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2019 Budget Overview

The Federal Government handed down the 2019/20 Federal Budget on Tuesday 2 April, 2019.  Please note that due to the May election and a hostile Senate, not all of these budget announcements have been legislated at this stage.  We will examine the major announcements in the budget for individuals, businesses, superannuation funds and also some additional miscellaneous changes.

Personal Income Tax Changes

A major focus of Treasurer Josh Frydenberg’s budget was tax cuts for those earning up to $126,000.  Additional changes to the personal income tax rates, with the 19% personal income tax bracket increased to $45,000 have been proposed for implementation from 1 July 2022.  Some of the more relevant changes affecting individuals for the 2019 financial year include:

  1. Increase to the Low and Middle Tax Offset

The Low and Middle Income Tax Offset (’LMITO’) is a non-refundable tax offset that is intended to benefit Australian resident low and middle income taxpayers.  Currently, the LMITO applies from the 2019 income year to provide tax relief of up to $530, with a base amount of $200.

The Government has announced that it will increase the LMITO, with effect from the 2019 income year, to provide tax relief of up to $1,080 per annum, as well as an increased base amount of $255 per annum.  The (increased) LMITO will be available for the 2019 income year up until the 2022 income year (inclusive) and will be received on assessment after individuals lodge their income tax return.

The current and proposed LMITO apply as follows:

LMITO (current) LMITO (proposed)
$0 – $37,000 Up to $200 $0 – $37,000 Up to $255
$37,001 – $48,000 $200 + 3% of excess over $37,000 $37,001 – $48,000

$255 + 7.5% of

excess over $37,000

$48,001 – $90,000 $530 $48,001 – $90,000 $1,080
$90,001 – $125,333 $530 – 1.5% of excess over $90,000 $90,001 – $126,000

$1,080 – 3% of

excess over $90,000

$125,334 + Nil $126,001 + Nil

 

The LMITO applies in addition to the Low Income Tax Offset (‘LITO’).

The maximum LITO is currently $445.

From 1 July 2022, both the LMITO and LITO will be replaced by a single LITO. In the 2018/19 Federal Budget, the Government announced that the \maximum single LITO will be $645.

In the 2019/20 Federal Budget, the Government has now announced that the maximum single LITO will be increased to $700.  The increased LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000. LITO will then be withdrawn at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.

  1. Increasing the Medicare Levy for Low-income Thresholds

The Government will increase the Medicare levy low-income thresholds for singles, families and seniors and pensioners from the 2019 income year, as follows:

  • The threshold for singles will be increased from $21,980 to $22,398.
  • The family threshold will be increased from $37,089 to $37,794.
  • The threshold for single seniors and pensioners will be increased from $34,758 to $35,418.
  • The family threshold for seniors and pensioners will be increased from $48,385 to $49,304.

For each dependent child or student, the family income thresholds increase by a further $3,471, up from the previous amount of $3,406.

Changes for Business Taxpayers to the Instant Asset Write-Off

The Government announced that it is increasing and expanding access to the instant asset write-off and this budget measure has now been enacted. The threshold has increased to $30,000 and been extended to 30 June 2020.

The instant asset write-off now also includes businesses with a turnover from $10 million to less than $50 million.  These businesses can claim a deduction of up to $30,000 for the business portion of each asset (new or second hand), purchased and first used or installed ready for use from 7.30pm (AEDT) on 2 April 2019 until 30 June 2020.

Businesses with a turnover of up to $10 million can also claim a deduction for each asset purchased and first used or installed ready for use, up to the following thresholds:

  • $30,000 from 7.30pm (AEDT) on 2 April 2019 until 30 June 2020
  • $25,000 from 29 January 2019 until before 7.30pm (AEDT) on 2 April 2019
  • $20,000 before 29 January 2019.

Please note that both small and medium businesses cannot immediately claim a deduction for individual assets that cost $30,000 or more.  Such businesses can continue to deduct these over time using the small business pool or the general depreciation rules, depending on business turnover.

Superannuation Related Changes

Important changes to the area of superannuation announced in the 2019/20 Federal Budget include:

  1. Changes to the Superannuation Contribution Rules

(a) Removing the work test for those aged 65 and 66 years

The Government has announced that it will allow voluntary superannuation contributions (both concessional and non-concessional) to be made by those aged 65 and 66 years without meeting the work test from 1 July 2020 (i.e., from the 2021 income year).

