Single Touch Payroll (STP) Phase 2 is on the Horizon
Single Touch Payroll (STP) is a reporting framework introduced by the Australian government enabling the employers to automatically submit payroll and superannuation information to Australian Tax Office (ATO). This STP scheme has been mandatory to follow for employers since 1st July 2019. Majority of small businesses are now quite familiar with the framework. However, there is now more to come with STP Phase 2. The expansion of STP is suppose to go live on January 2022 with many new changes and the ATO is currently working with the Digital Service Providers on the STP upgrade.
The Phase 2 is considered to be more flexible, reasonable and pragmatic for the businesses. The main purpose of STP phase 2 is to streamline reporting obligations for the payer and payee and eliminate the need for manual reporting to other government institutes. Phase 2 will build ‘an all-inclusive’ baseline dataset that take into account different reporting requirements. This will be complex than phase 1 and businesses will need to do changes to their current system to embed the new requirements.
Businesses are given the opportunity to apply for a deferral if they consider their individual system upgrades will go pass March 2022. ATO has informed the businesses that there won’t be any penalties for genuine mistakes for the first year of phase 2 reporting until end of December 2022.
Key Outcomes of STP Phase 2
1. Employers will not have the Tax File Number (TFN) decelerations as this information will be captured through the STP reports. Phase 2 will introduce 6-character tax treatment code. This will have to be changed in the individual employer’s payroll system for STP reporting.
2. ‘Gross’ figures will have to disaggregate separately showing details on allowances, bonuses, commissions, Director’s fees, Overtime, Paid leave, Salary sacrifice. All allowances will be reported separately and STP reports will have additional information on travel, tools, tasks, qualifications & certificates, Cents per kilometer vehicle costs.
3. Employment conditions such as Cessation date & reason, employment basis and tax treatment will be required to identify separately. With stating the employee termination reasons, the need for issuing employment separation certificate will be taken out.
4. Details pertaining to paid leave will have to be provided. E.g., Ancillary, defense leave, other paid leave, cash to leave in service leave entitlements, worker’s compensation, other paid leave.
5. Additional information is requested from employers relating to specific lump sum payments, Child support garnishes & deduction (this will initially be voluntary reporting), Income types & country codes, Any previous business management software or Payroll ID’s.
However, with the STP phase 2 change there are areas that will not face any changes. For example, the way the data are lodged, due dates, types of payments, tax & other obligations, yearend finalization requirements will remain the same.
Benefits of STP Phase 2
1. The expected outcomes of STP Phase 2 will provide smooth reporting facilities to the employers who has to provide employee details to various government institutes. The information provided to ATO will be shared with the other government institutes like state revenue offices, FairWork through a central system. This will ensure greater transparency to the information shared between the institutes and reduce duplicating time of information at several occasions. With sharing information;
Claims process can be streamlined with less documentation.
Customer contact times can be reduced.
Enhance family tax benefits (E.g., STP data will show when there are new jobs, change of employment, ow family income etc.)
Improve customer experience
2. Employees and business will find it much easier during the tax times as the ATO will have greater visibility of types of income and where it should be filled in the tax return. ATO will be able to assist employees better when filling the individual Income Tax Return (IITR) and income tested payments will be correctly calculated. It will also avoid data manipulations, unnecessary tax bills.
January 2022 is only 3 months ahead hence it is better for the businesses to be prepared as early as possible. Businesses that can adapt to changes quickly will remain ahead of the competition. All the businesses have to ensure there is a reliable software that enables the system to be started on the given dates and all the necessary details are in place to go for the reporting. Forward thinking and being proactive will enable a smooth transition from phase 1 to phase 2. Also, it will stop any unnecessary penalties with misrepresentation of data.