If you run a small business with payees that include family members in a family business or directors or shareholders of a company, chances are you’re not yet reporting payments through the Single Touch Payroll (STP) regime. Basically, STP works by sending tax and super information from your STP-enabled payroll or accounting software to the ATO as you run your payroll. So, if you’re not already familiar with the system, you’ll need to get up-to-date as from 1 July 2021 all employers will need to start reporting payments through the system.
While most businesses are already familiar with the Single Touch Payroll (STP) regime, small employers (19 or fewer employees) with closely held payees were exempt from reporting payroll information of those closely held payees through the STP for the 2019-20 and 2020-21 financial years. However, from 1 July 2021, those small employers must start reporting payments made to closely held payees through STP.
In essence, closely held payees consists of individuals that are directly related to the entity from which they receive payments including family members in a family business, directors or shareholders of a company, and beneficiaries of a trust.
If you’re an employer with only closely held payees, you will just need to start reporting through STP from 1 July 2021, there is no need to notify the ATO of the fact that you only have closely held payees. Although, if you have both closely held payees and other employees that are at arm’s length, you will need to report information for the arm’s length employees through STP before each pay day.
To help those small businesses with only closely held payees transition to STP, the ATO has outlined a few options available from 1 July 2021 below:
- report payments on or before the date of payment;
- report payments quarterly; or
- report a reasonable estimate quarterly.
Generally, the STP quarterly report for your payees will include year-to-date amounts, ordinary time earnings (OTE), super liability for each payee, total gross wages for payments being reported, and total PAYG withholding payments being reported.
If you choose to report quarterly, the report will be due on or before the due date for quarterly activity statements, and the quarterly option will not change the due dates for notifying and paying your PAYG withholding on your activity statement or making super guarantee contributions for your closely held payees.
To use the reasonable estimates method, you as an employer must report amounts equal to or greater than a percentage of gross payments and tax withheld from the latest year, across each quarter. The ATO notes that it will remit any failure to withhold penalty you may incur if you report year-to-date withholding amounts and tax withheld that is equal to or greater than 25% of the payee’s total gross payments and tax withheld from the previous finalised payment summary annual report across each quarter of the current financial year (in quarterly reports), and report and pay the tax withheld on time.
In instances where you under-estimate amounts reported for closely held employees equalling more than 25% of their total gross payments for the last financial year and did not report this through STP, the ATO notes you may be liable for penalties and interest, as well as being unable to deduct the payment for income tax purposes.
Any amendments to the amounts paid to closely-held employees in a quarterly STP report can be made until the due date of the next quarterly report. In cases where a closely held payee will not be included in the next quarterly report, you as an employer may lodge an update event by the relevant due date for quarterly activity statement with the corrected year to date amount for the payee.
Not sure how to lodge?
If your business will need to lodge through STP soon and you’re not sure how to go about doing it, there are easy and cost effective STP-enabled solutions available. You can also ask your registered agent to lodge on your behalf. Whatever you choose, remember an STP report cannot be lodged through ATO portals and is not an addition label on your BAS, so early preparation is needed.