Currently, people aged 65 to 74 years can generally only make voluntary superannuation contributions if they satisfy the work test.

An individual satisfies the work test in a particular income year where they are ‘gainfully employed’ on at least a part-time basis during the income year in which the contributions are made. For these purposes, this will be the case where the member was gainfully employed for at least 40 hours in

a period of not more than 30 consecutive days in the income year in which the contribution is made.

Note however, the current law does provide a limited ‘work test exemption’ for recent retirees wishing to make voluntary superannuation contributions in 2020 and later years (i.e., from 1July 2019).

This exemption applies where all of the following requirements are satisfied:

  • The member does not meet the work test in the contribution year.
  • The member met the work test in the previous income year.
  • The member had a total superannuation balance (‘TSB’) below $300,000 on 30 June of the previous income year.
  • The individual has not previously relied on the work test exemption to make contributions.

(b) Access to the ‘bring-forward rule’ for those aged 65 and 66 years

The Government has announced that it will allow those aged 65 and 66 to make up to three years of non-concessional contributions under the bring-forward rule (without satisfying the work test).

Under current law, broadly, those aged 65 and over cannot access bring-forward arrangements.

(c) Increasing the age limit for spouse contributions

Individuals up to and including the age of 74 will be able to receive spouse contributions (with those 65 and 66 no longer needing to meet a work test).

Currently, those aged 70 and over cannot receive spouse contributions.

  1. Insurance on an Opt-in Basis

The Government will delay the start date for ensuring that insurance within superannuation is only offered on an opt-in basis for accounts with balances of less than $6,000 and new accounts belonging to members under the age of 25 years to 1 October 2019.

These changes, if legislated, will protect the retirement savings of young people and those with low balances by ensuring their superannuation is not unnecessarily eroded by premiums on insurance policies they do not need or are not aware of.

  1. Reducing Red Tape for Superannuation Funds

The Government will streamline the following administrative requirements for the calculation of exempt current pension income (‘ECPI’) from 1 July 2020:

  • The Government will allow superannuation fund trustees with interests in both the accumulation and retirement phases during an income year to choose their preferred method (i.e., the segregated method or the proportionate method) of calculating ECPI.
  • The Government will also remove a redundant requirement for superannuation funds to obtain an actuarial certificate when calculating ECPI using the proportionate method, where all members of the fund are fully in the retirement phase for the entire income year.

Additional Budget Announcements

There were some additional budget announcements made by the Morrison Government that directly affect various groups of taxpayers.  Please note some of the more important proposed changes below:

  1. Increased Refunds for Eligible Primary Producers and Tourism Operators

The Government will provide further relief to farmers and tourism operators by amending the luxury car tax refund arrangements. For vehicles acquired on or after 1 July 2019, eligible primary producers and tourism operators will be able to apply for a refund of any luxury car tax paid, up to a maximum of $10,000.

Currently, primary producers and tourism operators may be eligible for a partial refund of the luxury car tax paid on eligible four-wheel or all-wheel drive cars, up to a maximum refund of $3,000.

The eligibility criteria and types of vehicles eligible for the current partial refund will remain unchanged under the new refund arrangements.

  1. Concessional Treatment for the Forced Sale of Livestock

Over two years from 2018/19, farmers receiving Farm Household Allowance (‘FHA’) will be able to exempt income from the forced sale of livestock from the FHA income test when that income is invested in a farm management deposit.

This measure will ensure that FHA recipients who are destocking retain access to income support, while making long-term financial plans.

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Tightened Business Deductions, Contractor ABN Beware

We remind businesses that from 1 July 2019 they will only be able to claim deductions for payments that are made to workers (employees or contractors) when they have complied with the pay-as-you-go (PAYG)    withholding and reporting obligations for that payment.  If the PAYG withholding rules require a business to withhold an amount of tax from a payment (such as is required for salary and wages, bonuses, commissions, director’s fees and payments to contractors if no ABN is provided), the business must withhold the amount and report to the ATO.  Otherwise, the payment will be considered ‘non-compliant’ and will not be tax deductible.

