Changes to STP reporting from 1st July

From 1st July this year, most small businesses will need to be Single Touch Payroll (STP) compliant.

Micro Employers (0-4 employees) were able to report quarterly. This automatic concession ceases as of 1st July.

Closely Held Payees must adopt one of the new reporting options. It is a requirement to report through STP. It is no longer acceptable to wait until tax return preparation time to determine the final wage (or penalties will apply).

STP Reporting

What needs to be reported through STP:

Wages paid
Wages journaled
Directors’ fees
Contractors with voluntary withholding

What does not need to be reported through STP:

Dividends
Drawings
Distributions
Loan account debits
Drawings by Shareholders

What is a Micro Employer

A business is classified as a micro employer if they employ between 0-4 employees. This includes all Full Time, Part-Time, Casual, Seasonal Employees.

From 1st July Micro Employers Can No Longer Report Quarterly

The new process for micro businesses and seasonal employers changes the commonly held strategy of calculating a wage later (at tax return preparation time) and paying all/any PAYGW at that time.

Eligibility for Concessions

Micro and seasonal employers will from 1st July 2021 have to report on or before the payment date – not quarterly unless they receive an exceptional circumstance concession:

Report through a registered tax professional.
Meet certain eligibility requirements which include the need for exceptional circumstances to exist.

Exceptional Circumstances

Exceptional circumstances for access to the STP quarterly reporting concession from 1st July 2021 may include where a micro employer has:

Seasonal or intermittent workers; or
No or unreliable internet connection.

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

Employers can apply for this concession through the online deferral tool from 1st July 2021.

Note: Applications for the quarterly reporting concession with exceptional circumstances from 1st July 2021 are not currently being accepted. The ATO will update their webpage page when you can apply.

Common examples of when the ATO would generally consider it to be fair and reasonable to grant a deferral due to exceptional or unforeseen circumstances include natural disasters, other disasters or events, serious illness, or death.

If your clients are ineligible for the ‘exceptional circumstance’ quarterly concession then they are required to lodge STP on or before payment.

Closely Held Payee (Employees)

Closely Held Payees are Eligible for Quarterly Paying and Reporting

The ATO states: From 1st July 2021, amounts paid to employees who are Closely Held Payees will need to be reported through STP on or before payment date. If you are a small employer (less than 20 employees) you can report these amounts on or before each payday, or you can choose to report this information quarterly. Larger employers must apply to the ATO to use the quarterly concession.

Closely Held Payees only.
To be calculated, reported, and paid each quarter.
Cannot report zero for three quarters and then all of it in June – as per ATO guidelines.

Who is A Closely Held Payee

A closely held payee is an individual directly related to the entity from which they receive payments.

For example:

Family members of a family business.
Directors or shareholders of a company.
Beneficiaries of a trust.

How To Report:

The new process for closely held employees changes the commonly held strategy of calculating a wage later (at tax return preparation time) and paying all/any PAYGW at that time. The ATO now requires reporting via STP on or before payment unless the business chooses to report quarterly. A quarterly STP Report is required on or before BAS due date.

Options:

Report Normally – include all payments through payroll, and report through STP on or before payday.
Report Quarterly – report once per quarter on or before BAS due date. The quarterly amount to be entered and reported through payroll, dated the end of the quarter.

Reasonable Estimate Quarterly – equal to or greater than a % of gross and tax from last year, across each quarter. The quarterly estimate to be entered and reported through payroll, dated the end of the relevant quarter.

Determining a reasonable estimate

When working out a reasonable estimate, consider all the business circumstances. Does the business expect circumstances to change during the financial year? The ATO will generally accept it is reasonable to report a year-to-date amount in STP that is equal to:

Quarter 1 – 25% of the total amount reported in that previous year.
Quarter 2 – 50% of the total amount reported in that previous year.
Quarter 3 – 75% of the total amount reported in that previous year.
Quarter 4 – 100% of the total amount reported in that previous year.

Consequences of Leaving Wage Calculation Until the Accountant Does the Tax Return

If wages are to be declared for the 30th June, the new requirements are that it should be reported on or before 30th June. The declaration of the wage, i.e. the journal date is the payment date.

For example, the accountant decides on the wage when doing the tax return in January the following year. If there has not been a quarterly report, the STP report was due on or before the payment date. Payment date being the previous 30th June.

The STP report will be 7 months late
- Penalty unit ($210) for each 28 days
- There is a maximum 5 Units i.e., $1,050
PAYGW will be late:
- The BAS will need to be amended.
- Interest on the debt will continue to incur.
Superannuation Guarantee Consequences if the calculation of wages are as of last June 30th.
- For the business to get the tax deduction in that last year a payment must have been received into members account on or before 30th June.
- To avoid Super Guarantee Charge a payment must be received into members account on or before 28 days after the quarter. i.e. 28th July.

Estimates – ICB Comment

Despite what it says on the ATO website, the making of an estimated wage to enable an STP report is not Ordinary Time Earnings (OTE) for Super Guarantee (SG) nor salary and wages for Super Guarantee Charge (SGC) purposes.

Therefore, there is no Super Guarantee obligation in relation to an estimated quarterly amount. The making of an estimate is NOT the declaring of a wage. The making of an estimate is to utilise a concession that the ATO is granting around STP reporting. The SG obligation would arise as of the effective date of the 30th of June despite the date when the actual wage declaration or book entry occurs. Note that the 30th of June would be the “payment date”.

The business system will be:

The quarterly estimate will have to be processed in payroll systems (noting that it isn’t a real payroll). So despite their being an entry in payroll and probably that will flow through to the Accounts of the entity – it is still for estimated payroll.

ICB recommend that you establish a new pay category called “Estimated Wage” and it be coded to a special account in the P&L – “estimated wages”

That estimated wage will be reported for STP in normal Gross (as there is no other category?) for STP.
It will need to be a backdated payevent.
There is no SG accrued or connected to that pay category.
When the “real” wage is declared; the estimates for the year should be reversed and the actual brought in and allocated to the normal payroll categories.

Note: Despite the estimate being formally processed in the Payroll system and therefore the accounting records, it is not really a wage amount. It is an estimate provided for STP reporting purposes only. This needs to be acknowledged by the ATO and other agencies.

STP Obligations 1st July 2021