

ATO were no help at all 

Thanks

  • 28 posts
  • # 117366

Hi Tracey,

Even though the bonus is going over 2 fiscal years that shouldn’t impact the bonus, if it’s consistent each year that would make sense, thus is should be safe to pay it as a single value.

If the bonus was supposed to be paid before July then you could break the bonus down into Jan-July and July-Dec and enter it as a Lump sum value as backpay, but that’s probably over kill and too much admin. If choosing this method, going forward that bonus should be paid in July.

https://www.ato.gov.au/Rates/Schedule-5---Tax-table-for-back-payments-commissions-bonuses-and-similar-payments/

Tax is calculated each payrun, each payrun assumes the employee will earn the same amount ever payrun, thus this method results in staff usually being over taxed rather than undertaxed.

Therefor a bonus will likely result in an employee being taxed more than expected which will result in a tax refund at the EOFY, which is usually the recommended option. Most payroll suites allow you to override the tax value if you think the tax is too high.

The pay increase won’t be an issue either, the employee will get taxed slightly higher than they should and get a tax refund at the EOFY.

 

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