Single Touch Payroll (STP) reporting is a real time payroll reporting implemented by the Australian Tax Office effective from 1 July 2018 for large employers (with 20 or more employees).
STP reporting was extended to small employers (less than 20 employees) from 1 July 2019. Small employers have been allowed a concessional start to reporting any time from the 1 July 2019 until 30 September 2019. Deferrals are granted to small employers who request additional time to start STP reporting.
There would be no penalties for late reports for the first year and exemptions from STP reporting is provided to employers experiencing hardship on a case by case basis.
Micro-employers (1 to 4 employees) are offered alternative options such as engaging registered tax or BAS agents to report quarterly for the first two years, rather than each time payroll is run.
STP reporting provides employees’ payroll information i.e. wages and salaries, Pay As You Go (PAYG) withholding and superannuation information to the ATO at the time when employees are paid.
How does STP affect the reporting for inbound employees?
From 1 July 2019, employers are required to report payroll information through STP reporting for inbound employees each pay period, with an automatic deferral of up to one month after the pay event.
Generally, the employers are required to withhold PAYG from all inbound employees to Australia, unless exceptions apply. For example, the employee income is exempt under Dependent Personal Services treaty exemption or the employer has applied to vary the PAYG withholding to nil after meeting all the criteria set.
Some inbound employees have their salaries and wages paid from overseas payroll. For these inbound employees, the employer will need to set up the ‘shadow payroll’ in Australian to withhold the PAYG, payment of superannuation and tax equalisation purpose. Given that shadow payroll will involve different jurisdictions, the ATO recognise that there might be issues such as delay in receiving information from overseas payroll, availability of currency conversion and additional time required for the tax equalisation calculation.
For inbound employees who meet the eligibility criteria set by the ATO, the employer is eligible to report the STP ‘one month in arrears. The ‘one month in arrears’ system allows the employer to submit and / or include the STP reporting for inbound employees with the local employees in the following month STP reporting.
In the circumstances where the STP reporting is due to be completed but the complete information is not available, the ATO allows the employer to make a reasonable estimate on the information to be reported and corrected it before the employer submit a finalisation declaration by end of the financial year.
For employers who planned to hire their overseas employees to Australia, our recommendation is to for those employers to set up the shadow payroll system for the employees as soon as possible to meet the STP reporting obligation.
How does STP affect the reporting for outbound employees?
The STP reporting for outbound employees, who continue to be paid through Australian payroll, will depend on the tax residency of the outbound employees.
Australian tax residents
The Australian-resident employer will have to continue to withhold PAYG (may be reduced by the amount of taxes paid to foreign tax authorities on behalf of the outbound employees) on salaries and wages paid for outbound employees who are considered to be Australian tax residents. The payments made to outbound employees should be reported as foreign employment income if there are amounts withheld in the host country.
Any adjustments required throughout the year could be reported either through pay event or updated event anytime during the year or at the end of the year in the finalisation process.
Non-residents for Australian tax purpose
If the outbound employees are non-residents for Australian tax purpose or foreign residents under the DTA, their foreign employment income will be considered as exempt income and no tax should be withheld on exempt income. In this regards, STP reporting will not be required.
Year-end Finalisation report to replace the PAYG Annual report
If the employers have been reporting the payments through STP reporting, then they are exempted from providing the PAYG payment summaries to their employees. Instead, the employers are required to submit the end of financial year finalisation declaration through STP reporting. However, please note that the employers will still have to provide the payment summaries for any payments not reported through STP previously.
The employer must lodge the finalisation declaration by 14 July for each year. For example, the lodgement due date for financial year 2019-20 will be on 14 July 2020. Should there be any amendments required after the employer have submitted the year-end finalisation, the employer could submit the amendment through the submission of update event up to five years after end of the affected financial year.
Summary
In conclusion, the employers who have inbound and outbound employees could meet their STP reporting obligations as follows:
- Inbound: the employer should arrange for shadow payroll system to be in place prior to sending the inbound employees to Australia. Once the shadow payroll system in place, the payroll information will be submitted through STP together with the other local employees’ payroll report or in a separate pay event in the following month.
- Outbound: the employer should determine whether the outbound employee will maintain the Australian tax residency or become non-residents for Australian income tax purposes.
- For those employees who remained as Australian tax residents, the employer is required to continue to withhold the PAYG withholding taxes and report it through STP.
- For those employees who become non-residents, no STP reporting is required.