SUBMITTED BY: STUART ROBERTSON, MACBRIDE HINTON & CO SUBMISSION TO SINGLETOUCHPAYROLL DATE OF PREPERATION: FEBRUARY 2015 SUBMITTED BY: MACBRIDE HINTON & CO. First my apologies if this submission does not fit a certain set criteria, this is my first. This practice is a small firm of Chartered Accountants, specializing in small businesses. As an example, a client with the largest number of employees has a staff of approx. 40, we have several clients in the 20-40 category. However, the majority of our clients have between 4 and 20 employees. This practice prepares the BAS returns for a number of the smaller clients, predominantly single employee/principal company’s (otherwise a sole trader if the company did not exist), plus the annual accounting and income tax for a wide range of businesses, in a wide range of industries. Our largest client has a business turnover of $35 million and our smallest $80,000. With the introduction of the GST, a significant majority of businesses became more professional with respect to the management of their businesses and record keeping. However, that did not require them to change the way they kept their books and records, they only had to be better organized. We have clients that maintain manual hand written cash books, use Excel spread sheets to summarise transactions, keep a shoe box of receipts if that is their way, but they had to be better organized to report for BAS. We receive these records in whatever format they are kept and translate them to a BAS return. Some of these records are maintained in such a way that are better than some of the computerized records we receive from some bookkeepers. One of our larger small businesses, with a turnover of approx. $8 million (but it has been $10 million) uses an Excel spread sheet to record his transactions. As he has multiple bank accounts in more than one currency, he can summarise far more effectively than us. The principal is the only employee and he does not need computerized payroll for him to keep track of his salary, annual leave etc. We prepare a handwritten PAYG withheld summary for his pay each year and with only one employee, it takes a couple of minutes to prepare. He would receive absolutely no benefit from the proposed changes and hence, the only thing for him to look forward to is more costs. He also spends a considerable amount of time overseas and he could easily run his business from Hong Kong, Singapore – almost anywhere. It has been discussed and a move such as is proposed I suspect will have him setting up an office in Hong Kong and moving there with his family. Australia would lose a business that currently pays income tax of approx. $200,000 per annum, an employee that has tax withheld of approx. $35,000 per annum and I would lose a client that currently pays me approximately $30,000 per annum, the GST on that and the income tax on the profit from that. So from that one man business, Australia risks losing taxes of approx. $300,000 per annum and his current expansion plans would be spent elsewhere. In our client base of approx. 200 business clients, less than half would welcome the move, approx. 10% would actively look at “other ways” and not participate, some would not be capable of doing it, with software or without (I have one client who struggles to balance an Excel spreadsheet every three months let alone sign up for accounting software – and he has had accounting training). As soon as I hear a politician talking about reducing “Red Tape” I know that it will increase – it NEVER reduces, just increases and shifts. What is the ultimate benefit in implementing this process and who will benefit? The ATO document asserts that it will cut Red Tape. However, to achieve this they will be REQUIRING SIGNIFICANTLY extra contact with a bureaucracy, a contradiction to start with. Business will be required to be in contact on a weekly basis with a flow of data on millions of Australian citizens when there is currently nil. Is the fraud rate so high that it requires change? The answer is no. Is the error rate so high that it justifies the change? Again the answer is no, though 2014 was a fraught year with the new ATO reporting of PAYG withheld summaries and reconciliations not working properly at the ATO level. I cannot see how processing 52 sets of data (ie. Weekly) on 6 million or so people will improve the system and save red tape. Who will issue the PAYG Summaries? Certainly not the ATO, which means the employer will still have to do this. The only saving may be in that the employer will not have to lodge a copy of these with the ATO and lodge a reconciliation. Wow, some savings in Red Tape, half an hour or so a year for the average small business. However, what if the PAYG summary handed to an employee does not agree with the ATO records (it may only be a few dollars different due to rounding or one transfer of information did not work properly)? I can see this happening every year

even if all systems are working properly. That half a hour or so saved has suddenly disappeared in trying to sort out the differences with the ATO. I have a client in exactly this problem at the moment because of the failing of the ATO electronic lodgement of PAYG Summaries for 2014. I see the proposal as a significant barrier of entry for small business. We still have a small number of clients that hand write cash books and send it in every quarter, one who works from a shed in a remote spot that is in a primary industry that would close the business rather than learn how to operate a computer to make pays every week – he only turns over $200,000 approx. per year and hence, his profit is not massive. He hand writes his books in a perfectly satisfactory manner to enable a BAS return and his annual accounts and tax returns to be prepared. The vast majority of clients of this practice will not use “The Cloud” for their accounting needs. I realize the software providers are pushing for clients to their products, (we deal with MYOB) and they would love an enforced implementation when they cannot get it from anywhere else. This proposal smacks of political lobbying by the software industry and opportunism. Regardless as to what is being promised by the software providers, MYOB is a long way behind others and are trying to make catch-up and losing its existing client base as a result. Further, the businesses’ being prepared for this proposal is one thing. Would the ATO be prepared for the hundreds of thousands (if not millions) of businesses wanting to log in each Thursday or Friday to process pays? It is difficult enough to get through to the portal at peak tax lodgement times. I should also point out that the ATO’s last change, being the lodgment of the PAYG withholding summaries and reconciliations in 2014 was fraught with difficulties and considerable time wasted with ATO systems not recording a lodgment. It was easier and safer when downloading onto a disk and sending to the ATO – certainly the error rate was significantly less than the 2014 process. Sadly, it is us that end up paying because we, and our clients get harassed because a document has not been lodged (when they believed that it had been), threatened with penalties and it is up to us to prove that we have lodged. In summary, the implementation of this requirement should have a minimum size employer (20 employees). Anything smaller than that will be impossible to fully implement. The comments expressed in this paper will be focused on small and micro businesses as that is the only category that we deal with. Comments will be based on our experiences over many years. I personally have worked with businesses of all sizes, including multi nationals, but that was some years ago and my recent experience is with small businesses. Within this category are also micro businesses which in some circumstances may have a slightly different perspective. We also refer to examples which are actual clients of the practice. Further, the ATO being able to impose a weekly late lodgment penalty would be outrageous. Make entity’s lodge more often to suit the ATO’s agenda and then penalize them when they are late is an outrageously expensive exercise, which will get far worse. There are some weeks when a small business can barely scrape enough for wages. Maybe the ATO would like to run the businesses as well. The economics of cash flow starts at the very top in business, from the Government departments and multi nationals. During the GFC, these entities delayed or virtually stopped paying their creditors, for example paying them 90 days instead of 45 or 60 days. That filtered down to the next level of business that also extended their payment terms to match to the next level. The end result was that small business are at the bottom and had enormous difficulties in getting paid, debtors blew out to the extent that they had to borrow against their homes to survive (many didn’t). Hence, if you are again going to shorten creditor terms for all business by making them pay tax withheld and super contributions weekly, how are small business going to fund it when they are at the bottom of the pile? Again, the top will slow payments, so that they are basically unaffected, this will slowly filter down so that by the time it gets to small business, they are left once again having to borrow against their homes to survive which leaves them dependent on the banks. Some will not survive. Further, it is all very well to assert that this will affect all businesses equally. However, this is not the case, the big businesses will revert to GFC behavior and small businesses are at the bottom of the pile trying to survive.

