EOY Tax Boundary Change & 1 July Tax Tables
If there is an ATO taxation change in a new financial year, you might find that, depending on your taxation boundaries, the 1st pay of the new year uses the previous year's tax tables.
If the end-of-year (EOY) tax boundary has been brought forward to a date before 30 June to accommodate a pay period ending (PPE) in June that is paid in
1 July, then:
WageEasy applies the new taxation PDL based on PPE date, not the payment date.
WageEasy will put the entire pay (Gross, Net and Tax) into the next financial year as per the Taxation Boundary change. It will use the current Taxation PDL for the financial year and any PPE's that fall within that date range.
However, the ATO's payment date rule means wages paid on or after 1 July must use the tax tables, regardless of when the period ended. This means the tax withheld for the first pay run in the new financial year will likely be understated or overstated, depending on the change in taxation.
There are 2 options to rectify this:
Manual adjustment (preferred for accuracy):
Manually adjust the tax withholding for the affected pay run to accommodate the new rates. This keeps things clean and compliant from day one.
No adjustment:
If the taxation change results in a tax reduction, no action is required, it will be reconciled when the employee lodges their tax return.
If the taxation change results in a tax increase, you should notify the employee. They can either settle the difference at tax return time or request an adjustment to their next pay.
Note: If the financial year boundary has been shifted, it will need to be checked whether this creates an extra pay period in the year, a 53rd weekly pay or 27th fortnightly pay. This can affect annual tax calculations and may cause under-withholding across the year if not accounted for. Worth a review now and a conversation with the employees to check if they want to increase their tax during the year.