The ATO has provided concession for small employers from Single Touch Payroll (STP) for payments to closely held payees.
On July 1st, 2019 STP was extended, covering all employers. This raised some potential problems for directors of their own business or for family businesses who only employ family members. Often, they do not know exactly what their salary or wages will be until just after the end of the financial year. However, STP requires payments to be reported in real time to the ATO.
But a new concession now will allow payments made by employers who are small, with 19 employees or less, to closely held payees, like directors and family members, to be exempt from STP until 1st July 2020. These employers will still need to report payments made to arm’s length employees using STP.
These entities will not need to apply to the ATO for this concession, however, the ATO will need to be notified of closely held payees. During the 2020 finacnial year employers who are using this concession will need to report as they have done in the past. That is by issuing payment summaries at the end of the year to affected employees.
Who is a closely held employee?
This concession will only be available for closely held employees. That is a payee who receives non-arm’s length payments. They are someone who is directly related to the entity that they receive their payment from. This could be:
Family members of a family business
Directors or shareholders of a company
Beneficiaries of a trust
The concession will not extend beyond those who are directly related to the company and will end on the 1st of July 2020.
What happens once the 1st of July 2020 hits?
After July 1st, 2020 the concession will end and employers making payments to any closely held employees will have the option of instead reporting these payments quarterly. The ATO will expect employers to make a reasonable estimate for year-to-day amounts up to and including the final payday of the relevant quarter. There are three methods you could potentially use for this purpose:
Use withdrawals taken by the payee (take out any payments of dividends or payments which reduce liabilities owed by the business to the closely held payee)
By calculating 25% of director fees or of the total salary from the previous year or from the last lodged tax return of the closely held payee.
You could vary the previous years’ amount, allowing you to take into account any trading conditions changes, within 15% of the total salary or directors fees for the present financial year.
For businesses that do choose to report closely held payees quarterly, they will have up until the due date of their 2021 tax return to finalise any information that has been reported. They will also have to make any adjustments to the amount reported, ensuring that they are completed by this same due date.
There are still some practicality problems that need to be worked out with this system, however. Currently it is unclear what will happen if payments are overestimated and too much is paid to superannuation. Superannuation payments cannot normally be refunded, like tax payments can, if contributions exceed what was required to be paid.
If you need any advice regarding STP and the closely held STP concession talk to Link Advisors.