In this sponsored post, chartered accountant Gail Freeman explains what single touch payroll is and how and when to report it to the ATO.
Small-business owner Brittany was concerned when she got a letter from the Australian Taxation Office (ATO) about single touch payroll.
“What is it and what do I need to do about it?” she asked when she came to see me.
I explained that single touch payroll was the way that most businesses reported their payroll data to the ATO on a regular basis.
“Up until now, firstly large employers and then small employers have to provide details of the payroll for their arm’s-length employees.” I said.
“However, they have not had to report on their closely-held employees, which is people like yourself. Closely-held employees are either a director, a shareholder, a beneficiary of a trust or a family member.
“From July 1, 2021, this will all change and reporting is required for closely-held employees. So you will need to provide details of your pay to the ATO on a regular basis.”
Brittany said that being a small business, they just paid themselves when the money was there.
“So, as to regular payments, that’s just not something that we do,” Brittany said.
I explained that was also the case for many small businesses and that the ATO had guidelines as to how to make it easy for businesses like hers.
“You can choose to pay a regular salary to yourself with your other employees but that doesn’t sound like it will work too well for you,” I said.
“Or you can pay yourself when you draw money out of the business or you can pay on a quarterly basis. In your situation this might be simpler.
“If you’re unable to come up with an accurate figure for your quarterly summary, you can make a reasonable estimate each quarter. If you choose to use the reasonable-estimate method you still need to make the pay-as-you-go withholding payments on your salary with your BAS. “Also 28 days after the end of the quarter, you will need to pay superannuation for yourself.
“Then, when we prepare your year-end financial statements, we can adjust the final pay so that your payment summary for the year is correct.
“The ATO will accept an estimate for quarter one as 25 per cent of your total salary from the previous year. In quarter two 50 per cent of the total. In quarter three 75 per cent of the total. In quarter four 100 per cent of the total from the previous year.
“However, I would not recommend preparing quarter four other than on an accurate basis. If you have to amend a BAS you can be charged interest and if you have to amend superannuation you will also have to pay the superannuation guarantee charge. It is also important that you can justify any reasonable estimate that you use.”
I suggested to Brittany that we meet every quarter to confirm the amount being lodged was correct.
“You will need a payroll program because it’s only possible to submit single touch payroll through a payroll program,” I said.
“We can discuss a suitable program with you a little closer to July 1.
If the program you are using with your current employees is not suitable then you can use a different one just for your pay.”
Brittany was pleased the situation wasn’t as bad as she had feared saying: “I appreciate your help explaining this to me.”
This column contains general advice, please do not rely on it. If you require specific advice on this topic please contact Gail Freeman or your professional adviser. Authorised Representative of Lifespan Financial Planning Pty Ltd AFS Lic No. 229892.