Background Eichmann v FCT  FCAFC 155 (Eichmann's case) is about whether a block of land used by a building, bricklaying and paving business connected to the Taxpayer for the storage of work tools, equipment and materials was an ‘active asset’, defined...
Are clients ready for Single Touch Payroll?
The ATO’s ‘Single Touch Payroll’ (STP) initiative will start on 1 July 2018 for many employers — but businesses and their advisers cannot be complacent until then.
The next six months is a crucial time for ‘substantial employers’ (≥ 20 employees) to understand how STP will change their existing processes and ensure that they have compliant payroll software well before the start date. Smaller employers must also pay attention to STP developments as the Government plans to extend STP to them from 1 July 2019.
In December 2014, the Government announced the STP initiative as part of its Government-wide ‘Digital by Default’ program. STP is intended to reduce the administrative burden and cost for employers by simplifying tax and superannuation reporting obligations, while improving the visibility of employer non-compliance.
Under STP, employers will use Standard Business Reporting (SBR)-enabled software to electronically report payroll and superannuation information to the ATO at the same time that their employees — and their superannuation funds — are paid. STP will also simplify the administrative processes involved in hiring new staff by providing optional digital services for completing Tax File Number (TFN) declarations and choice of superannuation fund forms.
Employers will have to upgrade their existing payroll software or acquire compatible software to fulfil their obligations under STP.
Source: Presentation 2 from the ATO’s livestream session held on 16 November 2017
|Government announcement — introducing STP|
|Josh Frydenberg and Bruce Billson’s joint media release||Issued: 28 December 2014|
|ATO consultation — discussion paper|
|ATO released a discussion paper
[no longer available on ATO website]
|Issued: 16 February 2015|
|Government announcement — amended proposal|
|Bruce Billson’s media release — announced:
||Issued: 10 June 2015|
|Government announcement — 1 July 2017 start date|
|Kelly O’Dwyer’s media release — announced:
||Issued: 21 December 2015|
|STP draft legislation|
|Budget Savings (Omnibus) Bill 2016 — Schedule 23||Introduced into Parliament:
31 August 2016
|ATO consultation paper — draft legislation|
|ATO consultation paper on the STP measures in the Budget Savings (Omnibus) Bill 2016||Consultation: September 2016|
|Budget Savings (Omnibus) Act 2016 — Schedule 23
Inserted new Div 389 into Schedule 1 to the Taxation Administration Act 1953
16 September 2016
|Government announcement — STP for small employers|
|Kelly O’Dwyer’s media release — announced that STP will be extended to small employers from 1 July 2019||Issued: 29 August 2017|
|ATO’s STP Small Business Pilot Final Report|
|ATO released its Single Touch Payroll Small Business Pilot Final Report||Published:
29 September 2017
- periodically reporting amounts paid to employees on business activity statements (BAS) and remitting PAYG withholding (quarterly, monthly or weekly);
- giving annual payment summaries to each employee just following the end of the income year;
- lodging annual payment summary reports with the ATO after the end of the income year; and
- when a new employee commences — lodging a TFN declaration form with the ATO.
- making compulsory SG contributions to their employees’ superannuation funds on a quarterly basis (or more frequently);
- when a new employee commences — providing a ‘choice of fund’ form to the employee (if required to do so), and retaining relevant records relating to choice of fund; and
- provide the employee’s TFN to the superannuation fund.
A snapshot of how employer reporting will change … or not
|Payroll solution (software)||Needs to be updated to STP-compliant software|
|Reporting payments to employees (e.g. salaries, wages, allowances, deductions), and of PAYG withholding amounts and superannuation contributions||Will be reported to the ATO at the same time as the payments are made to the employees or the superannuation funds|
|Payroll cycle||No change to employer pay cycles|
|Due dates of PAYG withholding and superannuation contributions||No change to due dates for remittance of PAYG withholding to the ATO and payment of SG contributions to super funds
(Note: Real-time payment of PAYG withholding and SG at the same time as the payroll event reporting was considered when STP was originally announced, but the idea has since been discarded)
|Annual payment summaries||No obligation to provide annual payment summaries (except in relation to reportable employer superannuation contributions and reportable fringe benefit amounts not reported via STP)
Employees will have access to real-time data via the ATO online service on myGov
|Commencement of new employee||TFN declaration and choice of super fund can be completed online by new employees and automatically reported to the ATO — note that it is optional for the employer to offer the service and optional for the employee to use the service (the existing paper forms will remain available)|
Under the enacted STP legislation, ‘substantial employers’ must commence reporting using STP from 1 July 2018 unless they qualify for an exception.
