The ATO is proactively working to help practitioners with smaller clients resolve some of the unique challenges they face with single touch payroll (STP) reporting.
By Zilla Efrat
The Australian Taxation Office (ATO) has approved the use of an engagement authority between employers and their tax agents to help facilitate single touch payroll (STP) reporting.
It is also working on solutions to help smaller employers meet their STP obligations next year.
STP reporting came into effect from 1 July 2018 for employers with 20 or more employees. Currently, some 40,000 employers now send tax and superannuation information from their payroll software to the ATO.
If passed, the Superannuation Guarantee (SG) Integrity Package, currently before Commonwealth Parliament, will extend STP to include employers with 19 or fewer employees from 1 July 2019.
STP requires employers to report payments such as salaries and wages, pay as you go (PAYG) withholding and superannuation information from their payroll solution to the ATO each time they pay employees.
However, John Shepherd, assistant ATO commissioner charged with introducing STP, notes: “Every time employers lodge an activity statement or an income tax return through a tax agent, they have to provide a declaration and authorisation to enable the agent to lodge on their behalf.
“Feedback from the industry suggests that for STP, this is not practical because the data often needs to be lodged every week or fortnight or whatever the pay period is.”
A pragmatic solution for STP
The new STP engagement authority is a pragmatic solution to this situation as it allows the client and agent to record an agreement on the scope of the agent’s authority to meet the employer’s STP reporting obligations.
Subject to certain criteria, it will act as evidence of a registered agent’s authorisation to prepare STP pay events on behalf of the employer and will allow the registered agent to make the relevant declaration to the commissioner at the time of lodging each STP pay event.
Shepherd says the ATO has worked with payroll software providers over the past few years to ensure STP was designed as close to possible to the actual process of paying staff and did not impose new requirements or necessitate changes.
When it comes to employers with 19 or fewer employees, he says an ATO pilot project and its data have shown “a good number” already use payroll software like MYOB, Xero, Reckon and so on, and some have already voluntarily started STP reporting “because they recognise that’s a good thing to do”.
“But when you get down to those with less than five employees, there are also a large number of smaller employers who don’t use a payroll product,” Shepherd notes.
He says the ATO has been working closely with the tax profession and some small businesses to better understand how these small entities operate their payroll processes. It will also work with the software industry to ensure there are appropriate alternatives for small businesses.
Shepherd says the ATO is working on options for micro-businesses that don't have payroll software.
“We don't have any further specific information on that as yet, but we will obviously be communicating with small business as those options become available."
“We don’t want to force everybody into a payroll solution or having to pay for it,” Shepherd says. “We are looking at low-cost alternative reporting options for those who don’t use payroll or don’t want to take up a payroll solution.
“Over the next month or so, we are hoping to get some more information out on some of the options we are working on.”
Employment tax essentials: a comprehensive overview of the payroll process from the time an employee commences employment to the time when they cease employment.
The benefits of STP
Shepherd believes STP offers many benefits. One is that employees will gain more visibility as to whether their employers have paid their SG contributions – a move that will cut down on the estimated A$2.85 billion in SG payments that go unpaid every year.
Employers will no longer need to provide employees with a payment summary at the end of the financial year for certain payments reported through STP because the ATO will make this information available to employees through myGov. This will assist employees in better managing their tax positions if, for example, they have more than one job.
Shephard says it will also help people avoid underpaying or overpaying their tax and getting [into] debt situations they can’t manage.
“It will also reduce overpayment of welfare because at the moment, the government and ATO only see what the salary amounts are for an individual after the end of the year when tax summary reports are lodged.”
Top tips for practitioners
Shepherd’s tips to tax practitioners to help their smaller clients get up to speed with STP are:
- Work with your clients to understand how their current payroll processes work.
- Consider their reporting requirements and what information needs to be reported each payday.
- Work out the best way to get clients to report the information required.
- Remember that the ATO will have more information and new fact sheets available on its website in coming months.
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