Given the new rules, business clients should be aware of the need for independent contractors to have an active ABN. It is important to check (not just rely on a contractor’s advice) that each contractor has a current and valid ABN before making payment.

Our QBO clients should note that the program provides a direct link to the Australian Business Register (ABR) where an ABN can be checked.  The direct link to the ABR site can be accessed from the ‘Supplier Information’ screen and choosing ‘verify’ (alongside ABN).  Alternatively, please go direct to the ABR website: abr.business.gov.au

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Single Touch Payroll Update – June 2019

Employer Update

Employers with 19 or fewer employees are required to start reporting through Single Touch Payroll (STP) from 1 July 2019.

For employers under the STP the following changes will occur:

  • You will be reporting salary and wages, PAYG withholding and super information to the ATO at the same time as you pay your employees.
  • You are no longer required to give your employees a payment summary at the end of the financial year for the information you report through the STP system.
  • Year-to-date and end-of-year tax and super information for your employees will be available in their ATO online account linked to my Gov.

The ATO will be working with employers to support them as they transition to STP, including allowing small employers to start reporting any time from 1 July to 30 September.

The ATO recognises there will be circumstances where more time is needed to implement STP or lodge reports.  They will:

  • Offer micro employers (1 to 4 employees) help to transition to STP. Where a micro employer relies on a registered tax or BAS agent they can report quarterly for the first two years.
  • Grant deferrals to any small employer who requests additional time to start STP reporting.
  • Apply no penalties for mistakes, missed or late reports for the first year; and
  • Provide exemptions from STP reporting for employers experiencing hardship or in areas with intermittent or no internet connection.

Note also that employers with 19 or less employees do not need to report ‘closely held payees’ in 2019/20 and can report closely held payees information quarterly from 1 July 2020.

We remind our QBO users that QBO is ready and compliant for STP.   Please also note that assistance is available for clients who need someone to demonstrate the workings of STP and we are happy to visit you on-site to work through the various procedures.

Please contact our office if you require any further assistance or information regarding your STP obligations.

Employees and Payment Summaries

The ATO has also reminded employees that how they get their end of financial year information from their employer, showing their earnings for the year, depends on how their employer reports their income, tax and super information to the ATO.

Specifically:

  • Employers that are not yet reporting through STP will continue to provide employees with a payment summary by 14 July.
  • Employers that report through STP are no longer required to give employees a payment summary; instead this information will be provided in an ‘income statement’, available via the employee’s myGov account by 31 July (i.e., when the employer marks it as ‘Tax Ready’).

Please contact our office if you have any queries about STP either as an employer or employee.

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Single Touch Payroll Update – March 2019

Understanding Single Touch Payroll obligations

Single Touch Payroll (‘STP’) is a Government initiative aimed at cutting red tape for employers and improving visibility of compliance with business obligations such as:

  • salary and wages and similar payments;
  • Pay As You Go (‘PAYG’) withholding; and
  • certain superannuation related information;

by requiring ‘real time’ reporting of payroll information directly to the ATO.

Importantly, STP is designed to extract information that already exists in an employer’s payroll system.

As such, it is not intended to impose any additional burden on employers, other than requiring them to report the information to the ATO sooner.

From a practical perspective, businesses must use STP compliant software to comply with the new obligations.  This will necessitate updating or changing their current payroll software.

Generally, most payroll software providers will have already adapted their software to ensure the required reporting capability has been incorporated.

Once a business has adopted the appropriate software, ongoing reporting obligations should be dealt with as part of an automated software function.

Effectively, employers will send their employees’ relevant payroll information required under STP to the ATO each time they run their payroll and pay their employees.

Crucially, in complying with their STP obligations employers will not change their payroll cycle.

When a business reports to the ATO via STP, the relevant employees will be able to view their year-to-date tax and super information through myGov.

As a result of STP reporting, a number of ongoing compliance obligations for employers will be streamlined, and/or removed.  Some benefits for employers under STP include the following:

  • The removal of the need to issue an annual ‘Payment Summary’ to employees  for payments reported to the ATO via STP, provided an employer lodges a ‘finalisation declaration’ (i.e., generally by 14 July, although extensions are in place for the first year of STP implementation).
  • The removal of the need to lodge a ‘Payment Summary Annual Report‘ for payments reported through STP.
  • From 1 July 2019, STP will enable the pre-filling of BAS Labels W1 (gross salary and wages and other payments) and W2 (amounts withheld from salary, wages and other payments) for employers that are small or medium withholders.
  • The streamlining of employee documentation such as the lodgment of  ‘TFN Declarations’ and ‘Withholding Declarations’ via enabled software.

