Australia: The ins and outs of the Single Touch Payroll (STP) initiative for tax system overhaul

Back in January, the government unveiled its Single Touch Payroll (STP) initiative.

STP is an application it said would cut down red tape for employers by streamlining tax and superannuation reporting obligations.

The application is still about a year away but the government is confident it will be a focal part of our tax system's administrative overhaul.

Single Touch Payroll in one way is similar to myTax as a kind of "one-stop shop" compliance system, with the former being specifically designed to allow employers fulfil their obligations much more easily.

Pay-as-you-go withholding reporting automated

Pay-as-you-go withholding (PAYGW) will be automated when a fully functional STP system is implemented.

Employers will see the biggest change in this aspect of their reporting obligations. They'll no longer have to report employee-related PAYGW events in their activity statements. Year-end employee payment summaries will go too. The STP tool will automatically report payroll information to the Tax Office when employees are paid.

Right now, there are a few different categories for PAYGW reporting and payment for business as follows:

When STP comes in, all withholder categories will be dissolved because all reporting will occur automatically at the time of employee payment.

How will the consultation period go?

The Tax Office's initial consultation period is closed but another round with stakeholders will commence soon. Its focus areas include:

• transition arrangements
• phasing the start date for employers of different sizes
• arrangements to support the move to STP, including how the new arrangements will build on the SuperStream changes currently being implemented
• the potential for employers to remit PAYGW and the SG at the same time employees are paid their salary and wages, and
• what support businesses may require to enable such a transformation in payments to government and superannuation funds.

As part of the recent consultation, the Tax Office explored the potential administrative burden of STP for businesses. It asked participants to pinpoint foreseeable hurdles in transitioning from the current system as well. We're yet to see the official collected findings, but there's a lot of concern with regards to cash flow as it applies to making scheduled payments under STP.

The cash flow problem

STP will bring forward the timing and increase the frequency of PAYGW and SG payments.

Employers will balance paying more often with paying less, but this may still affect businesses with varying payroll schedules, especially in the transition period. The scale of the impact should be:

• minor for businesses that put aside their PAYGW and SG obligations for each pay cycle, but this cash reserve will diminish as the frequency of payments increases, and
• major for businesses that rely on the delay between payroll cycles and their tax and super obligation events to manage cash flow.

Cash flow issues will be considered when the Tax Office looks at designing the transition protocol for businesses.

Changes to TFN declarations and Super Choice forms

With STP comes a need to improve Australia's current suite of Standard Business Reporting products. This will mean a conversion of Tax File Number (TFN) declarations and Super Choice forms into digital software, with the purpose of making hiring new people easier.

Under STP, when a new employee commences they would have the option to supply their details electronically through the government portal myGov. The Tax Office says employee details data, like TFNs and addresses, can be pre-filled to minimise administrative legwork.

Once filled out through myGov, employee details would be transferred directly to the employer (to be filed into STP software), the Tax Office and other government agencies like Centrelink. It's hoped this process will make things easier for new employees and reduce delays in passing on super fund details and other vital information to employers.

Employers are currently transitioning into SuperStream to make super contributions on behalf of employees. Again, SuperStream handles contribution data and payments electronically.

There is currently however some issues in identifying whether super payments have been made. Firstly, the Tax Office has no means to identify whether employers have paid the correct amount of super by the common due date. This means non-payment may go undetected, at least for a period of time. Businesses that don't comply therefore may get an unfair commercial advantage over ones that do the right thing. Secondly, employees may also face missing out on super guarantee payments due to their employers going insolvent.

The Tax Office envisions STP as a kind of all-purpose fix for problems like these; if everyone is on the same register and their obligations are handled automatically, below-board practices become hard to execute.

The Reportable Fringe Benefits Amounts problem

The Tax Office is yet to resolve how annual Reportable Fringe Benefits Amounts and Reportable Employer Superannuation Contribution amounts will be reported under STP.

Although FBT is paid by the employer, the benefits received by the employee must also be reported by the employer on the employee's PAYG payment summary as reportable fringe benefits if the benefit exceeds $2,000. Reportable employer superannuation contributions are those contributions made for an employee where the employee influenced the rate or amount of super contributed for them, and the contributions are additional to compulsory contributions.

These amounts appear on payment summaries right now, which will not exist when STP comes in. An annual mechanism will need to be developed to reconcile the fact these amounts can only be calculated yearly.

Software requirements

Employers will need software that is both compatible with Standard Business Reporting requirements and able to build on SuperStream solutions. This means many businesses may need to upgrade or replace the software they currently use to prepare for STP's. There are obvious costs to consider here, but the Tax Office expects these will be recouped long term through time and resources saved in paperwork and processing.

Universal automation of government services is bound to go through a teething period. Ideally, the Tax Office's new consultation with stakeholders will iron out transition issues and solidify a migration process that suits businesses of all sizes.

If implemented correctly, the government believes Single Touch Payroll will be a time and cost-saving measure worthy of modern technology.

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