Single Touch Payroll changes from 1 July 2021

The ATO has recently published a number of fact sheets in relation to Single Touch Payroll (STP) changes which will take effect on 1 July 2021. Small employers will commence to report for closely held payees, and the quarterly exemption for micro employers will generally cease. This article summarises the ATO guidance.

Closely held payees — end of exemption

Small employers — with 19 or fewer employees — were required to start STP reporting on 1 July 2019. However they are exempt from reporting closely held payees through STP for the 2019–20 and 2020–21 income years. This exemption ends on 30 June 2021. From 1 July 2021, small employers will need to report closely held payee information.

If a small employer only has closely held payees, it can start STP reporting from 1 July 2021 but it does not need to inform the ATO that it only has closely held payees.

Definition — Closely held payee
A closely held payee is an individual who is directly related to the entity from which they receive payments, e.g. family members of a family business, directors or shareholders of a company or beneficiaries of a trust.

ATO fact sheet
Small employers — closely held (related) payees

How to report closely held payee data

Small employers may report closely held payee information on a quarterly basis. Arm’s length employees must be reported on or before each pay event day.

Closely held payee data can be reported in any of the following ways:

• report on or before each pay event;
• report actual payments quarterly — report payments made in each quarter when the activity statement for that quarter is due; or
• report a reasonable estimate quarterly — report amounts equal to or greater than a percentage of gross payments and tax withheld from the latest year, across each quarter.

When reporting quarterly, the employer can correct a closely held payee’s year-to-date information until the due date of the next quarterly report. If the payee will not be included in the next quarterly report, the employer can either include the corrected amounts in the current quarterly report or lodge an update event.

The information that is required to be reported, or which the employer may voluntarily report, is the same as the information reported for arm’s length employees.

Implications
The closely held report cannot be lodged through ATO portals or as part of the activity statement. It must be lodged through an STP-enabled software solution — i.e. the same as for arm’s length employees. The employer can lodge it themselves or through a registered agent.

If the employer chooses to report quarterly, they will need to check with their software providers as to how this is offered, as arm’s length employee data must be reported on or before the pay event date.

Employers that have arm’s length employees and also choose quarterly reporting for closely held payees will have to lodge a report each pay day for the arm’s length employees as well as a closely held payee report per quarter. Depending on the circumstances it may be more efficient to report closely held payee data at pay event time along with arm’s length employee data.

How penalties may apply

The ATO will remit any failure to withhold penalty incurred if the employer:

• reports year-to-date withholding amounts and tax withheld for a closely held payee that is equal to or greater than 25 per cent of the payee’s total gross payments and tax withheld from the previous finalised payment summary annual report (PSAR) across each quarter of the current financial year in the employer’s quarterly STP reports;
• reports and pays the tax withheld to the ATO on time.

It is important not to under-estimate amounts reported for closely held payees. If the ATO reviews the employer’s tax affairs and identify that they made payments to closely held payees equalling more than 25 per cent of their total gross payments for the last financial year and did not report this through STP, the employer may:

• be liable for superannuation guarantee charge (SGC) and have to lodge SGC statements, if the employer did not make sufficient contributions during a quarter;
• not be able to tax deduct the payment;
• be liable for penalties and interest.

ATO example — 25 per cent estimate

Jyla Pty Ltd chooses to start STP reporting for their closely held payee using the reasonable estimate method from 1 July 2021 (quarter 1 2021–22).

They use a 25 per cent estimate based on the payee’s last payment summary of $100,000 in the 2020–21 financial year.

Jyla Pty Ltd reports $25,000 each quarter for the first three quarters of the financial year. But when they get to quarter 4, they realise the payee will receive $120,000 for the year (not $100,000 as estimated). They choose to correct this in their quarter 4 STP pay event. They report $45,000 for this quarter to bring the year to date total up to $120,000.

They then report $30,000 each quarter in the 2022–23 financial year, based on the $120,000 reported for the 2021–22 year.

Payment summary

• 2020–21 financial year $100,000
• 2021–22 financial year $120,000.

STP reports — year-to-date amounts

* Assuming no corrections need to be made in that year.

Source: Example in ATO fact sheet
Small employers — closely held (related) payees

Finalisation declaration for closely held payees

Small employers (with only closely held payees) must make a finalisation declaration by the due date of the closely held payee’s individual tax return. This is different to the finalisation declaration due date for arm’s length employees, i.e. 14 July following the end of the income year.

Implications
The small employer will need to ask the closely held payee about the due date for their tax return. Generally, self-lodgers will have a due date of 31 October, while those who use a tax agent will have a due date of 15 May.

Employers can make a finalisation declaration for a closely held payee at any time during the income year — e.g. where the employee ceases employment.

Micro employers — quarterly concession ends

A micro employer is currently entitled to report through their registered tax or BAS agent on a quarterly basis until 30 June 2021. From 1 July 2021, the quarterly reporting concession will only be considered for micro employers experiencing exceptional circumstances.

Definition — micro employer
A micro employer is an employer with four or fewer employees.

ATO fact sheet
Micro employers

Who does the concession apply to?

