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  • Small employers – closely held (related) payees

    Small employers (19 or fewer payees) are exempt from reporting amounts paid to closely held payees through Single Touch Payroll (STP) until 30 June 2021. You don't need to apply for this exemption.

    From 1 July 2021, amounts paid to closely held payees will need to be reported through STP. If you're a small employer you can report these amounts on or before each payday, or you can choose to report this information quarterly.

    If you have any other payees (also known as arm's length employees) they must be reported on or before each payday.

    Different arrangements apply for businesses with 20 or more payees.

    On this page:

    STP reporting for closely held payees

    A closely held payee is an individual directly related to the entity from which they receive payments.

    For example:

    • family members of a family business
    • directors or shareholders of a company
    • beneficiaries of a trust.

    You must continue to report information about all of your other employees (known as arm's length employees) via STP on or before each payday (the statutory due date).

    If you only have closely held payees, you are not required to start STP reporting until 1 July 2021. You do not need to tell us that you only have closely held payees.

    Ways to report amounts paid to your closely held payees

    From 1 July 2021, amounts paid to closely held payees can be reported through STP in any of the following ways:

    Choosing how you report

    You can choose which reporting methods you want to use. Not all reporting methods will suit your business circumstances.

    If you can report actual payments you should report either quarterly or on or before the date of payment.

    Example 1

    ABCD Pty Ltd has one closely held payee, who is the company director.

    Throughout the year, the director draws money from the business to use for personal expenses and promptly records this in the company books of account as loans the company has provided her.

    She visits her tax agent in December and June each year for assistance and during those visits they determine a director's fee amount to pay which discharges the loan.

    ABCD Pty Ltd chooses to report actual payments on or before the date of payment. This is because when a payment is made, the actual amount at the time of the payment is known, and the tax agent can help lodge the STP report at the same time.

    End of example

     

    Example 2

    WXYZ Pty Ltd also has one closely held payee, who is the company director.

    Throughout the year, the director draws money from the business to use for personal expenses.

    The amounts drawn from the business are wages, but the director doesn't keep track of each transaction. This means it's known roughly – but not exactly – how much money is drawn from the business. An exact amount won't be known until the company's tax agent is consulted at the end of the year.

    WXYZ Pty Ltd chooses to report using the reasonable estimate method. This enables the company to meet its STP reporting obligations without the director needing to visit the tax agent more often.

    End of example

    Report payments on or before the date of payment

    Small employers with closely held payees can choose to report amounts paid to those payees on or before payday.

    If you have other (arm's length) employees you must report amounts you pay to those employees this way.

    If you choose to report amounts you pay to your closely held payees on or before payday, the general rules for reporting in STP apply. However, you'll have more time to make a finalisation declaration for your closely held payees.

    As you would for your arm's length employees you must still:

    • include any pay as you go (PAYG) withholding amounts on your activity statement and pay the amount you owe to us by the due date
    • make super guarantee (SG) contributions for your closely held payees before the quarterly due date.

    See also:

    Report actual payments quarterly

    Small employers with closely held payees can also choose to report the total amounts paid to those payees quarterly rather than reporting on or before payday.

    If you choose to report this way, each quarter you still need to:

    • include any PAYG withholding amounts on your activity statement and pay the amount you owe to us by the due date
    • make SG contributions for your closely held payees before the quarterly due date.

    See also:

    Report a reasonable estimate quarterly

    If you choose to report using this method, you need to:

    • make a reasonable estimate of the amounts you have paid to closely held payees during the quarter
    • report that estimate through STP.

    As the estimate is based on payments you have made to your closely held payees, you should also:

    • report and pay your PAYG withholding on your activity statement based on your estimate
    • make SG contributions for your closely held payees based on your estimate.

    Determining a reasonable estimate

    When working out a reasonable estimate, consider all of your circumstances. Do you expect them to change during the financial year? Your estimate should reflect the amount you have paid your closely held payees during the quarter.

