Senate

Revised Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)

Chapter 23 Single touch payroll reporting

Outline of chapter

This Schedule creates a new reporting framework, known as Single Touch Payroll (STP), for substantial employers to automatically provide payroll and superannuation information to the Commissioner of Taxation (Commissioner) at the time it is created. Entities that report under STP will not have to comply with a number of existing reporting obligations under the taxation laws.

This Schedule also contains a number of related amendments to streamline an employer's payroll and superannuation choice processes by allowing the Australian Taxation Office (ATO) to pre-fill and validate employee information.

All references to legislative provisions in this chapter are references to Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) unless otherwise stated.

Context of amendments

STP reporting is designed to reduce the compliance costs for employers meeting their Pay as you go (PAYG) withholding obligations by using Standard Business Reporting (SBR) enabled software to automatically report employee salary or wage information to the Commissioner at the time these amounts are paid.

The current reporting arrangements for PAYG withholding are somewhat dislocated from natural business systems and are primarily designed to align with annual income tax obligations of employees. Instead, the use of SBR-enabled software presents an opportunity to automate and better align reporting to business processes, such as the payroll process.

Currently, entities report and pay PAYG withholding obligations to the ATO up to three months after the payroll event, when the relevant payment is made. This delay in reporting requires businesses to put in place systems and processes to reconcile data created at the payroll event and collate these for later reporting to the ATO. For many small and medium businesses, this remains predominantly a manual process or is outsourced to bookkeepers or tax agents.

In addition, employers must create an annual payment summary for each employee to assist that employee in completing their annual income tax return and also provide this to the ATO. STP reporting presents an opportunity to reduce the need for employers to 'triple handle' information in this way.

STP reporting will also provide for employee-level superannuation contribution information to be given to the ATO in a more timely and visible manner. This will improve the ATO's ability to monitor the payment of employee entitlements and enable the ATO to implement early intervention processes if superannuation guarantee (SG) contributions are not being paid. This can reduce the risk of businesses getting behind on the payment of employee superannuation entitlements. This will also better position the ATO to take early compliance action to protect employee superannuation entitlements, particularly in relation to phoenix-type activities where businesses are deliberately wound up to avoid having to meet outstanding liabilities.

Under the current law, the ATO typically receives information about SG amounts six to twelve months after the employee entitlements have been paid. However, SBR-enabled software will allow for this information to be automatically reported to the Commissioner at the time the contributions are paid.

In addition, superannuation standard choice forms and tax file number (TFN) declarations are predominantly paper based and require the employer to key the information into their payroll system, sign the TFN declaration and provide the original form to the ATO as well as securely store a copy of the form. As part of the transition to STP reporting, these amendments will allow the ATO and employers to provide individuals with the option to complete these forms through the Commissioner's online service (currently called ATO Online, available on the whole of government service, myGov). This will reduce employer compliance costs and errors associated with re-keying information.

Only employers with 20 or more employees will be required to comply with STP reporting from 1 July 2018 and there is no Government decision at this stage to extend the regime on a mandatory basis to smaller employers. That said, the ATO will be conducting a pilot in the first half of 2017 to demonstrate the deregulation benefits for businesses, with a focus on small businesses, to further inform the broader implementation of STP reporting.

Summary of new law

Schedule 23 contains the following related, but discrete, Parts:

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Part 1: Reporting by employers

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Part 2: Choice of fund

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Part 3: TFN declarations

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Part 4: TFN validation

Part 1 inserts new Division 389 into Schedule 1 to the TAA 1953, which requires entities with 20 or more employees (substantial employers) to give payroll and superannuation information to the Commissioner through STP. Entities that report under STP may reduce their reporting obligations under other provisions of the taxation law. This Part also establishes a legislative framework for other employers to voluntarily report under STP and, in turn, be relieved of existing obligations.

Parts 2 and 3 amend the Superannuation Guarantee (Administration) Act 1992 (SGAA 1992), Schedule 1 to the TAA 1953, the Income Tax Assessment Act 1936 (ITAA 1936) and the Superannuation Industry (Supervision) Act 1993 (SISA 1993). These amendments allow the ATO and employers to implement streamlined procedures for completing superannuation standard choice forms and TFN declarations on the Commissioner's online service.

Part 4 amends the ITAA 1936 to improve the Commissioner's capacity to validate TFN information.

Comparison of key features of new law and current law

Detailed explanation of new law

This Schedule contains a suite of legislative amendments to create a new modern reporting regime for providing payroll and superannuation information to the ATO.

To complement this reporting regime, the Schedule also contains amendments allowing the ATO to enhance their digital service offering for employers in relation to processes associated with bringing new employees onto their payroll. This includes enhanced TFN validation services, which will provide employers with confidence that details they hold about their employees matches the information held by the ATO for that employee.

Collectively, these amendments are designed to reduce the compliance costs for employers of meeting their PAYG withholding and superannuation obligations, whilst also improving the ATO's ability to monitor employer compliance with their SG obligations.

Part 1 - Reporting by employers

Design approach

This Schedule establishes a new reporting regime, requiring substantial employers to report payroll and superannuation contribution information to the Commissioner through STP.