Even though STP reporting is not mandatory until 1 July 2018, employers are required to determine their substantial employer status based on the number of employees on the payroll three months earlier, on 1 April 2018. This will allow the employer to ensure they are equipped with the necessary processes ahead of the start date of 1 July 2018.
A substantial employer is an employer with 20 or more employees on their payroll on 1 April 2018. Although this happens to be Easter Sunday, it is based on the number of employees on the payroll as at that date, not who turns up to work that day!
|Key questions about the 1 April 2018 headcount|
|Is the headcount based on full-time equivalent?||No. The headcount is based on the number of employees on the payroll on 1 April 2018, not the full-time equivalent.|
|Who is included in the headcount?||
|Who is NOT included in the headcount?||
Although company directors are excluded from the headcount, if the employer is a substantial employer then remuneration paid to directors through payroll, or superannuation payments made in respect of them, will generally be reportable under STP.
Casual employees who did not work in March 2018 are also excluded from the headcount. If they subsequently work again for the employer and are paid on or after 1 July 2018, those payments will have to be reported under STP.
|How does the headcount work for a company group?||If an employer is part of a company group, the total number of employees employed by all member companies of the wholly-owned group must be included.
(Note: there are no other grouping rules, so a trust or partnership — or a partly-owned company — cannot be grouped with other entities for this purpose.)
|What if the headcount falls below 20 any time after 1 April 2018?||The Government has proposed to extend STP reporting to employers with fewer than 20 employees from 1 July 2019.
Does an employer have to register for STP?
There are no specific registration requirements for STP. Lodging the first report via STP-enabled software suffices as notification to the ATO.
Exemptions and deferrals
The ATO has broad powers to grant exemptions from STP reporting and deferrals of the start date. While these will be considered on a case-by-case basis, there are some general guidelines which apply.
The ATO may grant exemptions for one or more income years on:
- a class of employer basis (by legislative instrument); or
- an individual employer basis.
To date, the ATO has provided only limited guidance on the circumstances in which it is likely to grant an exemption. However, it has indicated that it may grant an exemption where the employer is:
- located in a rural area with no reliable internet connection; or
- a substantial employer for only a short period of the income year (e.g. due to harvesting activities).
Where appropriate, an exemption may be limited to only:
- part of an income year; or
- specific items to be reported.
During a livestreamed information session for employers held on 16 November 2017, the ATO confirmed that, for ease, exemptions will generally be granted for a full income year and not for part of the income year. A part-year exemption would require the employer to comply with two sets of rules in relation to the same income year. However, the ATO will make exemption decisions on a case-by-case basis.
The ATO may defer the STP commencement date until after 1 July 2018 for an employer if the employer:
- has entered administration or liquidation;
- needs to align its reporting with foreign related entities;
- has been impacted by a natural disaster; or
- is affected by a circumstance outside their control.
The ATO is aware that there are likely to be payroll solution providers — known as ‘digital service providers’ (DSPs) in the ATO’s lexicon — whose software packages may not be fully STP-ready by 1 July 2018.
To assist transition, the ATO has announced that it will grant a deferral for eligible DSPs which will automatically apply to all of the particular DSP’s customers. The ATO will issue a deferral reference number (DRN) to the DSP, which will pass the DRN onto its customers.
Employers covered by a DRN will not have to individually apply to the ATO for a deferral.
When applying for a deferral, a DSP must submit a Deferral Evidence Package (DEP), which is a suite of documents which — broadly — relate to the DSP’s strategy and detailed plans to develop and/or upgrade products for STP. The ATO will review the DEP when considering whether to grant the deferral.
A deferral needs to be requested before 1 July 2018. The employer or their registered agent can request the deferral.
The ATO will publish more information about applying for an exemption or deferral. Keep up to date with the ATO website publication Streamlined reporting with Single Touch Payroll: Information for employers (QC 50662).
The following table summarises the ATO’s guidance on how to ensure that the business is ready to report through STP‑compliant payroll solution by 1 July 2018, based on the employer’s current payroll reporting system.
|How you currently report payroll information* to the ATO||Recommended actions to prepare for STP|
|Using a payroll solution||Is the software STP-enabled?
