Annual payment summaries are currently required for employees to file their tax returns at the end of each financial year.
But one of the benefits of the new Single Touch Payroll (STP) reporting system — one that, interestingly, has not been widely publicised to date — is that it will make the issuing of such summaries redundant.
Under the new digital system, employers feed payroll data to the tax office automatically with every pay run, including year-to-date data on employee earnings and tax withheld.
This will be made available to employees in real time via their myGov accounts, eliminating the need for employers to manually generate a report for every employee at the end of the tax year.
In a guide for employees on the incoming changes under STP, the ATO said that “your employer is not obliged to give you an end-of-year payment summary for the information they report through STP”, noting that the law has changed to reflect the new reporting system.
“Your payment summary information will be available in myGov at the end of the financial year,” it said.
“Your payment summary information will be called an income statement in myGov. This is the equivalent of your payment summary (some people may still refer to it as a group certificate).
“We’ll send a notification to your myGov inbox when your income statement is ‘tax ready’ so you or your tax agent can complete your tax return.”
The guide notes that the roll-out of STP is being staggered, and that some employers may opt to still provide a payment summary under their first year of reporting.
In addition to wages and tax information, employees will also be able to see employer payments of superannuation contributions via their myGov account.
STP is already being used by employers with 20 or more staff members since it was introduced from 1 July 2018, making this the first year-end they will be able to avoid generating payment summaries.
It will be extended to smaller employers from 1 July this year, making the end of the 2019–20 financial year the first time that most small business employers will be able to go “payment summary-free”.
Small businesses are able to adopt the new reporting framework earlier if they choose to do so. A three-month leeway has also been announced to help smaller employers make the transition in the new financial year.
Quarterly reporting for closely held payees
The ATO has shed light on how employers will be able to report quarterly for closely held employees under the new single touch payroll regime, including the ability to make amendments before an extended finalisation due date.
The Tax Office previously announced that the closely held group will be granted a one-year exemption from STP reporting, with employers due to start quarterly reporting from 1 July 2020.
The ATO’s definition of a closely held employee is one who is a non-arm’s length employee, directly related to the entity from which they receive payments, including family members of a family business, directors of a company and shareholders or beneficiaries.
Recognising that closely held payees are not always paid on a regular basis or a regular amount, ATO director Michael Karavas said the agency will adopt several methods for employers to make reasonable estimates to report on a quarterly basis.
The ATO will allow employers to calculate the amounts through actual withdrawals, not including payments of dividends or which reduces the liabilities owed by the business entity to the closely held employee; 25 per cent of the salary or director fees from the previous year per quarter; or by varying the previous years’ amount within 15 per cent of the total salary for the current financial year.
“If you lodge quarterly using one of the methods, then the ATO will accept that you made a genuine effort to meet your STP obligations and that will allow you to do that finalisation and make any adjustments at the time you do your tax return at the end of the year,” said Mr Karavas.
While other businesses will have to provide a finalisation declaration by 14 July each year, the ATO has granted an extension to closely held payees to the due date of their income tax return.
“We are not saying that you need to know your final position by 14 July but we are saying you have made a reasonable estimate, each quarter reported throughout the year and by doing that you are able to make reasonable adjustments at the end of the financial year,” said Mr Karavas.
“You'll be able by the due date of your tax return, make that finalisation of what your actual final salary and wages or directors fees are. That finalisation will then make information available through pre-fill for that person's tax return”.
Legislation to introduce STP across businesses of all sizes was passed last month, with the ATO granting a three-month buffer to 30 September 2019 for small businesses to transition to the new regime.
The ATO has also released a detailed register of STP products for micro-businesses, with several options currently available.