As a matter of legislative design, these amendments empower the Commissioner to pragmatically manage a range of transitional issues that may arise for employers adapting to a new way of reporting. This legislative flexibility recognises that entities can have different payroll systems and processes, and standard specific legislative rules may not easily accommodate such systems. On the other hand, the legislation deliberately restricts the type of information to be reported to provide entities with legislative certainty about how Parliament intends the Commissioner to administer the new regime.

A key area where the legislation provides flexibility is the broad powers given to the Commissioner to exempt entities from reporting under STP and defer the start dates for classes of entities by legislative instrument. This ensures the Commissioner can administratively manage the concerns of a range of entities that may have difficulties in transitioning to STP reporting.

The framework also utilises the approved form provisions (refer section 388-50), in much the same way as they are used for existing PAYG withholding reporting obligations. The use of the approved form provisions provides the Commissioner with flexibility to defer due dates to better align reporting with an employer's payroll processes. However, the legislation also limits the flexibility provided by the approved form provisions to specific reportable content. Ordinarily, the approved form provisions would allow the Commissioner to specify the content of a report whereas these amendments limit the content that the Commissioner can require in relation to specific amounts. This is designed to provide reporting entities and payroll system designers a high level of certainty and stability about the amounts to be reported under STP.

In addition, the framework restricts the Commissioner's administrative powers to impose penalties for failing to lodge reports on time and in the approved form, as well as penalties for making false or misleading statements. These restrictions recognise that employers will need time to adjust to a new reporting regime and that there may be circumstances where automated systems result in unintended errors that are not immediately identified.

Reporting using SBR-enabled software

Under STP reporting, substantial employers must report information that is produced as part of their payroll processes to the Commissioner in the approved form.

In practice, currently the ATO anticipates that this will require substantial employers to report using SBR-enabled software. SBR-enabled software allows employers to automatically report information that is already produced by an employer as part of their payroll processes to the Commissioner at the time the relevant process is undertaken. In this case, the Commissioner would treat reports lodged in a different manner as a failure to lodge in the approved form. However, the flexibility of the approved form provisions will allow the Commissioner to update the way STP information is reported in the future, as the need arises.

Which entities need to report?

Subject to specific exemptions, entities with 20 or more employees (substantial employers) on 1 April 2018 will be required to report under STP from 1 July 2018. Entities that become substantial employers on 1 April in a subsequent year will be required to report under STP from 1 July of that calendar year. [Schedule 23, item 1, subsections 389-5(6) and 389-5(1) and subitem 22(1)]

For the purposes of determining whether an entity is a substantial employer, the number of employees is calculated using a headcount rather than a full-time equivalency. The term 'employee' has its ordinary meaning which means that contractors will not be included in the relevant headcount. [Schedule 23, item 1, subsection 389-5(6)]

Specific rules apply in relation to companies that are members of a wholly-owned group. In calculating the number of employees employed on the relevant date, the total number of employees employed by all member companies of the wholly-owned group must be included. [Schedule 23, item 1, paragraph 389-5(6)(b)]

Example 1

Ivan Co is one of four companies that are all members of the Fashion Emporium Co wholly-owned group. Ivan Co employs 7 employees in its fashion eyewear business. The other members of the Fashion Emporium Co wholly owned group are Marion Co which employs 6 employees, Lydia Co with 10 employees and Kev Co with 4 employees.

In calculating the number of employees for the purpose of determining whether Ivan Co is a substantial employer, Ivan Co must count all employees in the Fashion Emporium Co wholly-owned group.

Ivan Co, Marion Co, Lydia Co and Kev Co are all substantial employers as the Fashion Emporium Co wholly-owned group employs 27 employees in total.

Even though entities that are not substantial employers do not need to report under STP, such entities may choose to do so. [Schedule 23, item 1, subsections 389-15(1) and (2)]

Such entities will be able to reduce their reporting obligations under other taxation laws.

Exemptions

The Commissioner may grant an exemption from STP reporting, both on a class of entity basis and an individual basis. An entity that is exempt from reporting under STP will still be subject to their existing obligations to report in accordance with Subdivision 16-C.

The Commissioner may, by legislative instrument, exempt a class of entities from reporting under STP for one or more income years. [Schedule 23, item 1, subsections 389-10(1) and 389-5(5)]

Also, the Commissioner may, by notice in writing, exempt a particular entity from reporting under STP for one or more income years. The Commissioner may choose to exercise this power on his or her own initiative or on application by an entity. The Commissioner will endeavour to make a decision on all applications for exemptions within 60 days of receiving the application. However, where the Commissioner does not notify the entity of a decision within 60 days after an application is made, the Commissioner will be taken to have refused an application for an exemption. If an entity is dissatisfied with a decision made by the Commissioner either to refuse an exemption application (including a deemed refusal) or to limit the extent of an exemption, the entity may object to the decision under Part IVC of the TAA 1953. [Schedule 23, item 1, subsections 389-10(3), (5), (6) and (7) and subsection 389-5(5)]

The Commissioner may choose to limit the extent of an exemption. For example, the Commissioner may exempt entities from reporting only in relation to specific items under Division 389 or in relation to part of an income year. [Schedule 23, item 1, subsections 389-10(2) and (4)]

These exemption powers allow the Commissioner to flexibly manage the transition of substantial employers to STP reporting. The Commissioner may choose to take a variety of circumstances into account when determining whether to exempt an entity or class of entity, including specific circumstances that may impact on an entity's ability to report electronically in a particular year.

