As of 1 July 2019, Single Touch Payroll (STP) – the direct reporting of salary and wages, PAYG withholding and superannuation contribution information to the ATO – applies to all employers.
The new rules push all businesses with employees into the single touch payroll system. This includes the situation where payments are made to the owners of the business in the form of salary, wages or directors fees. What employers need to report will also be extended to include certain salary sacrificed amounts.
Businesses who have twenty or more employees have been already required to use STP since 1 July 2018.
Getting the right software
You MUST make sure STP will be compatible with your systems.
The ATO has asked software providers to provide new low-cost payroll options for micro employers with 1-4 employees. MYOB and Xero have announced new $10 per month offerings (limited to 4 employees) with other software houses following suit.
The Nitty Gritty
STP requires PAYG withholding and superannuation contribution details to be reported to the ATO as payments are made to employees or superannuation funds.
When it comes to PAYG withholding, employers will report details of salary and wages paid to employees as well as the PAYG withholding amount at the time the payment is made to the employee.
Employers have the option of paying the PAYG withholding liability at the same time, although this is not compulsory.
Have no idea what this means, or you feel your eyes glazing over? Get payroll support!
What needs to be reported:
- Salary & wages
- Director remuneration
- Return to work payments to individuals
- Employment termination payments (ETPs) – not compulsory if the employee has died
- Unused leave payments
- Parental leave pay
- Payments to office holders
- Payments to religious practitioners
- Superannuation contributions (at the time the payment is made to the fund)
- Salary sacrificed amounts (from 1 July 2019).
Some good news – no penalties will be applied to mistakes, missed or late reports for the first year.
If your business is in an area with no viable internet connection, such as some rural and remote regions, then exemptions may apply.
Closely Held Payees
The most likely reason for an exemption is for closely held payees. Closely held payees are directly related to the entity from which they receive payment.
- family members of a family business
- directors or shareholders of a company
- beneficiaries of a trust
A new concession allows payments made by employers with 19 or less employees to closely held payees to be exempt from STP until 1 July 2020.
You don’t need to apply to the ATO for the concession, but you do need to notify the ATO of closely held payees. For 2019-20, employers using this concession will issue payment summaries at year-end to affected employees.
What happens after 1 July 2020?
From 1 July 2020, employers making payments to closely held employees will have the option of reporting these payments quarterly. The ATO expects the employer to make a reasonable estimate of year-to-date amounts up to and including the last pay day of the relevant quarter. Three methods could potentially be used for this purpose:
- Withdrawals taken by the payee (but don’t include payments of dividends or payments which reduce liabilities owed by the business to the closely held payee).
- Calculating 25% of the total salary or director fees from the previous year or the year of the last lodged tax return of the closely held payee.
- Vary the previous years’ amount (to take into account trading conditions) within 15% of the total salary or directors fees for the current financial year.
If a business chooses to report closely held payees quarterly, they will have until the due date of their 2021 tax return to finalise the information that has been reported for the year and make any adjustments.
There are some practical problems still to be worked through, such as what happens if you overestimate income and pay too much superannuation? Super cannot normally be refunded if it’s overpaid, and this could pose an issue.
Avoiding complaints and penalties
Underpayment or non-payment of superannuation guarantee (SG) is a big issue. New laws will enable the ATO to advise employees (or former employees) of their employer’s poor SG payment and reporting history.
If an employer makes a complaint to the ATO, then a taxation officer is able to make a record or advise the employee about a failure or suspected failure by their employer or former employer to comply with their SG obligations. They can also share the Tax Commissioner’s response to the complaint. So, if the Commissioner finds there is a problem with SG payments, they can disclose this information to the complainant.
Getting Advice & Support
To make sure you’re ticking all the right boxes, crossing your T’s and dotting your I’s, it can be worth investing in help from an experienced source.
If you have any concerns about complying with the impending STP legislation get in touch with us, and we’ll clarify your position.
You can also find out more about our tax and bookkeeping services here.