YES → You are ready for STP reporting
UNSURE → Check which payroll software and service providers offer STP-enabled products on the ABSIA product catalogue — this catalogue will be updated over time
NO → Update payroll software (your provider can let you know when your payroll solution is ready for STP)
ALTERNATIVE → Engage a third party (e.g. accountant, bookkeeper or payroll provider) to assist in dealing with your STP reporting obligations
|Using a third party^ to report on behalf of the business||Communicate with the third party to ensure that they will be reporting through STP on behalf of the business|
|Manually (e.g. paper)||Not yet ready for STP
Acquire a payroll solution that is STP-enabled
Engage an accountant, bookkeeper or payroll provider to assist in dealing with your STP reporting obligations
* Payments to employees (e.g. salaries, wages and allowances) and PAYG withholding amounts.
^ A third party that reports payroll information on behalf of an employer may include an accountant, a bookkeeper, a tax agent or a payroll service provider.
Tip — ABSIA product catalogue
Employers will be able to check which payroll software and service providers offer STP-enabled products on the Australian Business Software Industry Association (ABSIA) product catalogue.
Under STP, an employer will report information relating to a ‘payroll event’ at the time that the ‘event’ (i.e. payment) happens.
Below is a summary of the key need-to-know points about payroll event reporting through STP.
Withholding payments and withholding amounts (under the PAYG withholding rules) include (but are not limited to):
- salaries and wages to employees and office holders;
- remuneration to a director of a company; and
- payments for termination of employment, unused leave, parental leave and dad and partner pay.
These amounts must be reported on or before the day that the payment is made to the employee (not the day on which the withheld amount is remitted to the ATO). This is generally the day of the regular pay cycle. The payroll event must be reported even if the withholding amount is nil.
- Payments made to contractors are not required to be reported under the STP law.
- The ATO has indicated that it will likely exempt payments made to directors through accounts payable rather than payroll. We await further ATO guidance.
- Salary and wages for SG purposes or ordinary time earnings — to be reported on or before the day on which the amount is paid; and
- superannuation contributions — distinguishable between SG contributions and contributions which exceed the SG percentage (e.g. salary sacrificed amounts) — to be reported on or before the day that the contribution is made.
These amounts must be reported for ‘employees’ as defined in the Superannuation Guarantee (Administration) Act 1992 but not including contractors within that definition. This is because such contractors are generally not paid through payroll.
The ATO has indicated that the information contained in SuperStream reports would also satisfy STP requirements. We await further ATO guidance on the option to submit SuperStream reports for STP purposes.
An out-of-cycle payment is one which is not paid in the employee’s regular pay cycle — e.g. commissions, bonuses and back payments. Such payments can be reported:
- on the day the payment is made;
- included in the next payroll event reported for that employee (generally the next regular pay cycle) in the same income year; or
- by 30 June in the income year in which the payment is made, if the next payroll event is after that date.
An employer is not required to report RESC and RFB amounts through STP.
However, the employee may elect to report these amounts through an ‘update event’ by 14 July following the end of the income year.
The ATO may in the future also request additional information, or accept other forms of information already contained in an employer’s payroll software other than those listed above where appropriate.
To lodge an STP report, the employer will be required to make an electronic declaration indicating that the information contained in the report is true and correct and that the person or entity is authorised to lodge the report.
The declaration will be required irrespective of whether the payroll function is processed in-house or outsourced to an external payroll service provider.
For each income year, the employer will need to make a ‘finalisation declaration’ for an employee by providing a finalisation indicator by 14 July after the end of the income year. This is done on an employee-by-employee basis.
In its livestreamed information session for employers held on 16 November 2017, the ATO advised that it will provide an automatic deferral for every employer for the first two income years:
- for 2017–18 — deferred due date of 14 August 2018; and
- for 2018–19 — deferred due date of 31 July 2019.
We await further ATO guidance in relation to these transitional finalisation dates.
The ATO also announced that finalised information can be amended for up to five years after the end of the relevant income year.
Once a finalisation declaration has been made for an employee in respect of an income year, the employer is exempt from providing:
- to the employee — an annual payment summary; and
- to the ATO — a payment summary annual report, a notification of withholding amounts, a payment summary for payments for termination of employment, and a part-year payment summary, to the extent that the relevant amounts have been reported through STP.
- Information reported by the employer will be displayed in the employee’s ATO online services account accessed through myGov.
- The employee will be able to see year-to-date pay, tax withheld and superannuation contributions, updated progressively throughout the income year.
- The ATO will pre-fill the employee’s income tax return with the reported data. For self-lodgers, this will be available via myTax; and tax agents will see pre-filled data for their individual clients.
