Employers will need to review their foreign employee population and ensure a process is in place by 1 July 2019 to manage an additional Single Touch Payroll reporting obligation.
During the first year of Single Touch Payroll (STP), employers were exempt from STP reporting requirements for certain foreign employees seconded to Australia, where they were paid from a foreign payroll and a shadow payroll arrangement was maintained in Australia.
The Australian Taxation Office (ATO) has announced that effective 1 July 2019, this exemption will cease and employers will be required to include these foreign employees in their STP reporting, presumably on the assumption that any shadow payroll arrangement utilises STP compliant software.
It remains unclear however of the extent to which STP reporting will be required where employers have obtained the Commissioner’s approval to vary the PAYG withholding obligations to nil. Current ATO commentary suggests that STP reporting will still be required, however the fact that a PAYG variation in place will typically mean that the Australian payroll is not used, making compliance with STP reporting obligations extremely challenging.
Further consultation with the ATO will take place in late March to provide clarity on this point.
STP reporting requires that employees’ payroll information, including salaries and wages, pay-as-you-go (PAYG) withholding and superannuation liability, is reported to the ATO on a real-time basis when paying employees.
Employers operating a shadow payroll (and potentially those with PAYG withholding variations) will now need to ensure they have processes in place in order to satisfy their STP reporting requirements for employees on foreign payrolls.
The ATO has the power to impose significant penalties where these requirements are not met, and deny deductions for payments made to employees where employers have failed to meet the PAYG withholding obligations.
Whilst payments are normally required to be reported for STP purposes on or before each pay day, a timing concession will apply for foreign employees whereby the reporting due date will be up to one month later. This is in recognition of the challenges that employers may face in obtaining this information from foreign payrolls on a timely basis.
Additionally, for the 2019-20 financial year only, the ATO will defer the due date for submitting the end of year STP finalisation (i.e. year-end reconciliation) until 14 September 2020 for foreign employees maintained under a shadow payroll arrangement.
Employers will need to review their foreign employee population and ensure a process is in place by 1 July 2019 to manage this additional STP reporting obligation.
Subject to the outcome of ATO consultation in March, those with PAYG withholding variations may also need to revisit arrangements to determine if a shadow payroll is a more appropriate process under the STP regime.
KPMG Australia can help employers deliver STP compliant shadow payrolls using its Shadow Payroll Assist technology.
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