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Tax on Bonuses, Backpays and Commissions

The ATO provides two methods for calculating the tax on back payments, commissions, bonuses and similar payments:

  • Average for Year: The Normal Gross Earnings will be worked out based on all the paid pays for the current financial year for the employee. This calculation excludes Back Pays. The value of Journals are included in the calculation and are added to an existing pay for the period if there is one, or treated as a pay if there isn't a pay for the period.
  • Last Pay: The Normal Gross Earnings will be using the last paid pay for this employee.

Note: The Normal Gross Earnings in uses the setting in HR Employee Maintenance > Tax Config > Normal Gross Earnings, or if set to Module Control Default, the selection on the HR Module Control > Tax Config | Other tab.

If using the Last Pay option, and the pay issued before the Bonus, Backpay, Leave Loading, and similar pay is not a standard pay, then the tax calculation will be incorrect. If the employee is paid irregular amounts, this setting should be set to Average for Year.

Setup required:

  1. On HR Module Control > Payroll > Tax Config, enter the Schedule 30 PAYG Withholding cap.
  2. Under System > Payroll > Transaction Type - Tax, set up a new Tax Transaction Type. This should have a Calculation Method of Amount, and an Effective date. Add this into any applicable Tax accumulators on the Configuration tab.
  3. Under System > Payroll > Transaction Type - Pay, set up Pay Transaction Types for Bonuses. Ensure that there is an Effective date.
  4. On the Configuration tab select how the calculation of the Withholding is to be based. Options are Full year and Defined no of periods. This Transaction Type does not get added into the Tax accumulators.
  5. Under Payroll > System > Back Pay Configuration, select the Tax Transaction Type applicable for Tax. This can be the same Tax Transaction Type used for Bonuses and Commissions.
  6. Ensure any new Transaction Types that you have added have also been included in Summary Trees and/or Payment Summary Configuration.

See Also