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Directors and Family Members – How Reporting Through Single Touch Payroll (STP) May Change
The introduction of Single Touch Payroll (STP) by the government was designed originally to serve as a streamlined way for employers to report employee’s wage payments and superannuation contributions to the Australian Taxation Office (ATO). Originally, employers of 20 or more employees were the first to be required to report under STP, followed by those with 19 or fewer on 1 July 2019. However, more recently the ATO has released details of an exemption that applies to businesses with 19 or fewer employees, where payments are made to directors and family members.
What’s the exemption?
It was brought to the attention of the ATO that directors of their own companies or businesses may not be able to accurately or practically report through STP, as they may not know with much certainty what their exact salary or wages may be until after the end of the financial year. This means that business owners with closely-held employees (like directors and family members), would not be able to report through STP accurately, thus defeating the purpose. The new concession allows those affected to be exempt from STP until 1 July 2020, for those payments made to closely-held employees. Note that payments made to arm’s length employees will still need to be reported through STP as normal.
What is a closely-held employee?
A closely held payee is someone who receives “non-arm’s length” payments. That means that they are directly related to the entity from which they receive payment. Often this includes family members working in a family business; directors or shareholders of a company; or beneficiaries of a trust.
What happens at 1 July 2020?
From 1 July 2020, those employers making payments to closely-held employees will have the option of reporting these payments quarterly. For this to be undertaken, the employer is expected to reasonably estimate the year-to-date amounts paid up to and including the last payday of the relevant quarter. There are three methods that could be used to do this:
- Withdrawals taken by the payee (but don’t include payments of dividends or payments which reduce liabilities owed by the business to the closely held payee).
- 25% of the total salary or director fees from the previous year (or the year last lodged tax return of the closely held payee)
- Vary the previous years’ amount (to take into account trading conditions) within 15% of the total salary or directors fees for the current financial year.
For those businesses who choose to report quarterly, they will have until the due date of their 2021 tax return to finalise the information that has been reported for the year and adjust the amounts reported if necessary.
While STP has been rolled out, these practical implementation issues may continue to crop up from time to time. As the teething problems are raised, you may find your businesses obligation change – if you need any practical help reporting through STP, get in touch with Joondalup accountants McKinley Plowman today on 08 9301 2200 or visit www.mckinleyplowman.com.au.
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