In 2016, Single Touch Payroll Reporting was introduced by the government as a part of the Budget Savings (Omnibus) Act 2016. It is in fact a turning point to eliminate the payroll related paperwork and confusion that employers, employees and ATO itself have been going through, for many years.
In simple terms, the introduction of Single Touch Payroll Reporting will change the way employers report payroll payments to the ATO, including PAYG Withholding Tax and superannuation, by requiring detailed payroll information to be reported in real time to the ATO. The major benefit of the Single Touch Payroll Reporting is to remove the need to issue payment summaries at year end. However, there are a few things that need to be in place before the 1 July 2018 compulsory switch takes place.
From 1 July 2017, any employer regardless of size will be able to choose to adopt the Single Touch Payroll Reporting on a voluntary basis. However, from 1 July 2018, it will be compulsory for ‘substantial employers’ with more than 20 employees to use the new system.
In that process, some of the accounting softwares currently offer cloud based and automated payroll facilities that partially serve for the purpose. In other words, the employers will have to acquire SBR-enabled software to comply with the obligations of Single Touch Payroll Report, if they don’t currently have one.
What has changed?
The main changes you will notice when adopting the Single Touch Payroll Reporting are:
• Ordinary time earnings, salary or wages and pay as you go (PAYG) withholding information will be reported and available to the commissioner in real time when payroll is periodically processed by the employer;
• Superannuation contributions will be reported to the commissioner at the time the contributions are paid on an employee by employee basis;
• New employees will have the option of completing TFN declarations and super choice forms online. This is still an option for them. So, it is not mandatory as it is anticipated in the job market.
• PAYG Withholding tax is currently a part of the business activity statements. However, in the new system, the Single Touch Payroll reports for PAYG withholding (before the BAS is prepared) will become the approved form for reporting PAYG withholding. Failure to lodge in the approved form will attract an administrative penalty. Then the employers, that have reported their PAYG withholding obligations via Single Touch Payroll Reporting, will have their PAYG withholding pre-filled by the ATO on their BAS;
• However, that employers will be provided with the option to pay their PAYG withholding at the same time they lodge their Single Touch Payroll reports to further align the reporting and payment of PAYG withholding through the payroll system. So, the amounts will be remitted earlier than the BAS due date;
• Employers will no longer be required to submit an annual PAYG report to the ATO; and
• Employers may no longer need to provide payment summaries to employees, as the employees will have access to their payroll information via their myGov account. It is recommended all employees who work in a Single Touch Payroll Reporting business, set up a myGov account to access to their salary information at year end.
What has remained the same?
• If the employer does not elect to pay at the same time they report under the Single Touch Payroll Reporting, there is no change to the due date for payment of the PAYG Withholding liability.
• Likewise, the Single Touch Payroll Reports do not change the payment due date for superannuation guarantee, being generally on the 28th day following a financial quarter.
Even though the Single Touch Payroll Reporting system aims to automate some part of reporting to the ATO, Fringe Benefits Tax Returns and PAYG Income Tax Instalments are still required to be lodged and reported through BAS.
Also cash flow issues are natural outcome of the real time reporting and payment obligation.
Moreover, any errors by employers using this system are likely to drastically increase the chances of an ATO audit or review because Single Touch Payroll Reporting means the commissioner will have access to even more information to perform data-matching in determining if all superannuation guarantee charge and PAYG withholding obligations are met.
Before the compulsory 1 July 2018 start date, employers will need to ensure their payroll system is compliant with the new law. This may be an additional cost for employers.
To help with the transition to Single Touch Payroll Reports, it was announced by the Revenue and Financial Services ministry that the government will offer small businesses, with a turnover of less than $2 million, a $100 non-refundable tax offset for Single Touch Payroll Reporting enabled software. The offset will be made available for new software purchases or subscriptions made in the 2017-18 financial year.
It is anticipated that the ATO will start reviewing real-time data from 1 July 2018, so those businesses that have planned early will be well placed to avoid any unwanted attention from the tax office.