It is expected that the Commissioner will provide further guidance around how he will apply this exemption power, but the following examples illustrate the scope of the power and circumstances where the Commissioner could choose to grant an exemption.

Example 2

Assume that the Commissioner grants an exemption on a class basis for all substantial employers operating in remote locations where there is no or unreliable internet connection.

Anne operates a grocery store where she employs 25 employees in a remote location covered by the Commissioner's exemption. Whilst Anne is a substantial employer, she would not have to report under STP.

Anne would not need to apply to the Commissioner for an exemption, as her business is covered by the class exemption.

However, Anne would be subject to her existing obligations to report in accordance with Subdivsion 16-C. This means she will continue to report her PAYG withholding liability using her current process, give payment summaries to her employees and give a payment summary annual report to the Commissioner.

Example 3

Ruby is a substantial employer who runs a restaurant business that is affected by a natural disaster in June 2018. As a result, Ruby is unable to prepare her systems in time to begin reporting under STP on 1 July 2018.

The Commissioner may decide to grant an exemption on a class basis to all businesses in the area affected by the natural disaster from reporting under STP for the first six months of the income year.

In this case, Ruby would not have to commence STP reporting until 1 January 2019. As Ruby's first report would contain year-to-date information for each of her employees, Ruby will not have to provide payment summaries to those employees at the end of the 2018 income year, nor will she have to provide a payment summary annual report to the Commissioner for each of her employees.

Example 4

Fiona runs a fruit picking family farm business. For the majority of the income year, she employs three people on her farm. However, during the harvest season from late March to early April, she employs up to sixty additional staff to ensure the fruit is picked on time. As a result, Fiona employs more than 20 employees on 1 April 2018 and so will be a substantial employer.

Fiona may apply to the Commissioner to exempt her business from reporting under STP. The Commissioner may decide to grant her an exemption, since she is only a substantial employer for a short part of the income year.

Amounts to be reported at time employee is paid

As a matter of process, certain payroll information is generated at the time an employer pays an employee. Employers will be able to leverage SBR-enabled software to automatically report information to the Commissioner at the time they undertake this process.

In addition, to the following types of amounts to be reported, the Commissioner may require entities to report additional amounts by specifying these amounts by legislative instrument. This legislative limit is designed to provide legislative certainty about the types of amounts to be reported. [Schedule 23, item 1, subsections 389-5(2) and (3)]

Ordinary time earnings and salary or wages to be reported

A substantial employer that makes a payment which constitutes an employee's ordinary time earnings or salary or wages (within the meaning of the SGAA 1992 must report these amounts to the Commissioner in the approved form on or before the day the amount is paid. In this context, the term 'employee' has the meaning provided by the expanded definition in section 12 of the SGAA 1992, disregarding subsection (3) of the definition which covers contractors. An employer is not required to report such information in relation to contractors. This recognises that contractors are generally not included in an employer's payroll system and so requiring entities to report in relation to these entities would impose a significant compliance burden. [Schedule 23, item 1, item 2 in the table in subsection 389-5(1)]

Generally, both ordinary time earnings and salary or wages will need to be reported to the Commissioner. However, the flexibility of the approved form framework would allow the Commissioner to use other forms of information already contained in an employer's payroll software. For example, as an alternative to reporting a payment of salary or wages and an employee's ordinary time earnings, the Commissioner could choose to accept the amounts of contributions that an employer is liable to make for a specific period. The ATO is expected to issue guidance about the content of the STP report.

Withholding amounts and payments to be reported

Under the PAYG withholding regime in Part 2-5, an entity that makes a payment to a recipient is usually required to withhold an amount from the payment when making the payment (refer section 16-5). At a later date, they are required to notify the Commissioner of the amount withheld (refer section 16-150) and remit these amounts to the Commissioner (refer subdivision 16-B). Employers usually satisfy these obligations to notify and remit by reporting on a business activity statement (BAS) and paying their BAS liability.

An entity required to report under STP that has an obligation to withhold an amount from certain payments must report these payment amounts and the withheld amounts to the Commissioner on or before the day the amount is required to be withheld -generally, when the employer makes the payment to their employee (refer section 16-5). An obligation to withhold a nil amount is treated as an obligation to withhold an amount. [Schedule 23, item 1, subsection 389-5(4) and item 1 in the table in subsection 389-5(1)]

An employer will be required to report if they have an obligation to withhold an amount from payments:

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under the Seasonal Labour Mobility Program

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(section 12-319A in Subdivision 12-FC);

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for work and services (Subdivision 12-B with the exception of sections 12-55 and 12-60);

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for termination of employment (paragraph 12-85(b));

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for unused leave (section 12-90);

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for parental leave pay (paragraph 12-110(1)(ca)); and

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for dad and partner pay (paragraph 12-110(1)(cb)).

[Schedule 23, item 1, item 1 in the table in subsection 389-5(1)]

These amendments change the timing and frequency for reporting these withholding amounts. Rather than first notify the Commissioner of these amounts at the time the employer remits the amount withheld to the Commissioner (generally on their BAS), employers will need to report these amounts at the time they are required to withhold the amount (when the employee is paid).