To deal with the consultation questions:

1. Will the reporting increase or reduce red tape? For small business, Red Tape will certainly increase significantly – any change always does, red tape never reduces regardless of Government decree. Even with a simple proposition such as the GST or capital gains tax, the ATO created a nightmare of regulatory red tape that every one had to understand and leap through. This will be no different. There may be some very minor saving in red tape by the actual introduction, but by the time implementation commences: • The ATO will have a 200 page book on how it should be done. For Micro businesses, this will be too

difficult. For the larger small businesses, it will be too difficult because none of them have any in-house IT assistance.

• The ATO will not have made decisions on ALL areas of implementation (it took approximately three years before all tax rulings were issued on the introduction of the GST and a couple more years of arguing with the businesses affected);

• ATO software will almost certainly not work from day 1, with the responsibility put on the suppliers of information, not the ATO

• Small businesses do not have any in-house IT assistance. They will have to wait in line with everyone else for the IT consultants to get around to assisting an individual entity. Y2K saw an enormous use worldwide in IT consultants; this will be similar in Australia.

2. What is the size of this red tape increase? For small business, it can be significant. How long is a piece of string? The degree will depend on how much red tape the ATO causes as part of the implementation and on-going running. I have been a tax agent for 30 years and I do not recall any introduction of any legislation that has not involved the ATO expressing their paranoia in significant “safeguards” that create much much, much, more red tape. I cannot see this happening any other way. Nothing the ATO has introduced in the last 30 years has saved red tape, not even the simplified tax system. Hence, I would expect the costs to small business to be as high as 10% of their turnover for a “micro” business, but certainly 5% or more for most small businesses for turnovers up to $2 million and possibly 1.0% to 2.0% for the larger small businesses. None of these businesses have expertise in-house, so they will be relying on software consultants and programmers to get them ready. As an example, one of my larger small businesses I estimate a significant change like this will cost them approx. $70,000 to implement and train. In 2014 they made a taxable profit of $290,000 and hence, the cost is approximately 26% of net profit, but it will also reduce tax revenues by $22,500

3. Would Single Touch Payroll reduce or increase red tape costs in the long run? For small business, as noted in the previous answer, the ATO would ensure that there is significant on-going additional red tape. As there is very little saving in this system, I believe that there will be significant long term red tape burdens and costs. Small businesses do not have the staff or expertise to handle, except to use advisors such as ourselves. However, we are NOT interested in getting involved in a weekly burden with our clients, who will not be able to afford it, will not want to pay for an imposed plan and will certainly not want to pay our fees that would be involved. (As an aside, the last MAJOR change in our tax system was the implementation of the GST. It took accounting practices such as ours two years to get our clients running smoothly and our lodgment program up to date working 80 hours a week for those two years – I am not keen to do it again with another major change to reporting). What happens when the principal goes on holidays? He can pre-program his wages with the bank so that staff get paid, will he also have to work out how to link in with the ATO? As an example, one of our micro businesses owns a shop with a turnover of approx. $200,000. They have one employee on a part-time basis. To comply with these proposals, if they asked us to process for them (they would not be capable of doing it themselves) I would be looking at a fee of $200 - $250 per pay (not including GST). This represents a cost of approx. $10,000 + per year to them, which represents nearly 50% of the principals profit – her total remuneration. This cost will not go down and will represent the base of the costs for this proposal. With the larger small businesses, it will be a matter of systems and training. However, they will only have one key person. What happens when they get sick, go on leave? What flexibility will the system have? The pays can be pre-programmed with the bank. As an example, I have one client with a turnover of close to $10 million and 26 staff. None of the office staff are qualified accountants (or bookkeepers by training); none are full time, what happens when the office senior takes holidays?

4. What is the estimated size of the long run Red Tape? For small business, it will seem huge and will not reduce to any significant extent. Further it will be on-going – they will have to pay someone to help them with the costs being consistent on an on-going basis. For the larger small businesses, there may be a small reduction over time due to familiarity. However, if they lose a critical staff member, the costs go back up to implementation levels. For staff annual leave, LSL and sick leave, costs go up again.

