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Single Touch Payroll – Pitfalls and Tips

Article By Matthew Ramsay | | Accounting & Tax

There’s been a lot said about Single Touch Payroll (STP) and the need to set it up, and how to comply with the requirements moving forward. However, the arguably more important discussion of what this all means, and why has this change occurred doesn’t seem to have been dealt with in nearly as much detail.

What information is reported through STP and how often?

With Single Touch Payroll now in effect for most employers (there are still some small employers that are eligible for a further deferral), the ATO will now have access to real-time details of every employees’ wages and super data. Every time a pay run is processed using the STP system, the last part of the payroll process results in a report being sent to the ATO containing the payroll data for each employee paid in that pay run.

How will the ATO use this information?

The ATO are constantly improving their methods of data collection with the goal of ensuring compliance and detecting under-reporting of income, or overstated expenses. STP not only enables the ATO to maintain up to date balances of employees’ income information, aiding in compliance for the employees’ tax obligations, but it also aids in tracking employer compliance. It gives the ATO the ability to compare reported Super Guarantee contributions with the actual amounts paid to an employee’s super fund each quarter to ensure payments are made in full and on time.

Ultimately, this allows the ATO to confirm if all Super Guarantee obligations are met, determine whether a Super Guarantee Charge needs to be applied, and confirms the deductibility of super payments. Furthermore, with the changes to the tax deductibility of some business expenses effective 1 July 2019, payments made to owners, contractors and employees will be non-deductible if PAYG withholding and reporting obligations are not met. Simply put, if payments aren’t reported through STP correctly, they will be classified as non-deductible expenses and tax will be payable on these amounts as if they were profits, in addition to possible penalties and interest.

What do you need to do to?

To ensure your business is STP compliant and to avoid non-deductible expenses and the penalties associated with non-compliance:

  • Firstly, ensure you’re utilising STP enabled software to process your payroll, and are reporting updated year-to-date and current pay period gross wage, PAYG withholding and super liability figures each pay run;
  • Ensure super payments are made to funds before the 28th day after the end of each quarter, using an appropriate payment provider/gateway.
  • Ensure all payments made to owners, contractors, and employees that require tax to be withheld are correctly calculated, reported and compliant.
  • For Personal Service Income earners, ensure PAYG withholding requirements are met on the net profits of the business that haven’t been withdrawn as a wage.
  • Submit a Finalisation declaration through your STP enabled software to confirm finalised employee payments at the end of each financial year.

Don’t leave your STP compliance to chance!

If you still have questions over your business’ STP and PAYG withholding obligations, contact your Altitude Adviser to review and provide advice on improvements to your payroll function.