How are Bonuses Taxed in Australia?

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The excitement of a bonus is unmatched; whether it is a reward for your hard work or to say ‘happy holidays’, the extra cash is always appreciated. Amongst our enthusiasm, we might forget to consider how they will be taxed. In any instance that a bonus is given, it is considered part of the employee’s income, so they are always taxed. This article by Business Kitz is a handy guide on how bonuses are taxed. 

What factors determine how a bonus is taxed? 

In Australia, the key factor determining how bonuses are taxed is contingent on the number of pay periods the bonus accounts for. 

If the bonus relates to work within a single pay period, it is simply added to the pay period and taxed normally. Easy!

It is more complicated if the bonus relates to work over multiple pay periods. 

For the following steps, please refer to PAYG withholding tax tables from the Australian Taxation Office website. 

  1. Firstly, work out how much tax is usually withheld from the payee’s normal earnings of one pay period. 
  2. Next, the bonus should be divided equally between the number of pay periods the bonus relates to (don’t worry about including the cents). 
  3. Whatever the answer is (bonus ÷ number of pay periods), add that to the normal earnings of a single period, as found in step 1.
  4. At the moment, you should have normal earnings, plus an equal portion of the bonus. For this new value, use the tax table to determine how much to withhold on the combined payment. 
  5. Subtract the original amount taxed before the bonus was included, and multiply the result by the number of pay periods. 

Are there any instances where bonuses are not taxed?

When an employee offers a bonus payment that is below $300, the bonus can be considered a gift, thus incurring an exemption from fringe benefit tax (FBT). As a result, the bonus is not required to be recorded on the employee’s yearly PAYG payment summary, so tax does not have to be withheld. However, this is only applicable if it is an infrequent payment and meets other requirements. 

Is super also deducted from bonuses?

If a bonus is part of Ordinary Time Earnings (Christmas bonus, performance bonus), then employers will need to pay a superannuation guarantee on their gross bonus payments. If you want to make sure the employee is receiving the net amount of the bonus, you might need to adjust the bonus payment to account for this. 

However, lump sums paid like expense allowances, termination payments or redundancy payments, do not need to be paid super, but may still be subject to tax. 

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