5. What impact would the more frequent payments have on cash flow? For small business, the more established, well funded business will probably not have a problem surviving, though it does bring forward a liability payment which gives them less business flexibility should they have a slow cash flow week or month (or during the GFC, six months). Hence, their ability to survive becomes compromised if the economy or their industry takes a hit. For less established businesses, it can cause serious cash flow difficulties which may not be evident with monthly or quarterly payments. For a growing business, the threshold at which you look to employ your first staff member will be set much higher and hence, new businesses will delay employing staff – it is an additional risk and cost of employing people. I haven’t even considered GST Free businesses or those that receive Fuel rebates, or those that only have to remit quarterly. A GST Free business quite often does not have to make any payments to the ATO for the quarterly GST and they are now being asked to remit money they normally do not have to pay. With this proposal, because the GST Free businesses will be expected to pay the PAYG Withheld as they go, the refunds each quarter (or each month depending of lodgment cycle) will be significantly higher because the usual deduction from the refund, the PAYG Withheld, will no longer be applicable. However, the ATO works on an arbitrary dollar amount whereby if a refund exceeds the amount, an ATO review of the return will be initiated, with a resultant delay in the refund being issued. I trust that these thresholds will be reviewed and increased so that unnecessary delays in refund will not occur.

6. Any additional reporting that could be implemented? For small business I would have thought that that was enough. This will not be a popular measure and anything that is introduced with it will be tainted. For larger small businesses, it would seem that the OSR will get into the same routine and require weekly payments of payroll tax. If payroll tax was removed completely, it will soften the blow for the larger small businesses, but the chances of this happening are virtually zero. Payroll tax is a hated tax on employment and if the OSR is able to get involved they will. They do not consult the way the ATO does. It will be another burden and more Red Tape. There is no other reporting that can be implemented with this proposal that may save some Red Tape.

7 What Transitional Arrangements should be implemented? For small business – excluding micro businesses that employ less than 20 staff from this proposal is essential. With the implementation of the GST, a voucher of a few hundred dollars was allocated to all businesses that registered to be spent on the implementation of software. Hence, a one-off payment of $5,000 per business would go a long way to paying for the software and training (with the admission and understanding that software suppliers and trainers will cost themselves to make sure they utilize the money and more), plus an annual payment of $10,000 per annum to cover for the additional costs of having to comply with a measure that has no particular benefit for the business. Some will have to upgrade hardware, upgrade software as well as take training. There will be an in-flux of “experts” moving into the area to try to take advantage – (i.e. Think Pink bats). For larger small businesses the costs will be higher and hence, if up-front payments of support are to be made, those with a turnover exceeding $2 million should receive an amount double the micro businesses, including the on-going support. Again, using my client mentioned above that has a turnover of approximately $10 million, , they purchased and installed $70,000 of new software less than twelve months ago. They (and we) are still having difficulty getting reports that are suitable to prepare a BAS return (and we are waiting for amended reports for the December 2014 BAS returns to make sure that all transactions are included). We also had difficulties lodging PAYG summaries for all employees at June 2014 and have had to lodge amended summaries twice so far, so my confidence levels of the software being able to cope with these changes is not high at this stage.

8 Any other opportunities to streamline employment commencement process? For small business - I do not see a problem with the current system. The change assists the ATO not the employer and I cannot see any benefit at all to the micro employer and very little benefit to the larger small employer.

9 Timing of SG Payments for new employees? For small businesses. I would have thought that this was a superannuation fund problem not a taxing problem.

10 For terminating employees, are there any other notifications that should be included? No. There is virtually no benefit to any employer here nor much time saving, if any.

11 Should the Commissioner use his discretion regarding penalties? Absolutely. Further, there should be a limit to how much in penalties can be levied over a twelve month period.. As a practice, we will be forever e-mailing the commissioner requesting remission of penalties, some of which should not have been levied in the first place. A weekly penalty of $850 will send most small business broke when it will almost certainly be a matter of not understanding the process, illness, etc changing the frequency wages are paid e.g. fortnightly or monthly pays instead of weekly etc. The business should be given the option of reporting regularly say weekly, and paying monthly. Further, if a company decides to change how frequently it pays employees, for example, decides to pay fortnightly instead of weekly if there are savings on the costs of this proposal, I trust that that is a decision of the company and that the commissioner only has to be advised of the change, the employer will not have to seek approval from the commissioner. A further example, Christmas close, the employer closes for four weeks, pays four weeks leave in advance in the last working week before Christmas and returns four weeks later in January. What happens to the lodgements? There are no employees to lodge and no-one is going to break into their holidays to spend two hours reporting a nil return, but the ATO likes nil returns lodged because it keeps their administration simple.. I trust that there will be safeguards for such situations. No one should be required to pay the extra costs of having someone to lodge a nil return just because the ATO administration is easier, though I suspect it may get to that.

