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Reckon Ltd
ACN 003 348 730
Locked Bag 15
PO Broadway
NSW 2007
Australia
“Please Note: While we try to provide you with the solution you need, we can’t promise that the information set out below is
totally error free or will necessarily resolve any problem you may have.”
How to process Eligible Termination Payments
(ETP) in Quickbooks 2012/13 for the Financial
Year 2012/13
The processing of Eligible Termination Payments (ETPs) in QuickBooks 2012/13 is
different to previous editions. Also, information related to changes announced in the
2012 Budget was delivered to software developers after the 2012/13 Tax Table Update
was released. Therefore, the ETP Payment Summary available is QuickBooks 2012/13 is
not compliant with requirements for the financial year 2012/13. Changes to ETP
processing and ETP Payment Summaries will be made in QuickBooks 2013/14.
This article will highlight the differences between ETP processing in 2012/13 to previous
editions and outline steps that you should take now to structure your ETP processing in
accordance with current ATO requirements and smooth the upgrade to the 2013/14
edition.
Please note that the EmpDupe file for Financial Year 2012/13 must be uploaded from a
QuickBooks 2013/14 edition, as only this edition will contain the correct format for
reporting ETPs.
If you are using an earlier version of QuickBooks, you should also refer to our earlier
guide on ETPs at: http://www.quicken.com.au/library/pdf/ETPinQBi.pdf
Warning!
ETPs are subject to preferential treatments and tax concessions that may change at any
time. Each individual payment will be unique and may vary over time. Users should
consult their Tax Accountants for direction and assistance in preparing ETPs.
At a minimum, users should make themselves familiar with the following ATO
publications (and any other subsequent relevant publications and updates):
•
NAT 71043 – 05.2008: Eligible termination payments – guide for employers
•
NAT 70996-07.2012: How to complete the PAYG payment summary –
employment termination payment
•
NAT 70980–06.2012: Tax table for Employment Termination Payment
ETPs should not be confused with Redundancy and Retrenchment payouts. Some of
these payments may include ETPs, but in the majority of cases these payouts will involve
Lump Sum A, B, C and D payments that appear on the INB Payment Summary.
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QuickBooks 2012/13 provides the following Tax Tracking Types for ETPs:
•
Pre July1983 Component – taxed at 0%;
•
Post June1983 Untaxed Element – taxed at 46.5% for above cap amount;
•
Post June1983 Untaxed Element (low rate threshold) for below cap amounts,
taxed at either:
o
16.5% for employees older than their Preservation Age
o
31.5%, for employees younger than their Preservation Age
•
Post June1994 Invalidity Component – taxed at 0%.
New requirements in Financial Year 2012/13
(These changes have not been included in QuickBooks 2012/13. QuickBooks 2013/14
will incorporate these changes.)
For official information of the changes, see the following ATO sites:
http://www.ato.gov.au/content/00325608.htm
http://www.ato.gov.au/individuals/distributor.aspx?menuid=0&doc=/content/00325608.htm&page
=27#P381_32849
The new features are:
•
Introduction of a Whole Of Income Cap of $180,000, in addition to the existing
indexed ETP concessional cap – which for 2012/13 is $175,000. The whole of
income refers to other income earned in the financial year, including:
o Normal pay from this job and any other current or future job in 2012/13;
o Payments for accrued leave;
o Non-excluded ETP payment items (see below).
•
The top tax rate of 46.5% (including the Medicare levy) will apply to payments
that are above the lower of the ETP concessional cap and the adjusted Whole of
Income Cap;
•
Some Eligible Termination payment items will impact on the Whole of Income
Cap:
o Excluded items will not impact on the Whole of Income Cap;
o Non-Excluded items will reduce the Whole of Income cap.
•
The ATO has mandated the following ETP payment items are excluded from
adjusting the Whole of Income Cap:
o Genuine Redundancy;
o Early Retirement;
o Invalidity;
o Compensation for personal injury, unfair dismissal, harassment,
discrimination;
•
The ATO has mandated the following ETP payment items are non-excluded and
will adjust the Whole of Income Cap:
o Golden Handshakes;
o Gratuities;
o In Lieu of Notice;
o Unused Personal Leave;
o Unused RDOs;
o Voluntary Redundancy
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•
The excluded or non-excluded status of other ETP payment items will be
determined by the Employer, Industrial Agreements or Award. Reckon Technical
Support is unable to help you determine if a payment is excluded or nonexcluded.
