Single Touch Payroll — are SMSFs covered?
While it’s important that advisers and employers are aware of their Single Touch Payroll (STP) and PAYG obligations, SMSF professionals and their clients can breathe a sigh of relief that the STP obligations should not extend to them.
What is Single Touch Payroll?
The Single Touch Payroll (STP) regime was introduced to provide the ATO with real-time information on employer PAYG and superannuation obligations. It also provides employees with greater transparency of their salary and reportable superannuation and fringe benefit entitlements.
From 1 July 2019, all employers, including small employers with 19 or less employees, must report payroll information to the ATO in “real time”.
Fortunately, STP does not directly apply to SMSF trustees, although employer superannuation contributions made to SMSFs will be tracked via STP.
To whom does STP reporting apply?
From 1 July 2018, “substantial employers”, being employers with 20 or more employees, measured by headcount as at 1 April 2018, became subject to STP.
From 1 July 2019, all employers, including small employers with 19 or less employees, are subject to STP.
On 13 February 2019, Mr Chris Jordan, the Commissioner of Taxation, stated that assistance to transition to STP will be provided to micro employers with between one and four employees, and a number of alternative options such as allowing those who rely on a registered tax or BAS agent to report quarterly for the first two years, rather than each time payroll is run.
Moreover, Mr Chris Jordan stated that small employers can start reporting any time from the start date of 1 July to 30 September 2019. Also, deferrals will be granted to small employers who have requested further time.
Let’s look at some of the STP rules
The STP provisions are set out in the Taxation Administration Act 1953 (Cth) (“TAA”). Broadly, section 389-5 of the TAA provides that the following amounts must be notified to the ATO, on the day the amount is withheld or paid (regardless of whether it is withheld) via STP-ready software:
- Salary or wages
- Ordinary time earnings
- Pay as you go (PAYG) withholdings
The introduction of the STP reporting initiative allows each employee to obtain more timely information via their myGov account to ensure there is greater transparency and accountability of employers.
How do the PAYG obligations impact SMSFs?
In the context of pension payments, SMSF trustees have PAYG withholding obligations in certain circumstances. Specifically, when an SMSF pays the required minimum pension amount each financial year, SMSF trustees should give consideration to whether any PAYG amount should be withheld. Broadly, these obligations arise in the context of benefit payments if the relevant member is:
- Under 60 and the benefit is a pension or a lump sum with a taxable component;
- A non-dependant who is paid a superannuation lump sum death benefit with a taxable component (rather than being paid via the legal personal representative or deceased estate);
- A dependant who is paid a superannuation pension (via a reversionary or fresh pension) with a taxable component following the death of a member where both the deceased member and the dependant are both under 60;
- Under 60 and the death benefit is a reversionary capped defined benefit income stream (CDBIS) where the deceased was 60 or over when they died; or
- 60 or over and the benefit payment is pension that is a CDBIS.
Relevantly, the current withholding obligations provide that the SMSF trustee must:
- Register for PAYG withholding;
- Obtain a TFN declaration from the member;
- Issue a PAYG payment summary to the member by 14 July; and
- Lodge a PAYG withholding payment summary statement annual report with the ATO by 14 August.
Note that the ATO in QC 59325 states that:
You must provide this information even where you are paying an income stream and the rate of withholding is nil. This allows us to ensure the individual pays the correct rate of tax once all their pension income from all their funds is taken into consideration.
We suspect that the above quote is intended to relate to a pension that is a CDBIS, but this is not clear from reading QC 59325.
Note that employers subject to the STP regime are relieved of several PAYG reporting obligations outlined above, provided they satisfy their STP reporting obligations on a timely basis.
What else needs reporting under the recent STP changes?
Employers are also required to notify the ATO of reportable superannuation and fringe benefit information via STP. In particular, an employer is required to notify the ATO of:
- A *reportable employer superannuation contribution (RESC) made by the entity in respect of a *financial year for the benefit of an employee of the entity.
- A *reportable fringe benefits (RFB) amount that an employee of the entity has for an income year in respect of the employee’s employment with the entity.
These RESC and RFB amounts need to be notified to the ATO via the approved form by 14 July after the end of the relevant financial year rather than in real time.
The notification of the RESC amount for each employee was designed to track each employer’s correct superannuation guarantee (SG) contributions support for each employee when an amount had been salary sacrificed towards increased superannuation contributions (above the minimum SG level of superannuation contributions). Since the legislation that was designed to treat a “salary sacrificed” amount of salary or wages as ordinary time earnings for SG purposes has not been finalised as law, the reporting of RESC amounts may be to no avail.
Do STP reporting obligations extend to SMSFs?
Under previous legislative provisions, certain superannuation benefits, especially pensions, have been treated in a similar manner to salary and wages for PAYG and reporting purposes. Given this background history, especially from a PAYG context, SMSF trustees and advisers have understandably raised the question: will STP reporting obligations extend to an SMSF?
The good news is that STP reporting is not directly imposed on SMSF trustees. You have to carefully review the TAA in some detail to arrive at this answer — which is very turgid legislation. Further, we have not seen any express comment from the ATO on this point.
Rather, the STP reporting framework operates as an “employer” obligation. Accordingly, SMSF trustees should not have STP reporting obligations unless they have employees. An SMSF that has employees would, however, be subject to STP; this would be rare but not impossible.
It is important that advisers and employers are aware of their STP and PAYG obligations under the new streamlined reporting regime.
SMSF trustees and advisers can breathe a sigh of relief as STP obligations should not extend to them.
Kimberley Noah, lawyer and Daniel Butler, director, DBA Lawyers