As this information is to be reported in the approved form, the Commissioner may defer the date for lodgement (refer section 388-55) without the need for a legislative instrument. This could arise in situations where the STP report would better align with an employer's payroll processes. [Schedule 23, item 1, subsection 389-5(2)]

Whilst employers generally make payments to employees on a regular payment cycle, there may be some circumstances when employers make irregular or ad hoc payments, such as employment termination payments or casual salary or wages. As the date when such payments need to be reported to the Commissioner may not correspond with the employer's regular payment cycle due dates, a separate report would need to be sent to the Commissioner. However, in these circumstances, the Commissioner could defer the due date for reporting these ad hoc payment reports until the next regular reporting date. It is expected that the ATO will provide guidance clarifying the treatment of ad hoc payments under STP.

Modified application of penalties in relation to notifications under table items 1 and 2

Australia's taxation laws contain a range of administrative penalties for entities that do not comply with their reporting obligations. These amendments modify the application of these penalties in the following ways. First, these amendments limit the Commissioner's ability to impose penalties for failing to report on time or in the required manner for the first 12 months (transitional relief). Second, these amendments provide reporting entities with a grace period for correcting false or misleading statements in relation to certain reports without penalty (ongoing grace period).

Transitional relief

An entity that fails to provide a report on time, or in the approved form, may be liable an administrative penalty under subsection 286-75(1). However, for the first year that an entity is required to report under STP, that entity will not be subject to such an administrative penalty unless the Commissioner first issues that employer with a non-compliance notice advising the employer that future non-compliance with the relevant due dates for reporting may attract administrative penalties. [Schedule 23, subitem 22(2)]

As a matter of practical administration, the Commissioner should make contact with the relevant entity transitioning to STP reporting to provide support and help before issuing such a notice. Nonetheless this transitional rule recognises that employers will need some time to adjust to a new way of reporting, whilst also recognising that incentives to comply will support the widespread uptake of STP reporting.

Ongoing grace period for correcting errors

These amendments allow the Commissioner to provide reporting entities with an ongoing grace period for correcting false or misleading statements in relation to these STP reports without penalty. The grace period covers a range of penalties for making false or misleading statements under the taxation laws. [Schedule 23, items 1, 5, 6, 7 and 19, section 389-25]

This grace period is designed to allow reporting entities to conduct an assurance process on the information reported to the Commissioner and correct the statement within specified timeframes. In particular, it is designed to provide a balance between reporting entities automatically reporting on time and reporting accurate information. After the grace period has expired, any uncorrected false or misleading statement may be subject to penalties.

Allowing corrections to be given in the approved form provides the Commissioner with the flexibility to allow, for example, these corrections to be given in a subsequent STP report. In addition, the approved form provisions provide the Commissioner with the flexibility to also defer the due date for making these corrections. [Schedule 23, items 5, 7 and 19]

The Commissioner will have the power to determine, by legislative instrument, the timeframe for reporting entities to correct errors and specify that different timeframes may apply to different classes of entities. For example, the Commissioner may determine a different period depending on the size of the withholder and the size of the correction involved. [Schedule 23, item 1, subsection 389-25(5)]

The Commissioner will also have the power to provide by notice a different period for an individual reporting entity. This allows, for example, the Commissioner to reduce an entity's grace period if it appears that the particular entity is misusing this grace period. The Commissioner's decision to provide a different period for individual employers is a reviewable decision. [Schedule 23, item 1, subsections 389-25(2), (3) and (4)]

Regardless of any grace period specified by the Commissioner, reporting entities will need to make any corrections within 14 days after the end of the financial year to which the relevant report relates. This is because the grace period is only available for correcting statements related to the financial year in which the statement is made. [Schedule 23, items 5, 7 and 19]

Effect on other reporting requirements

A reporting entity that has met all of its STP reporting obligations for an income year will not need to comply with the following obligations under the taxation laws:

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section 16-150 (Notification of withholding amounts);

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section 16-155 (Annual payment summaries);

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section 16-165 (Payment summaries for payments for termination of employment);

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section 16-153 (Annual reports to the Commissioner); and

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section 16-160 (Part-year payment summaries).

[Schedule 23, item 1, subsection 389-20(1)]

A reporting entity must give a declaration to the Commissioner that it has given all the information that it would otherwise be required to give under sections 16-153, 16-155 and 16-165 for payments made in the financial year by 14 July to be exempt from the annual reporting obligations. [Schedule 23, item 1, subsection 389-20(2)]

As this declaration is to be given in the approved form, the Commissioner could, for example, specify that the last STP report for the financial year could be one of the approved forms. [Schedule 23, item 1, paragraph 389-20(2)(b)]

Notification of withheld amounts

Reporting entities will no longer be required to comply with their obligation under section 16-150 to notify PAYG withholding amounts covered under STP when remitting such withheld amounts to the Commissioner. Currently, most entities satisfy this obligation by including the relevant amounts on their BAS. It is expected that the ATO will pre-fill this information on the BAS for reporting entities based on the information reported under STP.

Annual payment summaries

One of the benefits of STP reporting is that the Commissioner will be able to make the information currently recorded on an annual payment summary progressively available throughout the income year to employees on the Commissioner's online service. This will allow relevant employees to view information about income payments made to them by reporting entities. As a result, relevant employees can keep track of cumulative employment-related income and be better informed about any potential tax liabilities or refunds as well as any potential underpayment or overpayment of welfare entitlements. Making this information available may also allow the employee to complete their personal tax return earlier using the Commissioner's online service.