•
The ETP Payment Summary will have one category box to indicate whether this
payment summary consists of excluded or non-excluded items:
o R – excluded items;
o O – non-excluded items.
If an ETP Payment Summary consists of a mix of excluded and non-excluded
items, then two ETP Payment Summaries must be issued.
As QuickBooks 2012/13 does not have a compliant ETP Payment Summary, you should
give the employee a hand-written ETP Payment Summary on ATO stationery. You can
download a form (NAT 70868-06.2012) from:
http://www.ato.gov.au/content/downloads/bus00102313n70868042008.pdf.
When you upgrade your company file to QuickBooks 2013/14 you will have access to a
compliant Empdupe file (V11.0) to upload to the ATO, as well as compliant self-print
payment summaries.
Importance of the Employee’s date of birth
It is important that the employee’s correct date of birth is recorded in the Employee
Record as this entry will determine whether 16.5% or 31.5% will be used for Post
June1983 Untaxed Element (low rate threshold).
Note that for tax purposes the Preservation Age is the number of whole years of life
completed on the last day of the Financial Year the termination is made.
Quickbooks integrated payroll does not calculate the tax amount for an ETP
payroll item.
The ETP process is a complex one so users should follow the ATO worksheets to calculate
the correct amount for each payment type and the appropriate amount of tax. The
calculated tax amount must be manually entered into the PAYG field on the Review or
Change Payments Screen of the payroll process.
The ETP Payment Summary will assign tax to the amount of the ETP payment according
to the relevant tax rates. Any tax amounts above the assigned amount will be added to
the INB Payment Summary. It is important that users make the correct calculation for
tax. If tax amounts do not correspond, then you will need to re-examine your
calculations.
QuickBooks is unable to differentiate amounts above the tax concession cap. Where
your ETP amount exceeds the cap you will need to use two ETP payroll items:
•
The first for payments up to the cap, using the tax tracking type Post June1983
Untaxed Element (low rate threshold) – QuickBooks will use the appropriate tax
rate according to the birth-date of the employee;
•
The second for amounts above the cap, using the tax tracking type Post June
1983 Untaxed Element, taxed at 46.5%.
If the tax on an ETP payment includes levies other than the Medicare levy – like the
Flood Levy in 2011/12 – the amount of these levies will appear on the INB Payment
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Summary and not the ETP Payment Summary. This is in line with instructions from the
ATO.
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ETP Payroll Items
QuickBooks 2012/13 does not create payroll items for ETP payments. Users will need to
create their own ETP payroll items and assign the correct Tax Tracking Type to it. You
should at least create a generic ETP payroll item for each tax category.
For Financial Year 2012/13 we suggest you create two payroll items for each tax
category, one for excluded ETP payroll items and one for non-excluded ETP payroll
items. Be sure to title them appropriately to avoid misuse in later steps. When you
upgrade to QuickBooks 2013/14 you will need to change the Tax Tracking Type to the
new tax tracking types included in that release.
Create and Configure ETP Payroll Items
1. Lists > Payroll Items List > Payroll Item button > New;
2. Payroll Item Type: Addition;
3. Name used in payments and payroll reports: e.g. Excluded ETPpost1983Low, or,
Included ETPpost1983Low;
4. Expense Account : Payroll Expenses:ETP;
5. Tax Tracking Type: choices are:
a. Pre July 1983 component
b. Post June 1983 Untaxed Element
c. Post June 1983 Untaxed Element (Low Rate Threshold)
d. Post June 1994 Invalidity Component
e. there are no options for:
i. death benefits
ii. transitional payments
6. Taxes: none ticked
7. Calculate based on Quantity: Neither
8. Default Rate and limit: leave blank
Note: you can create the ETP as a Wages>Other item, but when created, this item will
be added to the Super list of items to be used for super calculation and may be ticked.
Before proceeding, confirm that any ETP payroll items not subject to Super are unticked.
Using ETP Payroll Items
1. When terminating employees, it is advisable to complete all normal pays in one
run and the ETP payment in a separate run.
