Single Touch Payroll (STP) has been introduced into the Australian tax system to combat areas of taxpayer non-compliance of PAYG withholding and superannuation guarantee obligations. Past legislation has been enacted which brings this new payroll system into commencement from 1 July 2018.
2018/19 income year
Only “substantial employers” need to have or implement STP (TAA 1953 s 389-5). A ‘substantial employer’ is one with a headcount of 20 or more from 1 April 2018.
No changes will occur to reporting requirements for employers who go over 20 headcount during the 2018/19 income year. The previous legislation stated that if an employer did go over 20 during the year, then they were required to use STP from the following 1 July. This situation is now irrelevant due to the fact that everyone will need to use STP from 1 July 2019.
Employers will need to report the following through their payroll system:
- payments made to individuals and amounts withheld from those payments
- payments of salary or wages and ordinary time earnings (OTE), and
- employee superannuation contributions.
Also, other amounts such as “sacrificed ordinary time earnings amounts” and “sacrificed salary and wages amounts” will be reportable. The objective of these additional reporting requirements ensures that superannuation guarantee is not reduced by amounts salary sacrificed. These amounts, along with ordinary time earnings and superannuation contributions can be reported either separately or combined. Either way, the ATO has stated that they will be aware of an employee’s overall package from which they work out their superannuation guarantee.
Payments not made through the payroll system (eg contractor payments, payments of superannuation income, payments of dividends, interest and royalties, etc) are excluded.
Employers will not be subject to administrative penalties for the first 12 months, unless first notified by the Commissioner.
Exemption for closely held payees
Since the legislation received royal assent, the ATO has announced that a 12-month exemption for STP reporting will apply for businesses with closely held payees. Their definition of a closely held employee is one who is a non-arm’s length employee, directly related to the entity from which they receive payments. This would include family members of a family business, directors of a company and shareholders or beneficiaries.
Even though the requirement to use STP is delayed in these situations until 1 July 2020, it is advised that early adoption of STP should commence. One method which may be useful is to assist clients in implementing a weekly or monthly recurring payment to closely held employees.
The ATO has also advised that in the coming months more details will be released, including different approaches to quarterly reporting.
PAYG payment summaries
For employers who are required to use STP from 1 July 2018, there will no longer be a requirement to provide employees with PAYG payment summaries at year end.
Essentially, the employees will be able to see their payment summaries at year end online from myGov and also they will be available on the Tax Agent Portal.