To be eligible for the quarterly reporting concession, the employer must:

• be a micro employer on the day they apply;
• lodge their activity statements electronically through a registered tax or BAS agent;
• have a non-computerised payroll — this could include running payroll manually and keeping records on a spreadsheet or paper;
• all amounts owing to the ATO are either not yet due or subject to a payment plan;
• all lodgment obligations are either not yet due or subject to a deferral; and
• from 1 July 2021 — meet the guidance for exceptional circumstances.

Exceptional circumstances

PS LA 2011/15 explains that, in the Commissioner’s view, it would generally be fair and reasonable to grant a deferral due to ‘exceptional or unforeseen circumstances’. Exceptional or unforeseen circumstances may include:

• natural disasters or other disasters or events that may have, or have had, a significant impact on individuals, regions or particular industries;
• impeded access to records (e.g. records seized during a police search or retained as evidence in a court matter);
• the serious illness or death of a family member, tax professional or critical staff member;
• considerable lack of knowledge and understanding of taxation obligations; and
• system issues, either with ATO online services or the entity’s business system.

In addition to those factors, the following circumstances may be considered exceptional when the ATO considers an application for the quarterly reporting concession from 1 July 2021:

• seasonal or intermittent workers — see below; or
• no or unreliable internet connection:
• an inability to connect to the internet;
• a connection that consistently requires multiple attempts;
• consistent dropouts or disconnections; and
• exceedingly slow data transfer.

Employers with no or intermittent internet connection may also apply for an:

• exemption via their registered tax or BAS agent; or
• operational deferral — up to an additional three days to lodge.

The ATO will consider any other unique circumstances on a case-by-case basis.

Application for concession

An employer needs to apply for the concession via their registered agent.

Applications for the quarterly reporting concession with exceptional circumstances from 1 July 2021 are not currently being accepted. The ATO fact sheet will be updated when applications are open.

Quarterly reporting

The employer’s registered agent will need to lodge the STP report on the employer’s behalf once per quarter. The due date is the same as the due date of the quarterly activity statement, or the last monthly activity statement for the relevant quarter, as appropriate.

The quarterly report needs to include:

• employees’ year-to-date amounts – up to and including the last pay day of the quarter;
• total gross wages – same as the W1 label on activity statement; and
• total PAYG withholding – same as the W2 label on activity statement.

The quarterly report could be in two formats:

• every individual pay event for the quarter; or
• a single combined pay event which reports all the information for the quarter.

A quarterly reporting employer can report more frequently at any time. If the employer chooses to report monthly, this is due by the 21^st day of the following month. If the employer chooses to report fortnightly or weekly amounts, they should be reported on or before each pay day.

If the employer will not be paying any employees for the rest of the income year, they should lodge a ‘No requirement to report’ notification via the Business Portal.

Finalisation declaration

The finalisation declaration needs to be completed by 14 July after year end — i.e. the same as for other employers. This due date is earlier than the due date of the June activity statement, but the timeframe should align to the business processes that were previously in place to issue payment summaries by 14 July.

The finalisation declaration can also be done at any time throughout the year — e.g. when a seasonal employer’s season is over and the employee will not be required for the rest of the year.

Seasonal and intermittent employers

An eligible seasonal and intermittent employer is eligible to lodge their STP report quarterly until 30 June 2021. From 1 July 2021 this concession will be rolled into the quarterly reporting concession for micro employers.

ATO fact sheet
Seasonal and intermittent employers

Who does the concession apply to?

Seasonal and intermittent employers are those who generally have either no employees or between one and four employees for most of the year, and then employ:

• between five and 19 seasonal or short-term employees for a three-month period or less (the months do not have to be consecutive) — the employer is eligible for the concession subject to the below; or
• 20 or more seasonal or short-term employees — the ATO will consider applications on a case-by-case basis.

The employer must also meet these conditions:

• all amounts owing to the ATO are either not yet due or subject to a payment plan; and
• all lodgment obligations are either not yet due or subject to a deferral.

The employer or their registered agent can apply for the concession via the Business Portal or Online services for agents.

Note:
If the employer’s application is accepted but their employee numbers subsequently increase, they remain eligible until 30 June 2021.

See Micro employers above for detail about the quarterly reporting concession.

Quarterly reporting for specific industries

Eligible micro employers that are not-for-profit (NFP) clubs and associations or in the agriculture, fishing or forestry industry can choose to report through STP quarterly until 30 June 2021.

ATO fact sheets
Not-for-profit clubs and associations
Agriculture, fishing and forest industry

Who does the concession apply to?

To be eligible for quarterly reporting, the entity must be a:

• micro employer on the application day; and
• either:
  • NFP club or association — e.g. a school parent association, a school canteen or a local sporting club; or
  • in the agriculture, fishing or forestry industry.

In addition, the entity must meet both of the following:

• all amounts owing to the ATO are either not yet due or subject to a payment plan; and
• all lodgment obligations are either not yet due or subject to a deferral.

If the application is accepted but the employee numbers subsequently increase, the entity remains eligible until 30 June 2021.

From 1 July 2021 the entity will need to report per pay event. Entities with exceptional circumstances may be eligible for the quarterly reporting concession for micro employers (above) from that date.

See Micro employers above for information about the quarterly reporting process.