diff --git a/python/plugins/processing/tools/system.py b/python/plugins/processing/tools/system.py
index ebf7f954976..2632621f9a4 100644
--- a/python/plugins/processing/tools/system.py
+++ b/python/plugins/processing/tools/system.py
@@ -74,14 +74,6 @@ def tempFolder():
     return str(os.path.abspath(tempDir))
 
 
-def setTempOutput(out, alg):
-    if hasattr(out, 'directory'):
-        out.value = getTempDirInTempFolder()
-    else:
-        ext = out.getDefaultFileExtension(alg)
-        out.value = getTempFilenameInTempFolder(out.name + '.' + ext)
-
-
 def getTempFilename(ext=None):
     tmpPath = tempFolder()
     t = time.time()
diff --git a/src/core/processing/qgsprocessingalgorithm.cpp b/src/core/processing/qgsprocessingalgorithm.cpp
index 360b550b036..8e1d67e0b14 100644
--- a/src/core/processing/qgsprocessingalgorithm.cpp
+++ b/src/core/processing/qgsprocessingalgorithm.cpp
@@ -95,6 +95,16 @@ QgsProcessingProvider *QgsProcessingAlgorithm::provider() const
 void QgsProcessingAlgorithm::setProvider( QgsProcessingProvider *provider )
 {
   mProvider = provider;
+
+  // need to update all destination parameters to set whether the provider supports non file based outputs
+  Q_FOREACH ( const QgsProcessingParameterDefinition *definition, mParameters )
+  {
+    if ( definition->isDestination() && mProvider )
+    {
+      const QgsProcessingDestinationParameter *destParam = static_cast< const QgsProcessingDestinationParameter *>( definition );
+      const_cast< QgsProcessingDestinationParameter *>( destParam )->setSupportsNonFileBasedOutputs( mProvider->supportsNonFileBasedOutput() );
+    }
+  }
 }
 
 QWidget *QgsProcessingAlgorithm::createCustomParametersWidget( QWidget * ) const
@@ -214,7 +224,7 @@ bool QgsProcessingAlgorithm::addParameter( QgsProcessingParameterDefinition *def
   if ( QgsProcessingAlgorithm::parameterDefinition( definition->name() ) )
     return false;
 
-  if ( definition->isDestination() )
+  if ( definition->isDestination() && mProvider )
   {
     QgsProcessingDestinationParameter *destParam = static_cast< QgsProcessingDestinationParameter *>( definition );
     destParam->setSupportsNonFileBasedOutputs( mProvider->supportsNonFileBasedOutput() );
diff --git a/src/core/processing/qgsprocessingparameters.cpp b/src/core/processing/qgsprocessingparameters.cpp
index 795e5afe51c..d4312baa1de 100644
--- a/src/core/processing/qgsprocessingparameters.cpp
+++ b/src/core/processing/qgsprocessingparameters.cpp
@@ -20,6 +20,7 @@
 #include "qgsprocessingutils.h"
 #include "qgsvectorlayerfeatureiterator.h"
 #include "qgsprocessingoutputs.h"
+#include "qgssettings.h"
 
 bool QgsProcessingParameters::isDynamic( const QVariantMap &parameters, const QString &name )
 {
@@ -2057,6 +2058,19 @@ QgsProcessingOutputDefinition *QgsProcessingParameterFeatureSink::toOutputDefini
   return new QgsProcessingOutputVectorLayer( name(), description(), mDataType );
 }
 
+QString QgsProcessingParameterFeatureSink::defaultFileExtension() const
+{
+  QgsSettings settings;
+  if ( hasGeometry() )
+  {
+    return settings.value( QStringLiteral( "Processing/DefaultOutputVectorLayerExt" ), QStringLiteral( "shp" ), QgsSettings::Core ).toString();
+  }
+  else
+  {
+    return QStringLiteral( "dbf" );
+  }
+}
+
 QgsProcessingParameterDefinition::LayerType QgsProcessingParameterFeatureSink::dataType() const
 {
   return mDataType;
@@ -2156,6 +2170,12 @@ QgsProcessingOutputDefinition *QgsProcessingParameterRasterOutput::toOutputDefin
   return new QgsProcessingOutputRasterLayer( name(), description() );
 }
 
+QString QgsProcessingParameterRasterOutput::defaultFileExtension() const
+{
+  QgsSettings settings;
+  return settings.value( QStringLiteral( "Processing/DefaultOutputRasterLayerExt" ), QStringLiteral( "tif" ), QgsSettings::Core ).toString();
+}
+
 
 QgsProcessingParameterFileOutput::QgsProcessingParameterFileOutput( const QString &name, const QString &description, const QString &fileFilter, const QVariant &defaultValue, bool optional )
   : QgsProcessingDestinationParameter( name, description, defaultValue, optional )
@@ -2218,6 +2238,20 @@ QgsProcessingOutputDefinition *QgsProcessingParameterFileOutput::toOutputDefinit
   return nullptr;
 }
 
