Single Touch Payroll (Good, Bad & Ugly)

To avoid unwanted attention from the ATO and keep your clients above board, you’ll need to be totally across the new Single Touch Payroll reporting legislation.

Employers may have heard their payroll team throw around the term ‘Single Touch Payroll reporting’ (STPR) recently.

The STPR legislation was part of the Budget Savings (Omnibus) Act 2016 that received royal assent in September 2016. However, employers are only now starting to recognise what this might mean for them.

The introduction of STPR will change the way employers report payroll payments to the ATO, including PAYGW and superannuation, by requiring detailed payroll information to be reported in real time to the ATO. The STPR certainly has some administrative benefits, such as removing the need to issue payment summaries at year end. However, there are a few things that need to be in place before the 1 July 2018 compulsory switch takes place.

From 1 July 2017, any employer regardless of size will be able to choose to adopt the STPR on a voluntary basis. However, from 1 July 2018, it will be compulsory for ‘substantial employers’ with more than 20 employees to use STPR.

What’s changed?

The main changes you will notice when adopting the STPR are:

• Ordinary time earnings, salary or wages and pay as you go (PAYG) withholding information will be reported and available to the commissioner in real time when payroll is periodically processed by the employer;
• Superannuation contributions will be reported to the commissioner at the time the contributions are paid on an employee by employee basis;
• Employers will have to acquire SBR-enabled software to comply with the obligations of STPR;
• New employees will have the option of completing TFN declarations and super choice forms online;
• The STPR reports for PAYG withholding will become the approved form for reporting PAYG withholding (currently this is the business activity statements or BAS). A failure to lodge in the approved form will attract an administrative penalty;
• Employers that have reported their PAYG withholding obligations via STPR will have their PAYG withholding pre-filled by the ATO on their BAS;
• However, the ATO envisages that employers will be provided with the option to pay their PAYG withholding at the same time they lodge their STP reports to further align the reporting and payment of PAYG withholding through the payroll system. That is, the amounts will be remitted earlier than is necessary under the legislation;
• Employers will no longer be required to submit an annual PAYG report to the ATO; and
• Employers may no longer need to provide payment summaries to employees, as the employees will have access to their payroll information via their myGov account. It is recommended that employees whose employers are changing to STPR set up a myGov account before the change takes place, in order to access to their salary information at year end.

What’s remained the same?

• If the employer does not elect to pay at the same time they report under the STPR, there is no change to the due date for payment of the PAYG Withholding liability. The payment cycle depends on the size of the employer. Large employers need to remit weekly, medium remitters monthly, small remitters on a quarterly basis; and
• Likewise, the STPR does not change the payment due date for superannuation guarantee, being generally on the 28th day following a financial quarter.

Pros and cons

The implementation of the STPR will effectively introduce a two-tier system of approved methods of reporting to the commissioner. This consists of the STPR for PAYG withholding and superannuation guarantee, while all other withholding amounts are still required to be lodged and reported through BAS, e.g. FBT and PAYG Instalments.

While the STPR may alleviate some administrative burdens for employers and is promoted as a way of aligning existing payroll functions with reporting obligations, it remains to be seen how many employers opt to align the payment of their PAYG withholding with their STPR reporting dates after they consider the cash flow disadvantages.

A further concern is the expectation or assumption the STPR will mean that employees will be able to view their payroll-related information and annual payment summary online through myGov. This will require employees to set up an online myGov account, which is a further level of administration for both taxpayers and potentially their tax agents.

Once such an account is established for tax purposes, all tax-related information such as assessments notices etc. are routinely sent to the myGov account, rather than by post. If the employee has a tax agent, there may be further administrative problems as it will require tax agents to obtain these documents from their clients or check the tax agent portal regularly to see if any new documents are available, e.g. to check their assessments, which differs from current practices.

Moreover, STPR means the commissioner will have access to even more information to perform data-matching in determining if all superannuation guarantee charge (SGC) and PAYG withholding obligations are met. Any errors by employers using this system are likely to drastically increase the chances of an ATO audit or review.

However, it may be possible to run reports periodically from the new STPR software that show all the information that has been reported to the ATO, allowing errors to be identified in time to correct the amounts before the end of the financial year.

Before the compulsory 1 July 2018 start date, employers will need to ensure their payroll system is STPR-enabled to be compliant with the new law. This may involve additional cost for employers, particularly those that do not currently use software-based payroll systems.

A range of payroll software providers are working with the ATO on product updates from 1 July 2017. To help with the transition to STPR, it was announced in the STPR media release by the Revenue and Financial Services ministry that the government will offer small businesses, with a turnover of less than $2 million, a $100 non-refundable tax offset for STPR enabled software. The offset will be made available for new software purchases or subscriptions made in the 2017-18 financial year.

What should accountants do now for their clients?

The message to clients should be that now is the time to review your current internal processes to ensure you are ready come 1 July 2018. Consultation with your software provider will form an important part of the review to confirm they have the capability to interface with the ATO’s systems.

Accountants and business advisers need to ensure that their clients’ current business practices are compliant with the various federal and state taxes that will be under the spotlight like never before.

It is anticipated that the ATO will start reviewing real-time data from 1 July 2018, so those businesses that have planned early will be well placed to avoid any unwanted attention from the tax office.