    If your circumstances are not materially different to the year for which you have most recently completed a finalisation declaration, we'll generally accept it is reasonable to report a year-to-date amount in STP that is equal to:

    • Quarter 1 – 25% of the total amount reported in that previous year
    • Quarter 2 – 50% of the total amount reported in that previous year
    • Quarter 3 – 75% of the total amount reported in that previous year
    • Quarter 4 – 100% of the total amount reported in that previous year.

    If your circumstances have materially changed, adjust your estimate to reflect your circumstances. This will ensure you're not overpaying or underpaying your obligations.

    If you reduce your estimate lower than that of your most recently finalised declaration, we may contact you to find out why.

    Example

    MNOP Family Trust has two closely held payees who are trust beneficiaries, that draw from the business throughout the year. They know this money as wages.

    In the 2019–20 financial year, MNOP Family Trust pays each closely held payee $120,000. A Payment Summary Annual Report (PSAR) is lodged in May 2021 reflecting this.

    In early October 2021, MNOP Family Trust is determining the reasonable estimate to report through STP for Quarter 1.

    They know that the business was impacted by COVID-19, but trading in Quarter 1 is similar to what they experienced during the 2019–20 financial year.

    They are drawing money from the business in a similar way to the 2019–20 financial year.

    As MNOP Family Trust's circumstances are similar to the last year, they consider it is a reasonable estimate to report a year to date figure for each payee through STP that is 25% of the 2019-20 amount ($30,000).`

    In May 2022, MNOP Pty Ltd lodges a PSAR showing it paid each closely held payee $60,000 in the 2020–21 financial year. In early October 2022, MNOP Pty Ltd is determining the reasonable estimate to report through STP for Quarter 1.

    They know they were paid less in 2020–21 due to COVID-19, but that the quarter has been more like the 2019–20 financial year.

    They consider it is not reasonable to make an estimate of 25% of the amount paid during the 2020–21 financial year ($15,000).

    Instead, they determine a reasonable estimate is $30,000 and they report that through STP.

    End of example

    When your circumstances change during the year

    If you choose to report reasonable estimates, it's important you adapt your estimate during a financial year if your circumstances change.

    What this means:

    • If you're likely to pay your closely held payees more than you estimated, you should increase your estimate so the year to date figure reflects your circumstances.
    • It the estimate you made in a previous quarter during the same financial year was too high, you can reduce your estimate for the current quarter so the year to date figure reflects your circumstances.

    If your end of financial year estimates were too low

    It's important not to under-estimate the amounts you report for your closely held payees.

    If you identify at the end of the financial year your estimates throughout the year were too low, you'll need to:

    • revise your Quarter 4 activity statement to include any additional PAYG withholding you need to pay, and
    • pay that amount to us.

    When you revise your Quarter 4 activity statement, general interest charge (GIC) may apply. You can ask us to remit the GIC if there are extenuating circumstances.

    You'll also need to review the superannuation contributions you made to ensure you've contributed enough.

    You'll need to lodge a super guarantee charge (SGC) statement if you haven't made contributions throughout the year that are at least :

    • equal to the minimum SG rate, or
    • above the maximum contributions base.

    We'll remit any false or misleading statement penalties or failure to withhold penalties that might otherwise apply as a result of your estimates being too low, as long as:

    • you followed this guidance
    • your estimates throughout the year were reasonable based on your circumstances
    • you paid the amounts you owed each quarter.

    See also:

    If you identify at the end of the financial year that your estimates were too high

    If you identify at the end of the financial year that your estimates throughout the year were too high, you have several options.

    If you've paid too much PAYG withholding, you can revise your activity statements to claim back the excess by either:

    • revising each quarter to the correct PAYG withholding amount
    • reducing the PAYG withholding amount reported in Quarter 4 by the amount of the excess – and working backwards to earlier quarters if the excess is higher than the amount reported in Quarter 4.