12 Payroll software – what are the costs of purchasing and implementing? For small business. Priceless. Micro sized businesses do not need computerized payroll software. Nor do they have the expertise to run the software. Hence, any cost imposed is an unnecessary cost and, in proportion to their size, will be very expensive. For larger small businesses, they will probably have the technology, but will need installation of the compatible software and will require the training, plus on-going support and back-up if the critical person is on leave, sick or leaves the business. One common problem that we see fairly often in small businesses of every size is incorrect settings ( for example on superannuation liabilities). If you are relying on the software, it has to be set-up properly, maintained, operated properly and updated properly. This is HIGHLY unlikely among the Micro end of town. There are businesses that do not even have a computer and will NEVER have a computer because the principals are in there 60’s and 70’s and never used a computer before and regardless of what your legislation says, they will not be getting one. Hence, at the micro level, expertise does not exist with a significant proportion and with a few exceptions, is unlikely to be acquired. They will look to change how they do things, shut down or go very small so that they do not have to have employees. For the larger small business, many are using accounting packages, but they do not update them every year, do not update the software because what they have does what they need it to do and produce the reports that they need produced. I should point out that software suppliers are trying to find ways of extracting money out of their software users, which is why they like the cloud and will look at this proposal as a way of forcing ALL small businesses that use their software to pay for an upgrade, whether they want to or not and whether they need to or not. With users under 40 years it is probably not too significant of a problem. However, those running businesses older than this do not need or desire the changes and will resent not only the ATO being in their pockets all the time but also the software providers. If you do not want small business to go “underground” again, I would suggest that you do not go down this path.

13 Do you expect the savings to outweigh the costs? For small business – ABSOLUTELY NOT. It will never outweigh the costs because there is little benefit or savings for small business, but certainly significant costs. From the discussion paper, the proposal is designed to save Red Tape, but as explained above, this is highly unlikely to save anything and will be a net cost. It would appear that it is designed for the benefit of the ATO reporting and their requirement to have as much information on everyone as possible. Further, as soon as everyone is locked into the system the software suppliers will start ramping up the fees because no one can get out. At least at the moment, small business has some flexibility when it comes to software and can choose when to upgrade or change to a different supplier. Under this proposed system, the change will be significantly more difficult. MYOB already has a degree of arrogance about it, but that will get significantly worse if this is implemented.

14 What are the costs and challenges in upgrading? For small business – this is very difficult to answer. MYOB, a software that we use, which has a reasonable payroll function. However, business will be totally dependent on the software companies to supply

upgrades and they have recently put up their prices and are quite expensive. I see that happening again if this is implemented. Installation is relatively straight forward, but once installed, the set-up of the payroll function becomes essential. As mentioned previously, we have come across a number of clients (including some of our larger small business clients) whose settings were changed during an upgrade and not realizing the changes, incorrectly calculated tax and superannuation liabilities until we noticed it on their quarterly reports. Regardless of what happens, this is likely to be an on-going issue and the employer may have to make an adjustment every now and then and make a back pay of a very small amount per employee. How this is handled and adjusted for is not clear. The proposed system seems to assume that computers will be able to perform the calculations without problems. They will, if they have been set up properly and these settings have not changed by an up-grade or up-date.

15 Is the transition approach achievable? In the proposal, there are two categories in the transition; above $100,000 in tax withheld per annum and below $100,000 withheld per annum. This transition level seems ridiculously low to such an extent that it is worthless to have because most employers with 5 or more employee will be caught, plus a few with only one or two. I would have thought that $5million in withheld will get the larger businesses up and running and then the second category smaller medium sized businesses and smaller twelve months later. I.e., the system can be tested with the larger employers, smaller in volume, so that when the bulk of the smaller employers start, the system will be fully tested. As mentioned before, those with 20 or less employees should be excluded because it will never work effectively with many in this category.

16 What exceptional circumstances would employers face barriers? • Internet connections. Not all businesses have fast internet available to them. I spoke to a client down the

south coast of NSW, whose internet was down who also suggested that the internet they have was “crap” even when it worked. Further, we have a number of primary producers of varying sizes, one with a turnover of approx. $200,000 per annum and works out of a large tin shed in a paddock is unlikely to have reliable internet connection any time soon. I have a client in a major regional City who, a month ago was having difficulties with their internet connections and is still having difficulty a month later.

• Software supplier exclusion. This process puts ENORMOUS powers in the hands of the software suppliers. If there is a dispute with a software supplier, the supplier will have the power to “switch off” the tap and hence, the client cannot report via computer.;

• Small businesses that do not have computers and do not intend to EVER get a computer because they do not need it. We have a number of clients that do not have a computer, some are rural, others are not, they are 55 years, 60 years, 70 years plus, up to 80 years our oldest business principal, who has limited use of a computer. These businesses employ predominantly family or the principal only who receive a wage, currently paying PAYG withheld on a monthly or quarterly basis. If forced, they will change and stop paying a salary and, hence, paying stop PAYG withheld and will eventually get on the PAYG Installments system, but 18 months down the track.

• Small business where the principal (and/or family) are the only employees. • Age is a significant barrier. Any person over 50 years of age, a computer is not a natural part of their life.

Some may have computers within the business, I have one client that has computers, but at 61 years of age, has never used it himself to any extent. If the office staff left, the computers would sit idle because he certainly would not know how to use them. He would have to call in family from their other jobs to help him. Our oldest client still running a business is 80 years old this year and he can send e-mails etc, but that is the limit of his ability. The records he keeps are more than adequate for preparing BAS returns and income tax returns.

• Not all small business persons of any age are capable of maintaining computer payroll records, nor have an interest in doing so. Skills for some businesses do not require computer skills. Some do not have brains that can process the skills required for accounting. For example, over the many years in practice, I have known very talented salesman but many have enormous difficulty filling out forms. They are solely focused on selling and are very good at it. Specialist doctors can be similar in that they are so focused on their work, the administration is background noise they look at once in a while when they are forced to, usually wholly dependent on an administrative assistant, if they afford them, or alternatively the spouse.