It is important to understand that STP does not impact or change when employers must actually remit PAYG withholding amounts to the ATO or make super contributions.  The new STP obligations simply affect when employers must report these payments to the ATO.

Original commencement date

STP commenced from 1 July 2018, for employers with 20 or more employees (i.e., substantial employers).

When determining whether or not the 1 July 2018 start date applied, an employer was required to do a headcount of the number of employees they had on 1 April 2018.

Broadly included in the headcount were all full-time and part-time employees, casual employees who worked at any time during March 2018, overseas employees, any employees absent or on leave (paid or unpaid) and seasonal employees.

Pending STP commencement date for small employers now law

Small employers (being those with less than 20 employees) are now technically required to commence their STP reporting obligations from 1 July 2019.

The intended STP obligations on small employers has only recently become law, with the Treasury Laws Amendment (2018 Measures No. 4) Bill 2018 finally being passed by both houses of Parliament on 12 February 2019.

This means that from 1 July 2019 all employers, no matter their size, will generally be required to comply with the STP reporting obligations.

The ATO says it will be writing to small employers who have 19 or less employees and already use payroll software to tell them about STP, and remind them that if their payroll software offers STP, they can update their software and start reporting now.

One-year exemption for closely held payees

The ATO has announced that closely held payees – such as family members – will be given a one-year exemption from STP reporting.

The exemption will be provided to closely held payees for the 2019-2020 financial year and STP reporting for these payees will now commence from 1 July 2020. The ATO is also exploring the possibly of a quarterly reporting requirement for these payees.

The ATO’s definition of a closely held employee is one who is a non-arm’s length employee, directly related to the entity from which they receive payments, including family members of a family business, directors of a company, and shareholders or beneficiaries.

The exemption recognises that payments made to closely held employees do not always form part of traditional weekly or fortnightly payroll processes.

The ATO will be looking to provide more details about how STP reporting will affect the closely held group in the coming months.

Solutions for micro employers without existing payroll software

The ATO has released a detailed register of STP products for micro employers (generally defined as businesses with one to four employees) who do not currently have payroll software.

There are six products that are currently available, namely by Cashflow Manager, ePayroll, Single Touch Pty Ltd, CloudPayroll Pty Ltd, AccXite Pty Ltd, and Free Accounting Software Pty Ltd.

All of the products have been priced at $10 or less per month with AccXite offering its product for free until 31 December 2019 before charging $10 a month. As its name suggests, Free Accounting Software’s product will be free.

Some of the major software players such as Intuit (QBO), MYOB, Xero and Reckon have all announced that they will be providing an option at $10 or less per month, with their products to be available between April and June.

The product register released by the ATO can be viewed here: www.ato.gov.au/Business/Single-Touch-Payroll/In-detail/Low-cost-Single-Touch-Payroll-solutions/

If you are currently not using an accounting software package please speak to your accountant for advice in choosing the most appropriate package for your needs.

Flexible ATO implementation

The Commissioner of Taxation, Chris Jordan,  recently made a personal guarantee that the ATO’s approach to STP will be “flexible, reasonable and pragmatic”.

In particular, despite the 1 July 2019 start date for small employers, the Commissioner has stated that they can start STP reporting any time from 1 July 2019 to 30 September 2019.

This effectively provides a three-month implementation reprieve for small employers.

The ATO has also indicated that there will be no penalties for mistakes, missed or late reports for the first year and exemptions will be provided from STP reporting for employers experiencing hardship, or in areas with intermittent or no internet connection.

We recommend that you check for the STP update to your existing payroll software.  We remind our QBO users that STP is ready and available for use. Please contact us if you require assistance activating STP in your payroll program or if you need any other help navigating this new reporting framework.

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Changes to Small Business Instant Asset Write-off

On 29 January 2019, the Prime Minister announced that legislation will be introduced to:

  • extend the small business instant asset write-off by 12 months to 30 June 2020; and
  • increase the write-off threshold from less than $20,000 to less than $25,000 (effective immediately).

