In December 2015. The Australian Tax Office released a Media Release in regards to Single Touch Payroll (STP), an initiative which supports the government’s Digital Transformation Agenda. In the first half of 2016, a new law to support Single Touch Payroll will be drafted and presented by Government for consultation. Additionally the ATO will consult with software developers and other stakeholders.
The Hon Kelly O’Dwyer MP, Minister for Small Business and Assistant Treasurer, announced in the media release, ‘Employers currently manually report Pay As You Go (PAYG) withholdings to the ATO, under the new STP this information will be automatically reported to the ATO through Standard Business Reporting (SBR) software. Reporting of superannuation contributions will also be automatically sent to the ATO when payments are made to super funds.’
There will be a pilot run in 2017 to test the system and from 1 July 2017, all businesses will be able to commence STP reporting with a period of time allowed for business to move to the new platform. From 1 July 2018, employers with 20 or more employees will be required to use STP enabled software for reporting to the ATO.
“The Government will make a decision on timing for rolling out STP reporting for employers with less than 20 employees after the pilot is completed. To assist with the transition, the Government will provide businesses, with a turnover of less than $2 million, a $100 non-refundable tax offset for SBR enabled software,” Minister O’Dwyer said.
What does this mean for small business?
STP is supposed to reduce red tape by simplifying the administration of payment of wages, withholding PAYG and payment of Super. Organisations will have to use an approved software package that delivers this functionality.
Originally STP was due to commence in July 2016, requiring businesses to make real time payments of wages, PAYG and Super to the ATO. These plans were changes when small business complained about the effect that this would have on cash flow.
Utilising an electronic system and digitalising the remittance of these payments is certainly a smart move. However to make the payments for all three liabilities (wages, tax and super) at the one time, would have had disastrous effects on the cash flow of small businesses.
It was certainly a great option for the government, who would not have to wait for funds till the end of the reporting period and a good option for workers who would know that their tax and super were being paid at the same time as their wages. However, is was not a positive step for business.
Currently many businesses invest super payments and small business that does not need to pay PAYG till the end of the quarter also invest that money or use it to fund their business like a short term loan. Theoretically, that is not the business’ money, but in the reality of cash flow and running a small business, this is what often happens.
Transferring all of these funds at the time it is paid, could be unsustainable for many businesses. More money will exit the business regularly and possibly before the income has been collected from customers. For example, if your customer terms are 30 days, but your payroll is on a weekly cycle, you can see what is likely to happen.
Luckily the government re thought their plans and made super payments payable when they are due. However, PAYG withholding will be paid in real time, so best to start now looking at your debtor days, your cash flow situation and your internet and technology use. Single Touch Payroll, although altered is on its way.
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