+QString QgsProcessingParameterFileOutput::defaultFileExtension() const
+{
+  if ( mFileFilter.isEmpty() || mFileFilter == QObject::tr( "All files (*.*)" ) )
+    return QStringLiteral( "file" );
+
+  // get first extension from filter
+  QRegularExpression rx( ".*?\\(\\*\\.([a-zA-Z0-9._]+).*" );
+  QRegularExpressionMatch match = rx.match( mFileFilter );
+  if ( !match.hasMatch() )
+    return QStringLiteral( "file" );
+
+  return match.captured( 1 );
+}
+
 QString QgsProcessingParameterFileOutput::fileFilter() const
 {
   return mFileFilter;
@@ -2272,6 +2306,11 @@ QgsProcessingOutputDefinition *QgsProcessingParameterFolderOutput::toOutputDefin
   return nullptr;
 }
 
+QString QgsProcessingParameterFolderOutput::defaultFileExtension() const
+{
+  return QString();
+}
+
 QgsProcessingDestinationParameter::QgsProcessingDestinationParameter( const QString &name, const QString &description, const QVariant &defaultValue, bool optional )
   : QgsProcessingParameterDefinition( name, description, defaultValue, optional )
 {
@@ -2281,7 +2320,7 @@ QgsProcessingDestinationParameter::QgsProcessingDestinationParameter( const QStr
 QVariantMap QgsProcessingDestinationParameter::toVariantMap() const
 {
   QVariantMap map = QgsProcessingParameterDefinition::toVariantMap();
-  map.insert( QStringLiteral( "support_non_file_outputs" ), mSupportsNonFileBasedOutputs );
+  map.insert( QStringLiteral( "supports_non_file_outputs" ), mSupportsNonFileBasedOutputs );
   return map;
 }
 
diff --git a/src/core/processing/qgsprocessingparameters.h b/src/core/processing/qgsprocessingparameters.h
index 702630e0911..27741539807 100644
--- a/src/core/processing/qgsprocessingparameters.h
+++ b/src/core/processing/qgsprocessingparameters.h
@@ -1307,6 +1307,12 @@ class CORE_EXPORT QgsProcessingDestinationParameter : public QgsProcessingParame
      */
     void setSupportsNonFileBasedOutputs( bool supportsNonFileBasedOutputs ) { mSupportsNonFileBasedOutputs = supportsNonFileBasedOutputs; }
 
+    /**
+     * Returns the default file extension for destination file paths
+     * associated with this parameter.
+     */
+    virtual QString defaultFileExtension() const = 0;
+
   private:
 
     bool mSupportsNonFileBasedOutputs = true;
@@ -1336,6 +1342,7 @@ class CORE_EXPORT QgsProcessingParameterFeatureSink : public QgsProcessingDestin
     bool checkValueIsAcceptable( const QVariant &input, QgsProcessingContext *context = nullptr ) const override;
     QString valueAsPythonString( const QVariant &value, QgsProcessingContext &context ) const override;
     QgsProcessingOutputDefinition *toOutputDefinition() const override SIP_FACTORY;
+    QString defaultFileExtension() const override;
 
     /**
      * Returns the layer type for sinks associated with the parameter.
@@ -1433,6 +1440,7 @@ class CORE_EXPORT QgsProcessingParameterRasterOutput : public QgsProcessingDesti
     bool checkValueIsAcceptable( const QVariant &input, QgsProcessingContext *context = nullptr ) const override;
     QString valueAsPythonString( const QVariant &value, QgsProcessingContext &context ) const override;
     QgsProcessingOutputDefinition *toOutputDefinition() const override SIP_FACTORY;
+    QString defaultFileExtension() const override;
 };
 
 /**
@@ -1457,6 +1465,7 @@ class CORE_EXPORT QgsProcessingParameterFileOutput : public QgsProcessingDestina
     bool checkValueIsAcceptable( const QVariant &input, QgsProcessingContext *context = nullptr ) const override;
     QString valueAsPythonString( const QVariant &value, QgsProcessingContext &context ) const override;
     QgsProcessingOutputDefinition *toOutputDefinition() const override SIP_FACTORY;
+    QString defaultFileExtension() const override;
 
     /**
      * Returns the file filter string for files compatible with this output.
@@ -1498,6 +1507,7 @@ class CORE_EXPORT QgsProcessingParameterFolderOutput : public QgsProcessingDesti
     QString type() const override { return QStringLiteral( "folderOut" ); }
     bool checkValueIsAcceptable( const QVariant &input, QgsProcessingContext *context = nullptr ) const override;
     QgsProcessingOutputDefinition *toOutputDefinition() const override SIP_FACTORY;
+    QString defaultFileExtension() const override;
 
