The ATO also confirmed that small employers will be required to start using STP for closely held payees from 1 July 2021. That is, no further extension has been granted.
However, the ATO will allow small employers to report payments to closely held payees through STP in three ways: reporting actual payments in real time, reporting actual payments quarterly or reporting a reasonable estimate quarterly.
The first option involves small employers reporting each payment to a closely held payee on or before each pay event (essentially using STP ‘as normal’).
The quarterly option involves lodging a quarterly STP statement detailing these payments for the quarter, with the statement being due when the client’s activity statement is due.
The third option involves reporting broadly in the same manner as the quarterly option referred to above (i.e., a quarterly STP report) however under this option the entity would report estimates of reasonable year-to-date amounts paid to employees. This option is similar in some ways to the PAYG instalment system, with employers potentially subject to penalties if the amounts paid to individuals are under-reported.
It is also important to note that small employers with only closely held payees will have up until the due date of the closely held payee’s individual income tax return to make a finalisation declaration for a closely held payee.
These changes should allow some level of flexibility in relation to determining and making payments to closely-held payees (e.g., directors of family companies, salary and wages for family employees of businesses). However, it will still be important to ensure clients are aware of the new reporting obligations and the necessity for ongoing planning throughout the year, to prevent being caught out at year-end.