SUBMITTED BY: LESLEY LOGAN, DEPARTMENT OF ENVIRONMENT, LAND, WATER AND PLANNING (VICTORIA) Information provided here is my own opinion, based on expertise in payroll systems in Government. Context: My organisation employs around 4000 staff, who are all paid fortnightly. Our automated payroll system already generates and pays tax and superannuation contributions fortnightly. We already notify the ATO of new TFNs (fortnightly) and confirmed Payment Summary details (annually) via automated interfaces. We are currently in the process of re-implementing our payroll system, and will implement Superstream with the upgrade. # Consultation questions DELWP Response

1. Would Single Touch Payroll reporting reduce or increase red tape costs for business in the long run?

Increase. There is no such thing as a magic payroll single-touch button. Example; the existing TFN notification process involves;

a) Payroll team submitting the batch job to extract the output

b) Checking success of the batch job c) Transferring the output to the person with

the authority to process via the ATO ECI interface.

d) That person transmitting the data via ECI. That is the minimum steps involved, when it all works. It takes approximately half an hour per fortnight in that situation. When there are errors and exceptions, it takes longer.

2. What is the estimated size of this red tape cost reduction/increase?

Given there are hiring, termination and payment interfaces to be added, this could easily add 1 to 2 hours per fortnight

3. Would Single Touch Payroll real-time reporting and payment reduce or increase red tape costs for business in the long run?

Unknown whether there will be any benefit

4. What is the estimated size of this red tape cost reduction/increase?

5. What impact would the more frequent PAYG withholding and super payments have on your cash flow position, and how could this be mitigated?

None – no change in frequency of payments will occur. We already pay both tax and super after each fortnightly pay run.

6. Are there any additional reporting and/or payment functions that you would like to see included in the design of the Single Touch Payroll?

No

7. What transitional arrangements would businesses require to adopt Single Touch Payroll reporting and/or payment capability (including mitigation of the initial transition impact on cash flow of moving to paying tax and super at the payroll event)?

The big cost will be in system development. Because it is an ATO compliance issue, our software provider will have to provide a solution. This may or may not be feasible for us to use. We will need to configure and test their solution. We will need many months of lead time to implement this. There will be a testing and implementation cost – likely in excess of $50K for our Dept.

8. Are there any other opportunities to streamline the employment commencement process?

I believe this will merely complicate the commencement process. (Not everyone has ready access 24/7 to the internet, particularly in rural areas. And some people object to using "big brother" federal agency systems.) It will potentially delay our on-boarding process,

which will delay our security and IT setup; for many employees this will mean they are not able to do their work until this is done. That is costly.

9. Under the Single Touch Payroll real-time reporting and payment capability, how should the payment of SG for new employees be managed to ensure they have sufficient time to make an informed investment decision?

Employees who don’t have their chosen fund identified in time for their first pay run will need to have their super paid to the default fund. They can then arrange for this to be transferred from the default fund to a chosen fund later. This will need to be arranged by the employee, not the employer. We will make future contributions to their chosen fund once provided with the details.

10. Are there any other opportunities to streamline the notification to the super fund, the ATO and DHS that employees have ceased employment?

Regarding Superannuation and the ATO, I believe once Superstream has been implemented, there will be relatively little improvement opportunity. We have no systematic business relationship with DHS. We receive written requests for information, and handle them manually. This is a frequent but exceptional process. Ie We don’t have to action this for all employees – only those queried by DHS. There is a salary cost in providing these responses, and we would welcome a technical solution that was more efficient. However, my experience with these requests is that;

a) They are often for people we can’t identify on our current payroll system (owing to periodic new system implementations and machinery of government changes, changes of employee name, or just misdirected queries from DHS).

b) The data required is variable and often involves a human being making judgement calls about how to satisfy the need.

I therefore doubt it is possible to gain efficiency through an electronic solution.

11. Under what circumstances should the Commissioner of Taxation use his discretion in the administration of penalties?

I recommend government agencies be exempt from penalties, as they are ultimately taxpayer funded.

12. If you are not currently using software to process payroll, what are the costs and barriers you face when acquiring software?

N/A

13. Do you expect the costs of acquisition/subscription will be outweighed by the cost-saving from automated payroll reporting?

N/A

14. If you are currently using software, what are the costs and challenges you foresee in upgrading to compatible software?

Our software provider will firstly need to work out a solution that they deem will allow their clients to comply with the requirements. This is complex, given the many different ways their clients configure their systems to meet their payroll needs. It usually takes several months for their solution to pass through its design, development and quality control processes and be available for release to clients. All that occurs before we can begin to implement. Our internal testing and implementation can take

months in itself, and will involve several people in different capacities. My estimate in this case is that it could cost 30 person weeks or more to implement. Unlike with Superstream, there are negligible benefits for the business or our employees , so it will be frustrating if STP is mandated for swift implementation.

15. Is the above transition approach achievable for business? Are there any other support/transition options that should be considered?

A more cost effective approach could be to allow businesses to implement STP when they go to the next major upgrade of their existing payroll systems – eg over the next 8 or so years.

16. Under what exceptional circumstances would employers face a significant barrier to implement Single Touch Payroll that they should be exempt?

Government and charity organisations whose budgets don’t allow for the implementation cost.

SUBMITTED BY: TERRY MURPHY, ACCOUNTANTS AND MORE Single Touch Payroll Discussion Paper Submission by Accountants and More. PO Box 502 Forster, NSW, 2428 This Submission is prepared by Terry Murphy CP a director of this 13 year old company with seven branches from Sydney to Gold Coast. Single Touch Payroll reporting capacity Consultation Questions

1. Would Single Touch Payroll reporting reduce or increase red tape costs for business in the long run? This would result in a massive increase of red tape for business such as;

• Greater audits and reviews by the ATO once they became aware super contributions were sometimes late due to seasonal cash flow issues.