Reporting entities will no longer need to comply with their obligations under sections 16-155 and 16-165 to provide payment summaries to their employees in relation to amounts reported through STP (although entities will continue to be required to provide payment summaries in relation to amounts that are not reported through STP). Employers may still choose to provide an annual payment summary if requested to do so by an employee.

Under paragraphs 16-155(1)(c) and (d), reportable employer superannuation contribution (RESC) and reportable fringe benefit (RFB) amounts are required to be reported on an annual payment summary. Whilst it is not mandatory for reporting entities to report RESC and RFB amounts through STP, an entity may nonetheless choose to report these amounts to the Commissioner through STP by 14 July and, if so, that entity would no longer need to provide an annual payment summary covering these amounts. [Schedule 23, item 1, paragraph 389-20(1)(c) and subsection 389-15(3)]

Annual reports to the Commissioner (section 16-153)

Reporting entities will no longer be required to provide an annual report to the Commissioner under section 16-153, in relation to amounts reported under STP. This includes RESC and RFB amounts voluntarily reported to the Commissioner in the approved form by 14 July after the end of a financial year (this is one month earlier than required under the existing law (refer paragraphs 16-153(2)(c) and (d))).

[Schedule 23, item 1, subsections 389-15(3) and (4) and paragraph 389-20(1)(b)]

Part-year payment summaries (section 16-160)

Reporting entities will not be required to comply with their obligation under section 16-160 to provide a part-year payment summary to the extent that it would relate to an amount that the entity has notified under STP.

These amendments also exempt all payers (not just entities reporting under STP) from their obligation to provide a part-year payment summary under section 16-160, where the payer has made a RESC, in respect of the recipient's employment, during the financial year. This aligns the treatment of RESC with the treatment of RFB amounts under section 16-160 and reduces compliance costs for employers. [Schedule 23, items 14, 15 and 16]

Information to be reported at time superannuation contributions are paid

An important part of Australia's superannuation system is the provision of compulsory contributions by employers to complying superannuation funds in respect of their employees. Under the SGAA 1992, employers must make quarterly SG contributions for eligible employees to avoid having to pay a SG charge to the Commissioner. An employer can choose to make contributions, which will reduce their liability to SG charge for a particular quarter, at any time from the start of the quarter up until the 28th day after the end of that quarter (refer subsection 23(6) of the SGAA 1992).

A reporting entity that makes a contribution to a complying superannuation fund (within the meaning of the SISA 1993) or a Retirement Savings Account (within the meaning of the Retirement Savings Accounts Act 1997 ), in respect of an employee must report these amounts to the Commissioner in the approved form on or before the day the contribution is paid. In this context, employee has its expanded meaning, as provided under section 12 of the SGAA 1992. Contributions made on behalf of an employer by an approved clearing house as defined under regulation 7AE of the Superannuation Guarantee (Administration) Regulations 1993 must also be reported to the Commissioner. [Schedule 23, item 1, item 3 in the table in subsection 389-5(1) and subsection 389-5(2)]

These amendments require reporting entities to report superannuation contributions that reduce their SG charge percentage that, in turn, will reduce their liability to SG charge for a particular quarter. As such, the Commissioner may also require the reporting of contributions that exceed the SG charge percentage. Including these contributions will allow the Commissioner to distinguish between an employer's SG contributions and salary sacrifice amounts (if any), and take account of the fact that employer SG contributions made for one quarter may reduce the charge percentage in an earlier or later quarter. In some cases, reporting entities may also face increased compliance costs separating different contributions. [Schedule 23, item 1, item 3 in the table in subsection 389-5(1) and subsections 389-5(2) and (3)]

Employers are already subject to a similar obligation to provide contribution information to superannuation funds. Under Part 4A of the Retirement Savings Account Act 1997 and Part 3B of the Superannuation Industry (Supervision) Act 1993 ('the SuperStream regime'), employers are required to report superannuation contribution information to superannuation funds on the same day the employer makes the contribution to the fund. The information must be given in accordance with certain data and payment standards determined by the Commissioner.

Employers may already use SuperStream-compliant software packages, clearing houses or intermediaries to produce contribution transaction reports. In order to align these STP reporting obligations with an employer's existing processes under the SuperStream regime, the Commissioner envisages that the information contained in contribution transaction reports would satisfy the employer's obligations under STP. Whilst, this may involve an employer providing the Commissioner with more information than is required, an employer may wish to report in this way to minimise their compliance costs.

By requiring employers to report such information to the Commissioner on or before the day the contribution is made, the Commissioner will have more timely access to employee-level contribution information than under current arrangements. By matching this data with an employee's ordinary time earnings information the Commissioner will be able to better monitor an employer's compliance with their SG obligations.

Ordinary time earnings information enables the Commissioner to calculate an employer's quarterly SG contribution obligations for individual employees and determine if a SG shortfall exists under the SGAA 1992. If an employer does not make the correct amount of SG contributions on time and has an SG shortfall, the employer's individual SG shortfall, and therefore the SG charge, is worked out based on the employee's salary or wages.

More timely information will allow the Commissioner to engage with employers earlier to address cases of non-compliance. This could potentially prevent more punitive outcomes for such employers which would apply under the SG charge regime where non-compliance is identified further down the track.

