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Friday Ramblings – Single Touch Payroll again – this time its STP & “closely held (related) payees”

Let’s start with that fact that if you have any arm’s length employees in addition to your related employees, they must be reported on or before each payday under the normal STP rules.

And let’s confirm that up to 30 June 2021 employers with 19 or fewer employees are exempt from reporting closely held payees through STP.

However, from 1 July 2021, these closely held payees will need to be reported through STP. 

What is a “closely held payee”? It is an individual who is directly related to the entity from which they receive payments and could include family members of a family business, directors or shareholders of a company or beneficiaries of a trust.

From 1 July 2021, an employer can report payments to closely held payees through STP in one of three ways:

  • Report actual payments on or before the date of payment – whenever you make a payment to a closely held payee, report the information on or before each pay event. This is just treating them like any other arm’s length employee.
  • Report actual payments quarterly – report your actual payments to closely held payees quarterly. Each quarter, when your activity statement is due, report all payments made in that quarter on or before the due date for quarterly activity statements.
  • Report a reasonable estimate quarterly – report amounts equal to or greater than a percentage of gross payments and tax withheld from the latest year, across each quarter.

To report a reasonable estimate quarterly an employer must report year-to-date withholding amounts and tax withheld for a closely held payee 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 your quarterly STP reports

Here is an example the Commissioner has provides…

Jyla Pty Ltd chooses to start STP reporting for their closely held payee using the reasonable estimate method from 1 July 2021 (quarter 1 2021–22). They use a 25% estimate based on the payee’s last payment summary of $100,000 in the 2020–21 financial year.

Jyla Pty Ltd reports $25,000 each quarter for the first three quarters of the financial year. But when they get to quarter 4, they realise the payee will receive $120,000 for the year (not $100,000 as estimated). They choose to correct this in their quarter 4 STP pay event. They report $45,000 for this quarter to bring the year to date total up to $120,000.

They then report $30,000 each quarter in the 2022-23 year based on the $120,000 reported or the 2021-22 year.

https://www.ato.gov.au/Business/Single-Touch-Payroll/Concessional-reporting/Closely-held-payees/

Importantly, small employers with only closely held payees have up until the due date of the closely held payee’s individual income tax return to make a finalisation declaration for a closely held payee.

So it looks like we report under STP 25% of last years amount each quarter for our closely held employees, and before we lodge the employee’s return, we fix the STP amounts so it equals the amounts shown in the return.

Lets get this straight – The Commissioner wants us to report four times with 25% of numbers we have already given him as an estimate and then just before we give him the actual numbers in the tax return he wants us to report those actual numbers through STP – only a public servant could come up with this…

By Ken Mansell

As a stay at home Dad most of the week this is my way of pretending I am still the tax counsel of ASX and SEC listed companies, working at big 4 firms, working at the Federal Treasury, on the Henry Review and at Parliament House for the previous government.

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