2. You must terminate the employee before you can process an ETP:
a. Right-click the employee > Terminate Employee;
b. Enter required information in the Employee Organizer (3 screens);
c. When the termination process is complete, click on Create Final Pay.
3. On the Review or Change Payments Screen, enter the relevant ETP payroll items
in the Other Payroll Items section. The tax on an ETP payroll item will not be
calculated, but it will appear on the ETP Payment Summary. Users should enter
the total amount of tax they have independently calculated using the ATO
worksheet.
4. Where other levies apply, like the Flood Levy in 2011/12, you will need to
calculate the amount and add it to the total tax to be withheld.
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(If a tax amount does appear when the ETP payroll item is entered, then the ETP
payment item has been incorrectly setup with PAYG ticked on the Taxes Screen of
the configuration.)
5. Check that the ETP Payment Summary shows the amount of tax you entered, less
any additional levies. If the amount is different you should check your
calculations again and go back and make any necessary adjustments.
6. Check the INB Payment Summary. It should not include any tax from the ETP
payment, but will include other levies charged (other than Medicare levy). If it
does contain tax amounts that should appear on the ETP Payment Summary,
then the amount of tax entered in the final payment was either:
a. higher than necessary; or,
b. the employee did not pay tax in the financial year the ETP is being
processed.
Check tax calculations, go back to the final payment and make the necessary
adjustments (you may need to give the employee 1 cent PAYG tax – see note
below: When the employee did not pay any tax in the financial year the ETP is
being processed).
7. On leaving, the employer must give the employee an INB Payment Summary and
an ETP Payment Summary.
When you have upgraded to QuickBooks 2013/14
Edit your ETP payroll items and change their Tax Tracking Type to the new ones
included. This change will ensure that your EmpDupe file will have the correct code for
the type of ETP.
You should also, if you have not provided a compliant payment summary to terminated
employees, print out the new self-print payment summary and send it to the employee
in question.
ETP Payment Summaries issued under existing QuickBooks 2012/13 format
If you have issued an ETP Payment Summary in line with the existing
QuickBooks 2012/13 format that has not taken into consideration the latest
changes implemented on the 1st July 2012, you should call the ATO for
instructions.
BAS
When ETP payroll items are used, users must include the ETP items in the W1 field.
When ETP payroll items are included in W1, the W2 field will automatically include ETP
tax amounts.
When the employee did not pay any tax in the financial year the ETP is being
processed
If an employee did not pay tax in the financial year the ETP is being processed, then
QuickBooks will publish the correct amount of tax on both the ETP Payment Summary
and on the INB Payment Summary (where it will show a Gross Payments amount of
zero).
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To avoid the tax amount publishing a second time on the INB Payment Summary you
must pay your employee 1 cent (0.01) and deduct 1 cent (0.01) PAYG tax. This
transaction will force QuickBooks to produce an independent INB Payment Summary
showing Tax Withheld as zero and Gross Payments as zero. Your ETP tax will now show
only on the ETP Payment Summary. Any additional levies will however appear on the
INB Payment Summary.
You will now be able to generate INB and ETP Payment Summaries.
You must leave this transaction in your accounts to produce the electronic file for
reporting pay details to the ATO (the Empdupe file) at the end of the financial year.
You can remove the impact of this transaction on your accounts by making a Liability
Adjustment.
1. If necessary, reinstate the employee through the Employee Organiser.
2. Pay the Employee a Salary of 1 cent and manually override the PAYG Tax amount
to 1 cent. The net pay is zero.
3. Create a Liability Adjustment to eliminate the impact of this transaction on your
accounts:
a. Employee > Payroll Taxes and Liabilities > Adjust Payroll Liabilities;
b. For Adjustment is for, click on Employee and select the Employee;
c. For Item Name, select PAYG Tax, for -0.01 and enter a memo like:
Reverse dummy pay;
d. Click on Accounts Affected and select Affect liability and expense
accounts and select the relevant Payroll Expense account and click OK;
e. Check Profit & Loss Report and QuickReports on Payroll Liability PAYG and
Payroll Expense accounts to see that the effect of the 0.01 pay has been
neutralised.
Death Benefits, other than those related to payments to Non-Dependants,
cannot be processed by the QuickBooks ETP process.
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