Amounts paid to closely held payees need to be reported through Single Touch Payroll (STP). If you're a small employer (19 or fewer payees), 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.
If you have 20 or more payees, then these arrangements do not apply and you must report any closely held payees in the same way as your arm's length employees.
A closely held payee is an individual directly related to the entity from which they receive payments.
- family members of a family business
- directors or shareholders of a company
- beneficiaries of a trust.
You must continue to report information about all your other employees (known as arm's length employees) via STP on or before each payday (the statutory due date).
It is important to understand how you are using your business money and assets (PDF, 261KB)This link will download a file, as well as your pay as you go (PAYG) withholding and super guarantee obligations, because it affects the way you need to report.
Just like with your arm's length employees, you only need to report amounts that you pay to closely held payees which are subject to withholding and in scope for STP reporting. These are the same under STP Phase 1 and STP Phase 2 reporting.
If you don't pay any amounts which are in scope for STP reporting, then you don't need to report through STP.
It's important to remember that the need to report through STP depends on how the payment is classified, not who the recipient is. The same person may receive payments during a year that are classified differently.
Type of amount
STP reporting required
Salary or wages
Yes – in scope for STP
Yes – in scope for STP
Distributions to a beneficiary of a trust
No – not in scope for STP
Dividends paid to a shareholder
No – not in scope for STP
Amounts that are a loan from the business
No – not in scope for STP
You need to keep accurate business records that demonstrate the type of amounts you pay to your closely held payees. This will help you to determine whether you have paid amounts that you need to report in STP.
If you only pay amounts that do not need to be reported in STP (such as trust distributions or loans to directors), then your business records should also demonstrate this.
Company A's directors are closely held payees. The directors draw money from the business throughout the year. When a director draws money, it is promptly recorded as a loan to that director. At the end of each month, the balance of the loan is reduced to zero by payment of a directors' fee to the director.
The transactions that are promptly recorded as a loan do not need to be reported through STP, as they are amounts that are not in scope for STP and Company A has business records which demonstrate that.
Company A has STP reporting obligations when they pay the directors' fee at the end of each month, as directors' fees are an amount that is within the scope of STP. They need to choose one of the three methods for reporting these amounts through STP.End of example
Amounts paid to closely held payees can be reported through STP in any of the following ways:
- Report actual payments on or before the date of payment – whenever you make a payment to a closely held payee, report the information on or before each pay event.
- Report actual payments quarterly – report your actual payments to closely held payees quarterly. Each quarter, when your activity statement is due, report all payments made in that quarter.
- Report a reasonable estimate quarterly – make a reasonable estimate of the amounts you have paid to closely held payees during the quarter and report that amount through STP.
You need to choose which reporting method you want to use. When you are choosing between the reporting methods, things you should consider include:
- how regularly you pay amounts to your closely held payees that you need to report through STP
- whether you also pay amounts to arm's length employees that you need to report through STP
- the support you have in place to meet your reporting obligations (like scheduled visits with a tax professional)
- how you manage payment of your other obligations (like amounts reported on an activity statement or superannuation guarantee)
Not all reporting options will suit your business circumstances.
You don't need to tell us which of the three reporting methods you have chosen. However, when you have transitioned to STP Phase 2, you will need to tell us that the individual is a closely held payee by reporting them using the Closely Held Payee (CHP) income type if you are:
- using the quarterly reporting options, or
- intending to finalise later than 14 July.
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.
The director visits her 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. This directors' fee is what needs to be reported through STP.
ABCD Pty Ltd chooses to report actual payments on or before the date of payment. This is because when the directors' fee is determined the actual amount is known, and the agent can help lodge the STP report at the same time.End of example
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 classified as wages and reconciled at the end of the year. This means it's known roughly – but not exactly – how much money is to be declared as wages during the year. 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
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 on or before payday.
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 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.
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.
Reporting this way means that at the end of the quarter, you only need to lodge one STP report covering all amounts you paid to your closely held payees during the quarter.
You only need to lodge an STP report in quarters where you have made a payment that you need to report. For example, this means that if you've chosen this reporting option and you only make a payment that you need to report through STP in the December and June quarters, you only need to lodge an STP report for those 2quarters (and finalise your STP reporting at the end of the financial year).
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 for SG contributions (which may be different to the due date for your activity statement).
For information about due dates, see:
Small employers with closely held payees can also choose to make a reasonable estimate based on the amounts paid to closely held payees each quarter. 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.
If you have chosen to report using this method, you should lodge an STP report in each quarter of the financial year.
Because your estimate is based on payments that are usually subject to PAYG withholding and SG you should:
- 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.
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.
MNOP Family Trust has two closely held payees who are trust beneficiaries, that draw from the business throughout the year. Even though they are trust beneficiaries, they have chosen to classify these amounts 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 you identify that your 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.
If you identify 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.
Relief from penalties if your estimate is too low or too high
We won't impose any false or misleading statement penalties or failure to withhold penalties that might otherwise apply as a result of your estimates being too low or 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.
If you choose a quarterly reporting option, your quarterly STP report is due on or before the due date for your quarterly activity statements. If your activity statement is due later than the regular due date (for example, because you are entitled to a concession or have a deferral), then your quarterly STP report is due by your later activity statement due date.
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. If your activity statement is due later than the regular due date (for example, because you are entitled to a concession or have a deferral) then your quarterly STP report is still due by your later activity statement due date.
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 your other employees via STP on or before payday.
For information about due dates, see:
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 online services. 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 or visit STP product registerExternal Link for a list of available STP solutions.
Our STP checklists may help you lodge your STP reports correctly.
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.
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
For more about correcting information in STP Phase 1 or 2, see:
- Single Touch Payroll Phase 1 - correcting information reported through STP
- Single Touch Payroll Phase 2 - correcting information reported through STP
If you have both closely held payees and arm's length employees, your finalisation declaration for your closely held payees is due by 30 September each year. You must still make a finalisation declaration for your arm's length employees by 14 July.
If you only have closely held payees, you 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.
This is usually 31 October. However, your closely held payee may have a later due date for their income tax return, so 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.Single Touch Payroll reporting for small businesses, companies or trusts with directly related (closely held) payees.