If your business has more than four employees, it means that as of 1 July 2019 you’ll be required to regularly report your employee payroll information through Single Touch Payroll. Those with over 20 employees should already be using STP. Those with fewer than 4 will be required to still use STP, however quarterly instead of monthly.
Single Touch Payroll is the new way of reporting the tax and super information of your employees to the ATO. This means that your reporting will now be happening in real-time when you do your payroll. So the ATO will be getting up-to-date information on your business and your annual PAYG statements aren’t needed moving forward.
While reducing your EOFY paperwork sounds really great, there are a few things that you must be aware of to ensure that you remain compliant year-round to avoid penalties from the ATO.
Single Touch Payroll Changes to Deductibles
Because the ATO can now effectively see what your business is up to in real-time, you can become incompliant without even knowing it. There are quite a few changes to deductibility that haven’t been easy to find through the ATO website that you may have missed.
Did you know that businesses will only be able to claim deductions for payments that are made to workers when the employer has complied with the PAYG withholding and other tax reporting obligations for that payment?
Effectively, this means that if you’re only doing your super and tax deductible once a month or quarter, you may not be compliant and lose eligibility for certain deductibles.
What Not to Get Wrong with STP
If you’re a small business owner, you may need to change how you’re doing a few things within your business so that you’re not losing your deductible:
- Paying yourself a one-off Directors Fee at the end of the year to reduce a loan account and prevent Division 7A issues. (This is still legal, but only if tax is withheld properly, super is paid properly and it’s reported via STP.)
- Not withholding any tax at the required rates.
- Not paying super on the Director’s Fee – which is also a breach of Super Guarantee Charge obligations.
- Not paying super on time.
Because of STP’s live reporting element, the ATO is going to know what you’re doing with the Director’s Fee as it’s not classified as wages and thus must be reported via STP.
If taxes are withheld correctly, then the income is still taxable for the director individually – but the expense is not deductible for the company.
If you’re not paying your super on time, it becomes non-deductible. But the Super Fund will continue to pay the standard superfund tax rates on the funds: usually 15%, but not always depending on members’ taxable income.
As you can see from the above, you could lose deductibles if you’re not reporting correctly with every payroll.
What if I Report STP Incorrectly?
Not only will you lose your deductibles, if you make an error in your reporting you could face potential fines or even an audit. So you need to be aware.
- Reporting directly to the ATO is now live. So as soon as something is reported incorrectly, the ATO knows and there’s no chance to fix it.
- You’ll lose deductibility in the company for the wage and super. An average Director’s Fee of $80k+Super means an average loss of $99k*30% in lost deductions. That’s $26,500 cash lost to the ATO.
- As an individual, you still need to pay the standard tax rates on income and superfund on super earning despite the company losing deductions.
At the end of the day, you’ll need to be far more vigilant with your regular payroll to avoid getting into hot water with the ATO. That said, you don’t need to be intimidated by the ATO.
If you know all the changes to deductibles and what’s required of you, STP can actually make your life easier. Some cloud-based bookkeeping software programs, such as XERO, even have an add-on that will only add 2 more clicks to your regular payroll tasks.