• The need to still do payroll on existing systems such as MYOB, MicroPay, Reckon and Xero for financial reason and different awards don’t allow for standardisation the STP would be in addition not instead of for payroll.

• The idea of a level playing field for all employers interests me were is the level everyone meeting all deadlines all the time or some of the time.

• The idea of this level of government control will just lead a rush to contractors and part time workers a unintended consequence of this STP reporting system.

• In many or most case printed records will have to be retained as is the requirement of the state worker compensation scheme were we regularly get audits going back 7 years.

• All these reports now operate to provide the state sufficient information and not every ABN business has a computer or can use such. I would estimate 20 to 30% of my clients of 5000 fall into this bracket. This number is 1000 to 1500 clients

In short no reduction of paper work at all. 2. What is the estimated size of this red tape cost increase/reduction?

I would estimate each client with an ABN would spend 2 hours a week to do this. This would be on top of existing work and no long term cost savings are available. Bigger business can absorb this small business is under too much pressure now. The 2 hours is a opportunity cost just not a labour cost. The opportunity cost is what is his 2hr profitability I suspect this figures is somewere between $100 - $200 extra cost or lost Profit each week. Single Touch Payroll real-time reporting and payment capacity.

3. Would Single Touch Payroll real time reporting and payment reduce or increase red tape cost for business in the long run.

Real time requires additional resources even a extra person this could add up to $40, 000 extra cost even in a basic business. I personally believe that the only way this could work is real time removing the cost barriers. I don’t believe any lower lending rates would be available to business as a result of this. Lending is only partly compliance based more often driven by factors such as business growth records assets and ability to drive income. Compliance with the ATO is already measured by your portal debt and represents about 5 to 10% of the picture. This claim is a ambit claim.

4. What is the estimated size of this red tape cost reduction/increase. I would estimate that non real time reporting cost a average of $150 week. Real Time reporting would require someone every day for a minimum of 2 hours so base on the rule every employee must return 3 times wages then 10hrs wk x $20x 3 - $600 week additional costs.

5. What impact would the more frequent PAYG withholding and super payment have on your cash flow and how can this be mitigated?

The effect would be devastating on small business as cash flows agent even as a example I selected a client without bias.

July 65,795 Aug 63,089 Sep 77,727 Oct 35,026 Nov 61,592

Dec 74,433 Jan 19,775 Feb 74,492 Mar 116,752 Apr 33,246 May 89,890 Jun 143,380

As you can see cash flow varies widely between months January 19,775 and April 33,246 are well below the average of say 70,000. In addition I hear they have this in the UK to which I am slightly familiar having visited 7 accounting practices in the UK last year. However they don’t have superannuation in the UK so the financial stress of UK business is at least 10% less than hours and the minimum wage is about $12 Australian dollars meaning there PAYG withholding is 20-30% less. I am aware of a similar system in NZealand but again wages are lower being $14 minimum wage and NZ doesn’t have capital gains tax. Yes the GST is 15% but the tax threshold is $24,000 and in general NZ wages are much lower. It would be assuming the domino theory to believe what works in NZ will work here. Australia is a high tax high super high wage environment and I don’t believe it would work in this environment. How could this be mitigated reduce the SG to 5% and minimum wage to $12 and abolish stamp duty and capital gain tax to let small business breathe.

6. Are there any additional reporting and/or payment functions that you would like to see included in the design of the Single Touch Payroll.

Not really, it’s not an integrated system. 7. What transitional arrangements would business require to adopt Single Touch Payroll reporting and/or

payment capability (Including mitigation of the initial transition impact on cash flow of moving to pay tax and super at payroll event)

Impossible for this to happen I understand this is an ATO dream but issue faced are; a. Cash flow too inconsistent for monthly payments. b. Super and Wages account for 40% or more up to 45% of most business and is to high a bar if 4/10 of your

expected cash flow has to go to the ATO each month. In a bad month this could be 80% of take. c. N Zealand and England don’t have the tax wage pressure exist in Australia. d. Only high profitability business about 20% could afford to do this.

I believe this would be similar to the co-contribution issue. a. Lack of real consultation. b. Kneejerk action to make it look like Bruce Billson and Josh Frydenberg are reducing red tape. c. Just like the co-contribution this could cost both ministers their jobs.

One of the worst payers of bills is the government often taking 180 days hard to believe a government report saying that STP will lead to lower days payable, usually any government scheme just causes delays. Commencing employment

8. Are there any opportunities to streamline the employment commencement process? Yes police checks would be valuable.

9. Under the Single Touch Payroll real time reporting and payment capability how should the payment to ensure they have sufficient time to make an informed investment decision?

They have a 2 week period to inform the employer in writing or the employer makes the decision in relation to any retail or industry fund. Cessation of employment.

10. Are there any other opportunities to streamline the notification of the super fund and ATO and DHS that employees have ceased employment?

No Administration of penalties.

11. Under what circumstances should the commission of Taxation use his discretion in administration of Penalties

No penalties should exist small business can’t be held accountable for cash flow swings outside its control. Already ATO penalties exceed real cost and effect on Revenue. A good case in point is ASIC which the government is looking at selling its register as it’s so profitable fining people for late payment. Software

12. If you are not currently using software payroll what are the costs and barriers you face acquiring the software.

Very high I have 7 offices with average 2 to 3 employees imagine my training cost. I currently use MYOB and can’t understand what wrong with this system it works well.

13. Do you expect the cost of acquisition subscription will be outweighed by cost saving from automated payroll system.

Not at all most payroll software MYOB etc is efficient now usually government schemes are complex. A case in example is the current ASIC website which was judged as not user friendly during the recent Senate enquiry into ASIC.