The current threshold of $20,000 has applied since 7.30pm AEST on 12 May 2015 and was due to revert to $1,000 on 1 July 2019.

Under the proposed changes, from 29 January 2019 until 30 June 2020, small businesses with an aggregated annual turnover of less than $10 million may claim an immediate deduction for the business-use portion of each depreciating asset costing less than $25,000.

Example

To illustrate, assume an individual acquires a van for $22,000 (excluding GST entitlements) on 1 February 2019.

The individual is a small business entity and estimates the van will be used 90% for the business and 10% for private purposes.

Under the current rules, while the business-use portion of the cost of the van is less than $20,000 (i.e., $22,000 x 90% = $19,800), an immediate deduction is not available because the entire cost is $20,000 or more. 

However, the van may be depreciated as part of the taxpayer’s SBE small business pool.

In contrast, an immediate deduction of $19,800 may now be claimed under the proposed changes, as the entire cost of the van is below the new threshold of $25,000.

This measure is expected to benefit more than 3 million eligible small businesses.

Please note at this stage the Treasury Laws Amendment (Increasing the Instant Asset Write-Off for Small Business Entities) Bill 2019 has not been passed by Parliament.

Should this Bill become law, it will open up opportunities for small businesses to claim an immediate deduction for depreciating assets (where they cost less than $25,000) up until 30 June 2020.

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Superannuation Amnesty Blocked – ATO Waives Penalties

The ATO has confirmed it will waive penalties for businesses who voluntarily disclosed underpayment of superannuation in the wake of the ‘botched’ superannuation guarantee amnesty.

The amnesty was a federal government initiative that encouraged employers to ‘wipe the slate clean’ and pay workers their unpaid super entitlements. It proposed a waiver of the administration component, Part 7 penalty and the tax deductibility of all catch-up payments during the 12 month amnesty period.

But the amnesty failed to get through parliament meaning the tax office will now use it’s discretion to waive penalties for employers that came forward thinking they could apply for amnesty.

“Consistent with our existing approaches in other instances where people come forward voluntarily, when we receive these superannuation guarantee notifications, the fact that they have come forward to the ATO is a strong consideration in the level of discretional penalty applied”, an ATO spokesperson stated.

“In relation to superannuation guarantee, the ATO only has the discretion to remit the Part 7 penalty. With regard to those taxpayers who made a voluntary disclosure in anticipation of the proposed amnesty, we will remit the Part 7 penalty in full.”

Employers will still have to pay the superannuation guarantee they owe to their employee, the interest amount, and the $20 administration component per employee per quarter.

If you have self-reported and need assistance in this area please contact our office for advice.

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Superannuation Guarantee Amnesty Still Pending

The proposed superannuation guarantee (‘SG’) amnesty is a one-off, 12-month opportunity to self-correct past non-compliance (i.e., from 24 May 2018 to 23 May 2019).

It will apply to previously undeclared SG shortfalls for any period from 1 July 1992 up to 31 March 2018.

The ‘carrot’ currently on the table is that employers who voluntarily disclose previously undeclared SG shortfalls during the amnesty (i.e., importantly, before the commencement of an ATO audit) will:

not be liable for the administration component and penalties that may otherwise apply to late SG payments, and

be able to claim a deduction for catch-up payments made during the relevant 12-month period.

This means that employers will still be required to pay all employee entitlements, including any unpaid SG amounts owed to employees and the nominal interest, as well as any associated general interest charge.

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Personal Income Tax Cuts

Parliament has passed the Government’s Personal Income Tax plan, meaning that the first stage of the proposed income tax cuts will start to take effect from 1 July 2018.  As a result of these tax cuts, all employers are advised that the current Pay as you go (PAYG) withholding tables have been updated. Please refer to the new rates at www.ato.gov.au/Rates/Tax-tables.

The Government’s Personal Income Tax plan has three steps:

  1. The Government will introduce the Low and Middle Income Tax Offset (in addition to the Low Income Tax Offset) from 1 July 2018, being a non-refundable tax offset of up to $530 per annum to Australian resident low and middle income taxpayers (apparently over 10 million taxpayers will get at least some tax relief from this new offset in 2019 income year).

