Explained: Single Touch Payroll: Closely held payees

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Single Touch Payroll (STP) is a reporting regime that is designed to reduce employers’ reporting burdens to government agencies. In the past, an employer reported certain payroll information to the ATO once a year. 

Staggered implementation of Single Touch Payroll reporting

Under STP Phase 1, which started on 1 July 2018, employers report their employees’ payroll information to the ATO each time they are paid through STP-enabled software. It is not possible to report the payroll information using an activity statement or through the ATO’s various online services.

Payroll information includes:

  • salaries and wages;
  • Pay as you go withholding (PAYGW); and
  • Superannuation Guarantee (SG).

Large employers (those with 20 or more employees) have been required to report through STP since 1 July 2018. Small employers (those with 19 or fewer employees) have been required to report through STP since 1 July 2019.

An exemption that relieved small employers from having to report payments made to closely held payees through STP expires on 30 June 2021. This means that, from 1 July 2021, small employers will need to start reporting their closely held payees through STP. They may choose to report this information each pay day or on a quarterly basis, however, they must continue to report their arm’s length employees on or before each pay day.

What is a closely held payee?

A closely held payee is an individual who is directly related to the entity from which they receive payments, for example:

  • family members of a family business;
  • directors or shareholders of a company;
  • beneficiaries of a trust.

All other employees are arm’s length employees.

What payments must be reported?

Only payments that give rise to a PAYGW obligation trigger an STP reporting obligation, such as the payment of salary and wages, allowances and director’s fees.

Payments such as dividends, trust distributions, loans and fully-expended reimbursements are not subject to STP reporting. The reporting of fringe benefits through STP is optional.


Download our STP report

In the handy report below, we’ve broken down the key areas of this topic, including:

  • How employers report through STP and detailed explanations of the options for reporting closely held payees
  • How an employer reports closely held payees through STP using a quarterly reasonable estimate
  • To which employers the three options are best suited
  • Are quarterly reasonable estimates subject to superannuation guarantee?
  • How can the employer’s exposure to the SG charge be managed?
  • Finalisation of STP reporting
  • Key benefits and features of STP Phase 2

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This is a resource for members of The Tax Institute. If you’re not yet a member, explore your membership options to gain access to this and other leading tax resources.


STP reporting options for employers of closely held payees

From 1 July 2021, small employers have three options to report payments to their closely held payees through STP, which are explained in detail within the STP Report above.

  • Option 1: Report actual payments each pay day
  • Option 2: Report actual payments quarterly
  • Option 3: Report a reasonable estimate quarterly

Employers who choose to report quarterly will need to lodge their STP report by the due date of their quarterly business activity statement (BAS). If the employer lodges a monthly activity statement to report PAYGW or GST, the STP report is due at the same time as the activity statement for the last month of each quarter, i.e. September, December, March and June.

Choosing to report actual payments made to closely held payees each quarter does not change the due date for:

  • notifying PAYGW as usual on the activity statement and paying by the usual due date; and
  • making SG contributions for closely held payees (by the 28th day following the end of the quarter).

How does an employer make a reasonable estimate under Option 3?

An employer makes a reasonable estimate of year-to-date (YTD) amounts by estimating and reporting an amount that reflects the circumstances of the closely held payee. This will generally be based on the employer’s last finalisation declaration for the closely held payee or the amount reported when they last finalised a payment summary annual report (PSAR)), provided the circumstances have not changed.

The ATO will accept that a proportionate YTD amount reported in the STP report is reasonable if the circumstances are similar to what was previously reported. If the circumstances have changed, or change throughout the year, the employer should update their estimate.

Find out more about how to make a reasonable estimate by downloading our STP Report.

What if the YTD amount is adjusted before it is finalised?

Provided the employer reports using one of the above three options, any adjustments to the YTD amount reported can be made prior to finalisation so that the final amount reported through STP reflects the actual amount for the entire financial year.

The ATO will not impose any PAYGW failure to withhold penalty for later adjustments provided the employer reports a reasonable estimate of YTD amounts in their quarterly STP reports and reports and pays the PAYGW amount on time.


Single Touch Payroll and Closely held payees webinar - coming soon

The Tax Institute is delivering a webinar in July 2021 on Single Touch Payroll and Closely held payees to help you better understand this topic. Stay tuned for details and dates!


Are reasonable estimates subject to superannuation guarantee?

Reporting Options 1 and 2 are based on actual payments made to closely held payees. As these payments constitute ordinary time earnings (OTE) under the Superannuation Guarantee (Administration) Act 1992 (SGAA), the employer will be liable for the SG charge for a quarter if they have an SG shortfall.

A reasonable estimate made under Option 3 does not constitute OTE, so an employer who reports amounts in a quarterly STP report based on a reasonable estimate is not required to make SG contributions in respect of that amount. However, the employer will be liable for the SG charge if they don’t make any SG contributions or make insufficient SG contributions and later finalise the YTD amounts reported through STP or increase the YTD amounts reported before finalisation.

This is not to say that SG is payable only on amounts reported under Options 1 and 2, and not under Option 3. Rather, that the making of a reasonable estimate under Option 3 of itself does not constitute OTE which is subject to SG, but if this amount is later confirmed to be the remuneration, it will be subject to SG.

Find out more about the implications of reporting an amount that is higher or lower than the finalised amount in our STP Report.

Finalisation declaration

After the end of each financial year, the STP data reported during the year is finalised. When the employer makes a finalisation declaration, this relieves the employers from having to issue payment summaries or lodge a PSAR where amounts are reported through STP.

For a handy breakdown of the dates for making a finalisation declaration, based on type of employee and size of employer check out our STP Report.

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