Consequential amendments

This Schedule includes consequential amendments to define 'substantial employer' in section 995-1 of the Income Tax Assessment Act 1997 and update the definition of 'BAS provisions' in that Act to ensure the STP reporting provisions are covered by the definition. This ensures consistent treatment for entities reporting under STP and those reporting under the existing PAYG withholding regime in Part 2-5 (which are already BAS provisions). [Schedule 23, items 2 and 3]

These amendments also include guidance material for Division 389 and notes to assist users of the legislation. [Schedule 23, items 1, 9, 10, 11, 12, 13, 17 and 20]

A minor consequential amendment has been made to a provision in Division 269 (Penalties for directors of non-complying companies) to ensure that the provision will have the same effect regardless of whether a notification under STP is provided to the Commissioner or a notification under section 16-150. [Schedule 23, item 18]

Ensuring the Commissioner can retain a refund under STP

An entity reporting under STP will not be required to report STP amounts on their BAS. Consequential amendments allow the Commissioner to retain a refund where an entity is required to notify, or voluntarily notifies, under STP. This is similar to how the Commissioner is currently able to retain a refund where an entity has an outstanding BAS notification under section 8AAZLG of the TAA 1953. Whilst intended to operate in circumstances analogous to those under section 8AAZLG of the TAA 1953, these amendments have also partially been modelled off section 8AAZLGA of the TAA 1953, which allows the Commissioner to retain a refund where the Commissioner is verifying the information in a BAS notification. Further information on sections 8AAZLG and 8AAZLGA of the TAA 1953 is available in the Explanatory Memoranda to the A New Tax System (Pay As You Go) Bill 1999 and Tax and Superannuation Laws Amendment (2012 Measures No. 1) Bill 2012. [Schedule 23, item 4, section 8AAZLGB of the TAA 1953]

These amendments require the Commissioner to form a reasonable belief that a STP report is outstanding before a refund may be retained. This differs from the approach in subsection 8AAZLG(1) of the TAA 1953 reflecting that due dates for outstanding STP reports may be less certain than those for a BAS, as the obligation to report is triggered depending on certain payroll events occurring. It is envisaged that the Commissioner will be able to form a reasonable belief that an STP report has not been given based on the entity's previous pattern of STP lodgements. [Schedule 23, item 4, subsection 8AAZLGB(1) of the TAA 1953]

Example 5

Casper Co (Casper) is a substantial employer that has been reporting under STP since 1 July 2018. Casper pays its employees fortnightly, and has been reporting these payments and associated amounts withheld on the day it makes its regular fortnightly payments.

Based on this regular fortnightly payroll cycle, it would be reasonable for the Commissioner to expect that amounts would continue to be reported on a fortnightly basis, in the absence of any information to the contrary.

Consistent with the current notification requirement under section 8AAZLGA of the TAA 1953, the Commissioner must inform the entity that a refund has been retained within 14 days after the day on which the relevant RBA surplus or relevant credit arose. [Schedule 23, item 4, subsection 8AAZLGB(2) of the TAA 1953]

The Commissioner may retain a refund until any one of four specified circumstances occur, whichever circumstance (if any) occurs first:

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the entity gives the Commissioner an STP notification;

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the Commissioner is reasonably satisfied that the entity is not required to give a notification;

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the Commissioner is reasonably satisfied that the entity does not have a PAYG withholding liability;

•

the Commissioner otherwise ascertains the entity's total PAYG withholding liability.

The amendments depart from the approach in section 8AAZLG of the TAA 1953 by providing for additional circumstances that will end the period of time a refund may be retained. [Schedule 23, item 4, subsection 8AAZLGB(3) of the TAA 1953]

Example 6

Further to Example 5, on 31 March 2020 (an expected fortnightly payroll day) Casper stops sending the Commissioner STP reports.

On 21 April, Casper lodges a BAS with a $100,000 GST credit, which gives rise to an RBA surplus of $100,000. The Commissioner is able to retain this amount until either Casper notifies the Commissioner of its PAYG withholding liability under STP, the Commissioner is reasonably satisfied that no notification is required, or the Commissioner otherwise ascertains Casper's PAYG withholding liability.

This is because the Commissioner has a reasonable belief that Casper was required to notify the Commissioner under section 389-5 of its PAYG withholding liability on 31 March, and this liability (if any) may affect the amount of the credit that would otherwise have to be refunded to Casper.

Interest is payable under the Taxation (Interest on Overpayments and Early Payments) Act 1983 (T(IOEP)A 1983), if the Commissioner is late in refunding the amount. Interest will be payable by the Commissioner if the amount is not refunded 14 days after the entity gives the STP notification to the Commissioner. [Schedule 23, items 21 and 4, paragraph 12AF(b) of the T(IOEP)A 1983 and paragraph 8AAZLGB(3)(a) of the TAA 1953]

If the period of time that a refund may be retained has ended due to the Commissioner becoming reasonably satisfied that either the entity is not required to give a notification or that the entity does not have a PAYG withholding liability, interest will be payable from 14 days after the day on which the RBA surplus arose (refer paragraph 12AF(a) of the T(IOEP)A 1983). If the period of time that the refund may be retained has ended because the Commissioner has otherwise ascertained the entity's liability, interest will be payable if the Commissioner does not refund the RBA surplus within 14 days from the day the Commissioner ascertains the correct amount to be refunded.