The offset will be available for the 2019, 2020, 2021 and 2022 income years and will be received as a lump sum on assessment after an individual lodges their tax return.

  1. Lifting tax brackets, to protect Australians from the impact of ‘bracket creep’, as follows:

– From 1 July 2018, the top threshold of the 32.5% personal income tax bracket will increase from $87,000 to $90,000.

– From 1 July 2022, the 19% personal income tax bracket will increase from $37,000 to $41,000, and the top threshold of the 32.5% personal income tax bracket will further increase from $90,000 to $120,000.

The low income tax offset will also be lifted to $645.

  1. The 37% tax bracket will be removed entirely from 1 July 2024, and the top threshold of the 32.5% personal income tax bracket will be increased from $120,000 to $200,000.
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Highly Anticipated STP Law Secures Passage

Single Touch Payroll (‘STP’) will now cover businesses of all sizes after legislation was passed by the Senate to expand the STP framework to employers with 19 or less employees from 1 July 2019.

It is estimated an additional 700,000 employers will enter STP as a result of the new law, joining the 73,000 employers with 20 or more employees who commenced STP on 1 July 2018.

The ATO acknowledges there is a large number of very small employers who have less than five employees (‘micro-employers’) who do not currently use a payroll product and has indicated that they are not looking to force them to take up a product to comply with STP. Efforts are being made to work with industry to look at some alternate reporting mechanisms and flexible options to help transition micro-employers to STP over the next couple of years.

In preparation for the rollout across all businesses, the ATO sought expressions of interest from digital service providers to provide low cost STP alternatives such as mobile apps, simple reporting solutions or portals.

The ATO has now published a list of 24 companies intending to provide such solutions, with the list to be updated further this month to include information about the products these companies will offer. Intuit, MYOB, Xero and Reckon have each put forward product proposals.

The ATO does not realistically expect that everyone will start STP from 1 July 2019 and has indicated that it will be flexible with the commencement date, including the provision of deferrals to help stagger the uptake. Employers who are in an area that has internet issues or challenges are reminded that there are potential exemptions available under STP.

This is a positive message from the ATO, particularly for micro-employers. Hopefully, together with the relevant software developers, they are able to come up with a low-cost and simple alternative for those who do not currently use payroll software to comply with their STP obligations.

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Single Touch Payroll Update

Single Touch Payroll (STP) is a new reporting framework requiring employers to provide payroll and superannuation information to the Australian Taxation Office (ATO) as and when employees are paid.

The framework represents a significant change for business, both in the way that employers report and the level of detail being shared with the ATO and we remind businesses of the importance of checking their current HR practices and procedures.

Once an employer starts reporting, employees will be able to access payroll and superannuation information via ATO online services. Employees should also be aware there may be changes to the way employers issue payment summaries.

The start date for ‘substantial’ employers with 20 or more employees is 1 July 2018 and employers with 19 or less employees will be included from 1 July 2019.

All employers are required to count the number of employees on their payroll on 1 April 2018 to find out if they are a substantial employer (note that this can be done after 1 April, but they need to count the employees who were on their payroll on 1 April).

They must count each employee (not the full time equivalent), including full-time, part-time and casual employees, as well as those employees based overseas or absent or on leave (paid or unpaid).

Employers that are part of a company group must include the total number of employees employed by all member companies of the wholly-owned group.

However, employers don’t have to include the following in the headcount:

• any employees who ceased work before 1 April;
• casual employees who did not work in March;
• independent contractors;
• staff provided by a third-party labour hire organisation;
• company directors or office holders; or
• religious practitioners.

Note that, although directors, office holders and religious practitioners are not included in the headcount, if the employer starts reporting through STP, the payment information of these individuals will need to be reported (because the payments are subject to withholding and are currently reported in the Individual non-business payment summary).

Employers don’t need to send the ATO the headcount information, but they may want to keep a copy for their own records.

Once an employer becomes a substantial employer, they will need to continue reporting through STP even if their employee numbers drop to 19 or less (unless they apply for and are granted an exemption).

We have provided a checklist for our business clients to help prepare for Single Touch Payroll and ask that you contact us as soon as possible if you require further assistance.

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