- Employees who want a payment summary may contact the ATO, which will provide them with the necessary data or other useful guidance.
Employers may choose to continue to provide annual payment summaries for the first income year or two while their employees are adapting to the new system. This is entirely at the employer’s discretion and does not impact on the employer’s obligations under STP.
In relation to any RFBA and RESC amounts that the employer has chosen not to report through STP:
- a payment summary must be given to the employee; and
- a payment summary annual report must be provided to the ATO,
in accordance with the existing rules (i.e. by 14 July following the end of the income year).
This will be the case even though the employer will not have to prepare annual payment summaries in relation to PAYG withholding amounts reported through STP.
Employers will be able to view their lodged STP reports via the Business Portal. PAYG withholding information reported through STP for the current and previous four income years will be viewable.
The report will display payroll transactions which include:
- PAYG withholding and gross payment amounts on the date submitted; and
- the name of the intermediary or payroll service provider that submitted the payroll data.
Registered tax agents and BAS agents will also be able to view their clients’ STP reports through the Tax Agent Portal and the BAS Agent Portal respectively.
Further, the ATO will pre-fill labels W1 (Total salary, wages and other payments) and W2 (Amount withheld from payments shown at W1) of the BAS with the sum of the amounts reported for the activity statement period.
Penalties for non-compliance
Administrative penalties will apply if an STP report is not lodged on time (or at all), or if it contains an error or omission that is ‘false or misleading’. The Commissioner has powers under the STP rules to offer penalty relief.
An employer will be exempt from penalties for failure to lodge on time for the first 12 months of reporting via STP.
However, this concession is not limitless; the exception will not apply if the employer has previously failed to meet its STP obligations and has received written notice from the Commissioner advising that a further failure to comply may result in penalties. In other words, employers cannot abuse and take advantage of the transitional relief.
The STP rules allow the Commissioner to provide an ongoing (permanent) ‘grace period’ within which employers may correct errors or omissions in lodged STP reports without incurring penalties for false or misleading statements.
The Commissioner may determine the length of the grace period for a class of employers (which may perhaps be based on the size of the withholder and the size of the correction) or a specific employer.
The ATO will release specific guidance on how and when to correct different types of errors. It has previously broadly indicated that an error would be required to be corrected in either:
- the next payroll event for the employee; or
- an update event.
Regardless of any grace period determined by the Commissioner, all corrections need to be made by 14 July after the end of the income year. This is to allow employees to finalise and lodge their own income tax returns for that income year.
When an individual starts a new job, they will have the option to electronically complete a pre-filled TFN declaration and superannuation standard choice form using their ATO online services account accessed through myGov.
The ATO has confirmed that the new online service will be optional for both the employer and the employee. Existing paper-based processes will remain available. Further, there is no impact on existing rules regarding choice of fund and default funds.
On 29 August 2017, the Government announced that STP will be extended to small employers — those with 19 or fewer employees at 1 April 2018 — from 1 July 2019.
The initiative reflects a key recommendation in the Final Report of the Cross Agency Superannuation Guarantee Working Group to extend STP to small employers to combat SG non-compliance by ensuring that the ATO receives regular and accurate information on SG obligations from all employers.
During the early part of 2017, the ATO conducted a small business STP pilot with 134 small employers. Based on the pilot findings, the Small Business Pilot Final Report recommended that STP should be introduced for smaller businesses from 1 July 2019. The report also recommended a transition-in period of two years including a voluntary opt-in period of 12 months from 1 July 2018, and a grace period of 12 months from 1 July 2019.
The Treasury is currently drafting legislation to give effect to this proposal. The ATO has commenced consultation with industry representatives, including TaxBanter. Will the release of STP draft legislation for small employers arrive just in time for Christmas 2017?
The ATO has a range of guidance products currently available on its website, including the following:
- Streamlined reporting with Single Touch Payroll (QC 50662)
- Materials from the ATO livestream session for employers held on 16 November 2017
- STP document library — design and technical; stakeholder information; consultation documents
- STP page on the Let’s Talk online forum — for news and updates
On 20 November 2017, the ATO announced that it is currently updating its employer guide and will make it available once finished. In the lead-up to 1 July 2018, the ATO will continue to release new and updated materials on how it plans to administer STP reporting.
The Explanatory Memorandum to the Budget Savings (Omnibus) Bill 2016 also provides useful guidance on the STP legislation.
TaxBanter will be conducting a webinar explaining STP — with a guest speaker from the ATO’s STP team — on 6 March 2018. Stay tuned for more details.
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