Consistent with the current objection process available under section 8AAZLGA of the TAA 1953, the entity may object to the Commissioner's decision to retain a refund in the manner set out in Part IVC of the TAA 1953, if the entity is dissatisfied with the decision. [Schedule 23, items 4 and 8, subsections 8AAZLGB(4), (5) and (6) of the TAA 1953]

Application and transitional provisions

These amendments will apply to entities that are required to report under STP and those entities that voluntarily report under STP in relation to amounts such entities are required to notify or voluntarily notify depending on when the trigger to notify arises.

Unless the Commissioner determines an alternate application day by legislative instrument, the amendments made by this Part apply to:

•

an entity that is a substantial employer immediately before 1 July 2018 in relation to an amount that an employer is required to notify or voluntarily notifies to the Commissioner if the trigger to notify arises on or after 1 July 2018;

•

an entity that is not a substantial employer immediately before 1 July 2018 but voluntarily reports under STP in relation to an amount that the employer may notify to the Commissioner if the trigger to notify arises on or after 1 July 2018; and

•

an entity that is not a substantial employer immediately before 1 July 2018 but subsequently becomes a substantial employer in relation to an amount that an employer is required to notify or voluntarily notifies to the Commissioner if the trigger to notify arises on or after the first 1 July after which the entity first becomes a substantial employer.

[Schedule 23, subitem 22(1) and items 23 and 24]

For example, if an employer pays salary or wages to an employee, this would provide a trigger for notifying the Commissioner because the employer is required to withhold an amount from the payment. If the employer is a substantial employer immediately before 1 July 2018, the employer must notify the Commissioner of the payment to an employee and the amount withheld from the payment on or after 1 July 2018.

Example 7

Blue Macaw Co has 23 employees and is required to report under STP.

On 9 July 2018, Blue Macaw Co withholds $100 from a $1,000 payment of salary to Timothy, one its employees. Blue Macaw Co must report this payment to the Commissioner on 9 July 2018.

These amendments modify the application of penalties pursuant to subsection 286-75(1) during the first 12 months that an entity is required to report under STP. [Schedule 23, subitem 22(2)]

Part 2-Choice of fund

These amendments allow the ATO to implement a streamlined procedure for completing superannuation standard choice forms on the Commissioner's online service. Employers use superannuation standard choice forms to offer employees a choice of fund and notify them of the name of the employer's default fund (the fund that the employer will contribute to if the employee does not make a choice) (refer section 32P of the SGAA 1992).

These amendments do not affect the scope of employees entitled to superannuation choice under section 32C of the SGAA 1992.

These amendments do not affect an employee's superannuation fund choice applying separately to each employer (refer section 32X of the SGAA 1992). For example, a superannuation fund chosen by an employee in a standard choice form given to an employer will continue to be that employee's chosen fund for that employer even if that employee later uses the Commissioner's online service to choose a superannuation fund for contributions from another employer.

Also, these amendments do not change an employer's obligation to provide a standard choice form to employees within 28 days of the employee commencing employment (refer subsection 32N(2) of the SGAA 1992). Employers will still need to do this, as the standard choice form will continue to serve the purpose of providing an employee with information about the employer's default fund.

An employer may inform an employee that the employee can choose a superannuation fund using the Commissioner's online service rather than completing and returning the standard choice form to them. An employee that uses the Commissioner's online service could take advantage of pre-filled information and could choose one of their existing superannuation funds as their chosen fund. Employers would, in turn, receive this validated information from the Commissioner directly into their business management software and so it would not need to be re-keyed.

The use of this process would be voluntary and alternative procedures (not the subject of these amendments) would remain available to employers. Depending on their business practices, employers can choose which method to use, and advise their employees accordingly. For example, an employer could advise new employees to supply their superannuation fund choice information directly into the employer's business management software.

These amendments allow an employee to make a valid choice of fund by providing the approved form to the Commissioner or using this process to state that their existing superannuation fund continues to be their chosen fund. Currently, an employee must provide written notice to their employer to make a valid choice of fund and this is generally done by the employee giving a completed standard choice form together with required information from their chosen fund to their employer. [Schedule 23, items 28 to 33, paragraphs 32F(3)(a) and 32H(1)(b), subsections 32F(1) and (2), 32FA(1) and 32H(1A) of the SGAA 1992]

The amendments ensure that under the new streamlined process, an employer's contributions can meet the choice of fund requirements under the SGAA 1992. [Schedule 23, items 25 to 27, subparagraph 32C(2B)(c)(i) and paragraphs 32C(2B)(b) and (c) of the SGAA 1992]

These amendments allow the Commissioner to disclose an employee's TFN and protected information to their employer for the purposes of informing the employer of their employee's choice of fund. [Schedule 23, items 34 and 35, section 32W of the SGAA 1992 and item 10 in the table in subsection 355-50(2)]

The amendments also ensure that a fund cannot become a chosen fund of an employee until the Commissioner informs the employer of the employee's choice. As a matter of process, the employer needs to receive notice of the chosen fund in order to act upon it, and avoid breaching the choice of fund requirement under the SGAA 1992.

Example 8

Ross is an employee of John Building Co and in May 2017 chooses Andrew Industry Super Fund as his superannuation fund for employer contributions via the Commissioner's online service.

On 1 June 2017, the Commissioner gives John Building Co notice of Ross' choice of fund information. Andrew Industry Super Fund becomes Ross' chosen fund for contributions by John Building Co on 1 August 2017 or at an earlier time determined by John Building Co.