14. If you are using software what are the costs and challenges you foresee in upgrading to compatible software?

Training costs and additional stuff to manage the new software will run into many $1000 for small business any more between $5000 to $20000 p.a.. Transition options

15. Is the above transition approach achievable for business. Are there any other support options Yes it’s achievable but at what cost 20 to 30% of small business will close for no benefit to economic growth just to please a few politicians and ATO officers.

16. Under what exceptional circumstances would employer face a barrier to implement STP that they should be exempt.

None don’t dare exempt any government or health organisations.This system will lead to a) Many insolvent businesses b) Rush to move employees to contractors c) Less people going into small business d) Prolonged recession

This will end badly for both Billson and Frydenberg and they should reconsider in my opinion. This is a backdoor Australia Card. Terry Murphy CPA Director Accountants and More

SUBMITTED BY: ROBYN BANKS, BANKS CONSULTANCY Dear Madam/Sir, Thank you for the opportunity to respond to the discussion paper regarding Single Touch Payroll. We are deeply concerned about the introduction of such an automated process for dealing with payroll activities, especially for small businesses. As you are aware, small businesses constitute a significant proportion of small business. According to the Australian Small Business Key Statistics and Analysis December, 2012 report by the Department of Industry, Innovation, Science, Research and Tertiary Education, “small businesses make a significant contribution to the Australian economy, accounting for slightly less than one-half of private sector industry employment and contributing approximately one third of private sector industry value added in 2010–11”. It also states that that of the 2,132,412 actively trading businesses in June 2011, almost 96% were small businesses (2,045,335), 3.8% were medium businesses and less than 1% were large businesses. Small businesses provided almost 46 per cent of total private sector industry employment in June 2011 (4.8 million persons out of a total of 10.5 million persons). Of these businesses, 34.7% are employing small businesses. Single touch payroll is a bit of a misnomer because the major part of the payroll for small business is the actual paying of the obligations and this occurs through the businesses payment system, whether it be direct credit to accounts, cheques or cash. As the accountants for many small businesses, we would see this arrangement being a real cost on the day to day running of some of these businesses. Technically-challenged business owners will have real difficulties. Consultation Questions:

1. Single Touch Payroll reporting will increase red tape costs for some small businesses. Not all small businesses use software programmes to work out their payroll requirements. The cost impost for businesses includes the purchase of any software package and ongoing upgrades to keep up with any changes or the use of the cloud for accounting purposes within businesses, requiring an ongoing monthly fee. It would seem from the proposal that there will also be more frequent payments for payroll obligations such as PAYG withholding and SGC. Whilst the SGC obligations have been simplified with the use of clearing houses for small business, an increased payment frequency can create time constraints on small businesses, particularly where the business owner is heavily involved ‘working on the tools’ as well as the running of the business, eg a plumber does not just run the business but attends to client plumbing requirements.

2. Those employers that use a rudimentary format of recording wages etc will be extremely disadvantaged with the introduction of a process such as this. There are many businesses that still record the wages in a wage book and provide the necessary payslips on compliant preprinted legally compliant ones. The impost on these businesses can also include the hiring of someone to particularly deal with the introduction of such technology into their business. It might also require the purchase of a computer on site, where previously this was not needed – a wage book can live in a locked drawer and be worked on while, for example, a business owner of a hairdressing salon has a quieter period during the day.

3. It would seem that the discussion paper is alluding to PAYG and superannuation being paid to the ATO and the superfunds respectively at the time of the payroll notification, leading to an increase in cost for dealing with these payments.

4. The size of the business will determine how much extra cost is required. We estimate for a business that employs 4 – 6 people, the proposed reporting and payment system will add 2 – 4 hours per week to the time to process, report and pay the obligations to already time-poor small business owners. The discussion paper talks about reporting to the ATO. It would seem that the reporting to the superfunds also would have to occur and we assume that this is the same way that we currently report the payments required.

5. The government cannot mitigate increased tightening of cashflow for small businesses – except, in part, by helping to grow the economy. The rules today say that we have to pay the superannuation payments 28 days past the end of the quarter and, although we acknowledgement that the money belongs to the employees and the government, this change to the timing of payments will impact on the cashflow of businesses. Incoming revenue for work completed can be quite spasmodic for many businesses. Payments from larger businesses and government departments for work completed does not necessarily occur within

the same timeframes as the obligations that the introduction of this system would impose on small business employers.

6. There are no other reporting or payment functions that should be included here. 7. If this process is adopted into legislation, then there should be a 5 year transitional arrangement to allow for

small business to understand the requirements and implement them within their businesses. 8. The employment commencement process should not be part of the proposed 9. The employment commencement process is dependent on the employee taking responsibility for their own

employment. The same questions will still have to be answered whether it is electronically completed or using the age-old process of the paper form. It would seem that the use of the electronic format would be of benefit to the ATO, as the information completed would fill the necessary spots without the need to key in the details provided. However it would seem that the employer would then become responsible for the entering this data for the government. The same can be said for the reporting of the employee’s superannuation fund. It is the employee’s responsibility to deal with their own superannuation fund. An employer is obligated to pay superannuation. If an employee does not inform the employer, then the option available is to put the employees superannuation payment into the default superfund. An electronic format will not change this fact. Many superannuation funds need the employer to be registered with them in order to accept payments for employees. The longest part of the process at this stage if the employer is not registered with the superfund (apart from getting the forms back from employees), is the employer becoming part of the system for the relevant superannuation fund. This part of the process should be an opt-in rather than a mandatory.