 };
 
diff --git a/tests/src/core/testqgsprocessing.cpp b/tests/src/core/testqgsprocessing.cpp
index 9556d100208..21f6d956d91 100644
--- a/tests/src/core/testqgsprocessing.cpp
+++ b/tests/src/core/testqgsprocessing.cpp
@@ -106,13 +106,6 @@ class DummyAlgorithm : public QgsProcessingAlgorithm
       QVERIFY( addParameter( p6 ) );
       QCOMPARE( destinationParameterDefinitions(), QgsProcessingParameterDefinitions() << p5 << p6 );
 
-      // check that supportsNonFileBasedOutputs flags is set automatically to match provider
-      // when adding a destination parameter
-      QgsProcessingParameterFeatureSink *p7 = new QgsProcessingParameterFeatureSink( "p7" );
-      p7->setSupportsNonFileBasedOutputs( false );
-      QVERIFY( addParameter( p7 ) );
-      QVERIFY( destinationParameterDefinitions().at( 2 )->supportsNonFileBasedOutputs() );
-
       // remove parameter
       removeParameter( "non existent" );
       removeParameter( "p6" );
@@ -346,6 +339,11 @@ void TestQgsProcessing::initTestCase()
 {
   QgsApplication::init();
   QgsApplication::initQgis();
+
+  // Set up the QgsSettings environment
+  QCoreApplication::setOrganizationName( QStringLiteral( "QGIS" ) );
+  QCoreApplication::setOrganizationDomain( QStringLiteral( "qgis.org" ) );
+  QCoreApplication::setApplicationName( QStringLiteral( "QGIS-TEST" ) );
 }
 
 void TestQgsProcessing::cleanupTestCase()
@@ -2812,6 +2810,8 @@ void TestQgsProcessing::parameterFeatureSink()
   QCOMPARE( def->valueAsPythonString( QVariant::fromValue( QgsProcessingOutputLayerDefinition( QgsProperty::fromExpression( "\"abc\" || \"def\"" ) ) ), context ), QStringLiteral( "QgsProcessingOutputLayerDefinition(QgsProperty.fromExpression('\"abc\" || \"def\"'))" ) );
   QCOMPARE( def->valueAsPythonString( QVariant::fromValue( QgsProperty::fromExpression( "\"a\"=1" ) ), context ), QStringLiteral( "QgsProperty.fromExpression('\"a\"=1')" ) );
 
+  QCOMPARE( def->defaultFileExtension(), QStringLiteral( "shp" ) );
+
   QVariantMap map = def->toVariantMap();
   QgsProcessingParameterFeatureSink fromMap( "x" );
   QVERIFY( fromMap.fromVariantMap( map ) );
@@ -2931,6 +2931,8 @@ void TestQgsProcessing::parameterRasterOut()
   QVERIFY( def->checkValueIsAcceptable( "c:/Users/admin/Desktop/roads_clipped_transformed_v1_reprojected_final_clipped_aAAA.tif" ) );
   QVERIFY( def->checkValueIsAcceptable( "c:/Users/admin/Desktop/roads_clipped_transformed_v1_reprojected_final_clipped_aAAA.tif", &context ) );
 
+  QCOMPARE( def->defaultFileExtension(), QStringLiteral( "tif" ) );
+
   QVariantMap params;
   params.insert( "non_optional", "test.tif" );
   QCOMPARE( QgsProcessingParameters::parameterAsRasterOutputLayer( def.get(), params, context ), QStringLiteral( "test.tif" ) );
@@ -2981,8 +2983,16 @@ void TestQgsProcessing::parameterFileOut()
   // not optional!
   std::unique_ptr< QgsProcessingParameterFileOutput > def( new QgsProcessingParameterFileOutput( "non_optional", QString(), QStringLiteral( "BMP files (*.bmp)" ), QString(), false ) );
   QCOMPARE( def->fileFilter(), QStringLiteral( "BMP files (*.bmp)" ) );
+  QCOMPARE( def->defaultFileExtension(), QStringLiteral( "bmp" ) );
   def->setFileFilter( QStringLiteral( "PCX files (*.pcx)" ) );
   QCOMPARE( def->fileFilter(), QStringLiteral( "PCX files (*.pcx)" ) );
+  QCOMPARE( def->defaultFileExtension(), QStringLiteral( "pcx" ) );
+  def->setFileFilter( QStringLiteral( "PCX files (*.pcx *.picx)" ) );
+  QCOMPARE( def->defaultFileExtension(), QStringLiteral( "pcx" ) );
+  def->setFileFilter( QStringLiteral( "PCX files (*.pcx *.picx);;BMP files (*.bmp)" ) );
+  QCOMPARE( def->defaultFileExtension(), QStringLiteral( "pcx" ) );
+  def->setFileFilter( QString() );
+  QCOMPARE( def->defaultFileExtension(), QStringLiteral( "file" ) );
 
   QVERIFY( !def->checkValueIsAcceptable( false ) );
   QVERIFY( !def->checkValueIsAcceptable( true ) );