28 May 2019
Approximately 2 years have passed since the federal government introduced the rules pertaining to ‘Single Touch Payroll’ (‘STP’). The particular policy enables the government to undertake more stringent monitoring over employers who are operating businesses within Australia in relation to their reporting obligations.
Businesses operating with an employee headcount of 20 or more on the 1st of April 2018 were required to begin reporting to the ATO through a STP-enabled solution. For all other businesses, the use of STP had been implemented voluntarily through an opt-in solution.
From the 1 July 2019, it has since become mandatory for all businesses to observe the new rules, regardless of the number of employees. Prior to the new rules, businesses had supplied their payroll data through generating payment summaries on an annual basis. The new system, however, will allow for businesses to automatically report their payroll data to the ATO on a pay-by-pay basis.
Who needs to report?
As previously mentioned, from 1 July 2019, all employers will be required to submit the following information to the ATO:
The ATO has improved its operational framework by introducing the Super Cleaning House in relation to the employer's superannuation contributions, which simplifies for the ATO to learn any non-payments by the employers. Consequently, in light of the forthcoming implementation of the Single Touch Payroll starting from May this year, employers should be well prepared for the ATO's monitoring and regulation of any arrears of their superannuation contributions.
By replacing the previous system, the STP system no longer requires employers to produce payment summaries to its employees. In addition, the new regulations carve out an exception when it comes to closely held payees. Accordingly, for those payments made to family members within a family business, company directors and shareholders and beneficiaries of a trust, the new regulations will not be made applicable until 1 July 2021.
When must I report?
STP reporting must occur prior to or on the day payments are made to the employee.
How do I report?
Most existing payroll or accounting solutions will likely include a function to report STP data to the ATO (E.g. Xero, MYOB). Employers who do not utilise payroll or STP-enabled software may nonetheless satisfy their reporting obligations by installing AusKey - an alternate software launched by the ATO. After installation, users may log into their Business Portal and report directly to the ATO. However, the alternative solution is time consuming with increased room for error when entering in key information. Thus, best practice would posit the use of STP-enabled software for fulfilling reporting obligations.
Failure to comply
From the 1 July 2019, in the event that an employer fails to comply, the ATO may impose relevant sanctions. Additionally, employers may find themselves subject to tax benefit exemptions or penalised for income tax. These may arise if, for example, employers make a salary payment without reporting PAYG withholding tax or failing to submit relevant tax returns.
Taxable Payments Annual Report
In addition to labour contracts, businesses operating in the provision of building and construction services, cleaning services and courier services were required to report any payments made to their contractors. Since the expansion of the new regulations, additional classes of businesses will be required to fulfil the same obligations.
As a result, from the 1 July 2019, businesses providing the following services will also need to report information pertaining to payments made to their contractors for services:
The new STP regulations have introduced vital changes when it comes to employers’ reporting obligations. Stakeholders to which the new rules intend to cover will need to be all the more vigilant in ensuring compliance with the rules in order to avoid potential violation and associated sanctions.
Written by Ben Youn, CPA & CTA