Tax Scales

Each year in June the ATO publishes the Tax Scales for the upcoming tax year on the software developers website.

From these, Megabus creates the necessary tax tables in Marlin HR and distributes them to customers in a Marlin HR update so that they can be applied before the first pay run of the new tax year.

A pop up advises you when the update is available to install and you simply respond YES to install the update. After installation of the update the new tax scales are available for selection but are not automatically applied as you may still have some pay runs to process in the current tax year.

Did the ATO release new Tax Scales for this Tax Year?

Please see End of Tax Year Processing.

When do I apply new Tax Scales?

You should apply the new tax scales between completing the End of Year close-off process for Marlin HR and initialising the first pay run for the new tax year.

If you don't apply them manually (see process below), a reminder pop up will automatically appear each time you open the Pay Run screen after completing the EOY close-off process to alert you that there are new tax scales available and ask whether you would like to apply them now.

Click on Yes to apply the new tax scales immediately and the reminder pop up will not appear again.

How do I apply new Tax Scales manually?

To apply new Tax Scales manually, select System > Tax Scales from the menu.

Click on the Update Tax Scales icon .

Select the Tax Scale for the new tax year (e.g. Budget2017 is for the 2017-18 tax year).

Click on the OK button then respond Yes to overwrite the current Tax Scale.

The currently applied tax scales are displayed in blue near the top of the screen.

How do I check which Tax Scales are currently applied?

The currently applied Tax Scales are displayed in blue writing near the top of the pay run screen.

Budget2017 tax scales are those delivered in the 2017 budget for the 2017-18 tax year.

Working Holiday Makers

The structure of tax scales applied to Working Holiday Makers (WHM) is different to regular tax scales in that there is no tax free threshold, the tax is applied from the first dollar that they are paid.

Also, regular tax scales 'annualise' the payments entered on each pay run. This means that on each pay the ATO assumes that the employee will earn that same amount every week of the year and applies the tax scale applicable to that annual amount.

If the employee does not work a full year they can claim back the overpaid tax at the end of the tax year on their tax return.

However, as many WHMs only work for part of the year their annualised income and subsequent tax rate would be higher than appropriate.

Although they could later claim back the excess tax withheld, they are meanwhile left with a smaller net pay each week on which to live.

For this reason, WHM weekly earnings are not annualised.

They are taxed at 15 cents on each dollar up to $37000, then 32.5 cents on each dollar up to $90000, then 37 cents on each dollar up to $180000 etc etc.

As this tax table structure is different to that for regular employees, the ATO does not include WHM tax scales in the standard tax scales that they publish just before the start of each tax year.

Instead they provide an online spreadsheet that you can access each week to enter the payments to a WHM and determine their correct tax amount so that you can then enter it into the pay run.

To make life easier for our customers, Megabus manually creates tables for WHMs in the tax scales provided in Marlin HR.

This enables you to select the appropriate tax scale for the WHM, enter their earnings on the pay run just as you do for a regular employee and the system will automatically calculate the correct amount of tax to withhold.

How do I create custom Tax Scales?

If the ATO sends you a "Notice of withholding variation", advising you to vary the withholding rate to x% of gross payments for an employee, you will need to create a custom tax scale for them.

To do this, from the Marlin HR menu toolbar, select System > Tax Scales.

Click on the Add icon.

Enter a Tax Scale Name (e.g. "John Smith"), using the employee's name for the Tax Scale Name avoids confusion.

Click on the button to enter a tax bracket.

If the withholding rate is to apply across all taxable earnings, enter $0 in the 'Salary.

From ($)' field and )' field.

In 'Factor A' enter the percentage rate specified in the ATO letter (e.g. enter 0.06 for 6%) and leave 'Factor B' as $0.

Click on the OK button and then on the Save icon.

In Employee Maintenance, select the relevant employee and on the General tab, select the new custom Tax Scale from the drop down list (if Employee Maintenance was already open you will need to close it and reopen it to see the new custom tax scale in the drop down list).

If you needed to setup a Tax Scale that withheld zero tax, you would create it as follows, then apply it to the employee in Employee Maintenance.