    You can also choose to do nothing. Your closely held payees will be entitled to a credit for the PAYG withholding that relates to them when they complete their personal income tax return.

    If you've contributed too much super, you may find it difficult to obtain a refund of the excess from your closely held payee's super fund. If you can't obtain a refund from their super fund, you can count the excess towards the contributions you have to pay for the current quarter or a future quarter, as long as:

    • it's for the same closely held payee, and
    • the start of the quarter is within one year after the date you paid the excess amount to the super fund.

    We'll remit any false or misleading statement penalties or failure to withhold penalties that might otherwise apply as a result of your estimates being too high, as long as:

    • you followed this guidance
    • your estimates throughout the year were reasonable based on your circumstances
    • you paid the amounts you owed each quarter.

    What you need to report

    Like all STP reporting for arm's length employees, your quarterly STP report for your closely held payees must include:

    • year-to-date amounts, up to and including the last day of the quarter, for each closely held payee who received a payment subject to withholding that is required to be reported via STP
    • the payee's ordinary times earnings (OTE) or your superannuation liability for the payee
    • your total gross wages for payments being reported – same as the W1 label on your activity statement
    • your total PAYG withholding payments being reported – same as the W2 label on your activity statement.

    You also have the option of including any applicable voluntary reportable withholding amounts in your quarterly STP report that you paid to a closely held payee during the quarter.

    See also:

    How to lodge the quarterly STP report

    You must lodge your STP report for closely held payees through an STP-enabled solution, the same as you would for arm's length employees. You can either lodge the report yourself or have your registered agent lodge it on your behalf.

    Depending on your STP reporting solution, your report may include both your arm's length employees and your closely held payees.

    The STP report can't be lodged through ATO portals. It is not an additional label on your activity statement.

    Speak to your STP solution provider to see how they offer reporting for closely held payees.

    See also:

    When to lodge quarterly STP reports

    If you choose the quarterly reporting option, your quarterly STP report is due on or before the due date for your quarterly activity statements. This includes concessions that may apply to your circumstances.

    If you report your PAYG withholding on monthly activity statements, your quarterly STP report including amounts paid to your closely held payees is due on the same day as your activity statement for the final month of the quarter.

    Choosing a quarterly option does not change the due date for:

    • reporting and paying your PAYG withholding on your activity statement
    • making SG contributions for your closely held payees.

    You must continue to report information about all of your other employees via STP on or before payday.

    See also:

    Correcting information about a closely held payee

    When reporting quarterly you have until the due date of your next quarterly STP report to correct a closely held payee’s year-to-date information. This is when you identify a need for a correction throughout the financial year.

    If a closely held payee will not be included in your next quarterly STP report, you must either:

    • include them in your current quarterly STP report with corrected year to date amounts, or
    • lodge an Update event by the relevant due date for quarterly activity statement with the corrected year to date amount for the payee.

    Example

    Mentois Pty Ltd lodges an STP report with $0 for its closely held payee in Quarters 1 and 2.

    In Quarter 3, it identifies that a payment was made to the payee in Quarter 1, but the payee has left and won't receive any further payments.

    To correct the information, Mentois Pty Ltd submits an Update event. This includes the correct year-to-date amounts for payments made, amounts withheld and superannuation liabilities that apply.

    End of example

    See also:

    Making a finalisation declaration for closely held payees

    Small employers with only closely held payees have until the due date of the closely held payee’s individual income tax return to make a finalisation declaration for a closely held payee.

    You need to speak with the closely held payee about when their individual income tax return is due.

    You can make a finalisation declaration for a closely held payee at any time during the financial year. For example, for closely held payees who have ceased employment.

    If using the reasonable estimate reporting method throughout the year, you must update your STP report. Show the correct actual year-to-date amount you paid your closely held payees during the financial year – not just the total of your estimates.

    You must make a finalisation declaration for arm's length employees by 14 July.

    See also:

    Last modified: 23 Mar 2021QC 59387