Application and transitional provisions

The amendments in this Part apply in relation to disclosures of information on or after 1 January 2017 (regardless of when the information was acquired) and to notices given on or after 1 January 2017. This will allow the ATO to include the streamlined procedure for completing superannuation standard choice forms in the voluntary pilot, which will start on 1 January 2017. [Schedule 23, item 36]

Part 3-TFN declarations

These amendments enable the ATO to implement a streamlined procedure for completing TFN declarations using the Commissioner's online service. As with the streamlined procedure available for standard choice forms, this new streamlined procedure will be voluntary.

Currently, when a new employee is engaged, they provide their employer with a TFN declaration that ensures the employer can withhold the correct amount from each pay. An employer that receives a TFN declaration from an employee, is required to sign and send the original to the ATO and keep a copy of it until the second 1 July after the day on which the declaration ceases to have effect (refer section 202CD of the ITAA 1936).

Under the new procedure, an employer may inform their employee they are able to make a TFN declaration using the Commissioner's online service, rather than an employee providing the form directly to their employer. [Schedule 23, item 37, subsection 202C(2) of ITAA 1936] These amendments allow the Commissioner to make available to a payer (employer) the information in a recipient's (employee) TFN declaration, where the recipient has made a TFN declaration in relation to that payer to the Commissioner. [Schedule 23, item 39, section 202CG of the ITAA 1936]

An employer that receives information from the Commissioner, rather than a TFN declaration from their employee, does not need to sign and send an original TFN declaration to the Commissioner. However, employers will need to continue to keep a record of the TFN declaration information made available to them by the Commissioner (refer subsection 262A(2A) of the ITAA 1936).

An employer will not be required to notify the Commissioner that an employee has not provided a TFN declaration, if the Commissioner has made the employee's TFN declaration available to the employer. However, if the Commissioner has not made the employee's TFN declaration available to the employer within 14 days after the commencement of the employment relationship, then the employer must give notice to the Commissioner in the approved form (refer section 202CF of the ITAA 1936). [Schedule 23, item 38, subsection 202CF(1A) of the ITAA 1936]

Employers are still required to on-disclose an employee's TFN to a superannuation entity, where the employee quotes their TFN to the Commissioner and the Commissioner makes the TFN available to the employer. [Schedule 23, item 40, subsection 299C(4) of the SISA 1993]

Application and transitional provisions

These amendments apply in relation to declarations made on or after 1 January 2017. [Schedule 23, subitem 41(1)]

Where applicable, the amendments apply in relation to relationships (of a kind referred to in subsection 202CF(1) of the ITAA 1936) commenced on or after 1 January 2017. Subsection 202CF(1) of the ITAA 1936 refers to relationships under which, or as a result of which, the payer will make (or will be likely to make) eligible PAYG payments to a person (the recipient), whether or not the recipient is a party to the relationship. [Schedule 23, subitem 41(2)]

These amendments also apply in relation to disclosures of TFNs on or after 1 January 2017 (regardless of when the information was acquired). [Schedule 23, subitem 41(3)]

These application dates will allow the ATO to include the streamlined procedure for completing a TFN declaration in the voluntary pilot, which will start on 1 January 2017.

Part 4-TFN validation

Enhancing the Commissioner's TFN validation powers

These amendments allow the Commissioner to provide employers (payers) with both positive and negative validation of a person's personal details, including their TFN, where the Commissioner is satisfied that the person is an employee (recipient) of the payer and that the recipient has given a TFN declaration to the payer. [Schedule 23, item 42, section 202CEA]

Currently, the Commissioner can only negatively validate a PAYG recipient's TFN by providing a notice to the payer that the PAYG recipient incorrectly stated their TFN in a TFN declaration (refer section 202CE of the ITAA 1936).

These amendments improve the Commissioner's capacity to validate TFN information, which will have increasing importance for the ATO's data-matching activities to support streamlined commencement procedures and STP reporting.

Payers are not required to validate their recipients' TFN information. However, using an enhanced TFN validation service would provide them with confidence that information they hold about their employees matches ATO records, enabling employers to obtain corrected information from their employees, if necessary.

To give a payer a validation notice, the Commissioner will compare the TFN information provided with the information the Commissioner has recorded for that TFN and undertake a validation process.

To validate the information provided by a payer, the Commissioner uses a complex matching algorithm that allocates a different weighting to each of the pieces of personal information to derive a score. If the combination of the information matches a single record to a high degree of confidence, then the Commissioner will advise the payer that the information has been validated.

However, if the combination of the information does not match a single record to a high degree of confidence, then the Commissioner will advise the payer the information is not able to be validated.

A negative validation notice is not a notice that the TFN quoted by the recipient is invalid. This is because a validation notice is not a notice under subsection 202CE(3) of the ITAA 1936 as that section relates exclusively to TFNs stated in a TFN declaration. [Schedule 23, item 42, subsection 202CEA(3)]

If the Commissioner is unable to validate the information, then the payer can seek further information from the recipient to resolve any discrepancies.

The Commissioner may provide an electronic interface to receive information and give a notice (refer section 202G of the ITAA 1936).

Application and transitional provisions

These amendments apply to information given to the Commissioner on or after 1 January 2017 to provide the ATO with enhanced validation powers to support the voluntary pilot that will start on 1 January 2017. [Schedule 23, item 43]