What Is a Tax Return?
A tax return is an annual financial statement that an individual or business lodges with the Australian Taxation Office (ATO). Its primary purpose is to declare all taxable income earned during the financial year (1 July to 30 June) and claim all eligible tax deductions and offsets. The ATO uses this information to calculate a person's final tax liability, determining whether they will receive a tax refund or owe a tax bill.
For most employees, the tax return is the final step in the yearly tax cycle. Throughout the year, their employer has already withheld tax from their wages via Pay As You Go (PAYG) withholding. The tax return reconciles this amount with the total tax actually owed, factoring in all sources of income and deductions.
The Role of an Employer in the Tax Return Process
An employer's actions throughout the year have a direct and significant impact on an employee's tax return process. The key mechanism for this is Single Touch Payroll (STP).
- PAYG Withholding: With each pay run, an employer is obligated to withhold tax from an employee's wages based on their Tax File Number (TFN) declaration.
- Real-Time Reporting: Via a payroll system, the employer reports this information to the ATO on each pay day through STP. This includes the employee's year-to-date salary, wages, and the total tax withheld.
- The Income Statement: The STP reporting replaces the traditional annual payment summary. Instead, an employee has a digital "income statement" available through their myGov account. This statement is updated with each pay run and shows a real-time summary of their income and tax.
- Finalisation: At the end of the financial year, the employer must make a finalisation declaration to the ATO. This action marks the employee's income statement as "Tax ready," confirming that the reported information is complete and can be used for their tax return.
The accuracy of an employee's tax return is heavily dependent on the accuracy of their employer's Tax Reporting via STP. If the employer's reported information is incorrect, it can lead to complications for the employee.
How a Modern Payroll System Supports the Tax Return Process
A modern, compliant payroll system plays a crucial role in ensuring a smooth tax return process for employees and simplifies end-of-year obligations for employers.
- Automated STP Reporting: A key feature is the automation of STP reporting. The payroll software automatically sends all required data to the ATO with each pay run, eliminating the need for manual end-of-year summaries and reducing the risk of errors.
- Accurate PAYG Withholding: The software is configured to correctly calculate PAYG withholding based on ATO tax tables and an employee's TFN declaration, ensuring the right amount of tax is remitted throughout the year.
- Employee Access: The system typically provides an employee portal where individuals can view their payslips and their current year-to-date figures, providing transparency and allowing them to monitor their tax position.
- "Tax Ready" Finalisation: The payroll system provides a clear process for employers to complete their end-of-year finalisation declaration, notifying the ATO that the employee's income statement is complete and "Tax ready" for lodgement.
How Microkeeper Supports the Tax Return Process
Microkeeper's integrated Payroll Software ensures that the employer's part of the tax return process is efficient and accurate:
- Automated STP Reporting: Microkeeper automatically reports all payroll data to the ATO via STP with each pay run. This ensures that an employee's myGov income statement is always up to date and correct.
- Accurate Tax Calculations: The system correctly applies all relevant tax scales and allowances to accurately calculate PAYG withholding, ensuring employees are taxed correctly throughout the year.
- Employee Access to Income Statements: Employees can access their payslips and a summary of their year-to-date income via the Microkeeper self-service portal, providing a direct link to the information needed for their tax return.
- End-of-Year Finalisation: Microkeeper provides a simple, one-click process for employers to finalise their STP data for the financial year. This completes their reporting obligations and flags all employees' income statements as "Tax ready" with the ATO.
This streamlined process is beneficial for businesses in every industry, from Retail and Hospitality to Mining and Construction.
FAQs About the Tax Return
Do I need a paper payment summary to do my tax return?
No. Under STP, your employer is no longer required to provide a paper payment summary. Your income statement is available online through your myGov account.
What if the information on my income statement is wrong?
You should first contact your employer and ask them to lodge a correction. The employer can amend the STP report, and the updated information will then be sent to the ATO.
Do I have to wait until my income statement says "Tax ready" to lodge my tax return?
It is highly recommended to wait for your employer to finalise your income statement and mark it as "Tax ready." Lodging before this may lead to errors or an amendment being required later if the final amounts differ from your pre-filled data.
Can I access my income statement if I don't have a myGov account?
The ATO encourages all individuals to create a myGov account. Alternatively, you can contact the ATO directly to get a copy of your income statement or use a registered tax agent, who will have access to it.
Best Practices for a Smooth Tax Return
- For Employers: Ensure payroll data is accurate, up-to-date, and reported correctly with each pay run via STP. Complete the end-of-year finalisation declaration promptly.
- For Employees: Create a myGov account and link it to the ATO. Review your income statement when it's marked "Tax ready" to ensure the information is correct before lodging your tax return. Keep records of work-related expenses throughout the year.
Final Thoughts
The tax return is the cornerstone of personal financial compliance in Australia. With the advent of Single Touch Payroll, the process is now highly automated, with an employer's accurate payroll reporting directly feeding an employee's tax return. This makes it more important than ever for employers to use a reliable payroll system to meet their tax reporting obligations, ensuring a smoother and more accurate tax return process for both their business and their employees.
Disclaimer: This entry is intended for informational purposes only and does not constitute legal or tax advice. For tailored guidance, consult with a qualified professional or the Australian Taxation Office (ATO).