10. There are no other opportunities to streamline the notification that an employee has ceased working in a business. Again we stress that this is not the role of the employer. It is the employee’s responsibility to notify the relevant authorities as required. The employer will ensure that their requirements under the superannuation legislation are terminated upon the last payment to the employees superannuation fund. We do not believe that this should be one of the reasons for requiring the employer to become the catch-all between government bodies and other introduction of such a system.

11. We agree that discretion in the administration of penalties should be exercised by the Commissioner of Taxation if this process is adopted. The majority of employers want to do the right thing. This is a technology that will overwhelm some employers and add a huge burden to the way the run their business. It is doubtful that it will catch those employers that are currently intentionally doing the wrong thing and will continue to do so, even with the introduction of this new system.

12. Software for small business is a cost. Many small business owners fail to upgrade their current accounting software on an on-going basis because of cost. We expect that the upgrade to a new system will be at a cost, even of businesses are using the latest software. The software providers will have to enhance their capabilities to talk to the necessary government department systems. Business owners might need to upgrade computer systems to comply with the requirements of the software systems. Within all of that the entire country is not operating under the best quality internet system. What happens if the download/upload process is not sufficient to deal with the requirements to get this information to the ATO etc. What happens out on the Nullarbor Plain, for example? Is there sufficient internet access to allow this all to happen? Do all business owners have computer systems and know how to use them.

13. We believe that the costs to business for introducing and maintaining this new process will outweigh the cost-saving from the use of an automated payroll reporting system.

14. The cost for upgrading to compatible software is a problem. Also technical advice to the level that is needed from the software provider for some business owners will need to be quite detailed and will require some business owners to undertake training (time out of the working week), or the employment of people who specifically understand the software. The last thing business owners want is

15. We do not agree with the mandatory introduction of this process. It should be an opt-in for business owners that find it beneficial. However, if it does become mandatory, then there should be a 5 year transition to allow the necessary purchase of equipment and software and the education of business owners to occur.

16. Significant barriers to the introduction of this process where exemptions should be considered include those businesses that don’t use a computer, laptop, ipad etc and really are not technically adept for such as system. Also where the download/upload speed of the internet is deficient and variable and that is not just out in the middle of the Nullarbor Plain – it also applies to significant capital cities. Belrose in Sydney is one such area where the internet speed is inadequate.

SUBMITTED BY: MICHAEL SMITH, SAGE MICROPAY PTY LIMITED Dear Martin This document is submitted by Sage Micropay Pty Ltd in response to the call for submissions to the Single Touch Payroll discussion paper. This paper reflects the views of Sage Micropay Pty Ltd based on information provided by the Australian Taxation Office. Consultation questions 1. Would Single Touch Payroll reporting reduce or increase red tape costs for business in the long run? We believe that the cost impact for businesses will be neutral in the long run although front loaded as software will have to be developed and paid for. An argument could be made either way but our view is that certain businesses such as those providing outsourced payroll services will suffer as apart from the usual processes and workflows that they follow, will now also need to ensure that their clients are able to report and make payments as required. If the question is extended to include software vendors as businesses, there is no doubt that the burden of development will have to be borne by them and that this will be a significant cost as well. We would suggest a contribution by Government towards the cost of development would be sensible to ensure that businesses are motivated by results rather than compulsion. 2. What is the estimated size of this red tape cost reduction/increase? As we’ve suggested, we think the long term costs will be neutral to business. We cannot know the capability of businesses especially small businesses to digest and comply other than by compulsion. 3. Would Single Touch Payroll real-time reporting and payment reduce or increase red tape costs for business in the long run? Regarding Single Touch Payroll Reporting only, we foresee no meaningful change in costs however, once payments are included in the scope, there is no doubt that there will be an increase in costs in the ecosystem pertaining to the provision of secure payment facilities that will need to be borne. 4. What is the estimated size of this red tape cost reduction/increase? In terms of red tape reduction, we see the value of reducing complexity, and we support any move that reduces the stress and bottleneck around year end. In terms of cost of compliance, the costs of providing a payment gateway will either fall on Government or on business. We are unable to quantify that, other than to say that it will be significant. 5. What impact would the more frequent PAYG withholding and super payments have on your cash flow position, and how could this be mitigated? This will probably affect businesses that are manipulating their cash flow to incorporate their withholding obligations as part of their funding. Whilst this is a legitimate funding tactic it is probably a short term measure. What obviously will hurt them are penalties resulting from late payments or non-payments on a more frequent basis so clearly there will be an impact. 6. Are there any additional reporting and/or payment functions that you would like to see included in the design of the Single Touch Payroll? We don’t believe so. 7. What transitional arrangements would businesses require to adopt Single Touch Payroll reporting and/or payment capability (including mitigation of the initial transition impact on cash flow of moving to paying tax and super at the payroll event)?

We are not clear whether or not, or if and how STP envisages a change in the BAS reporting cycle as well. It appears to us that the BAS process will have to be altered to exclude payroll reporting and that a concerted effort will have to be made in re-educating business. Drawing from evidence we have of the UK RTI experience, it became apparent that the tight deadlines and less than optimal scope put a massive strain on software vendors and business alike. The result of this was that businesses were placed under undue stress and therefore we would hope that reasonable transitional arrangements are planned which also absolve genuine process errors. 8. Are there any other opportunities to streamline the employment commencement process? No response tendered 9. Under the Single Touch Payroll real-time reporting and payment capability, how should the payment of SG for new employees be managed to ensure they have sufficient time to make an informed investment decision? This discussion paper correctly identifies the potential for employees to rush into a long term investment without having time to assess the impact. One way to deal with this could be via a “second chance” option, say within 60 days however we’re worried about the confusion that will cause. 10. Are there any other opportunities to streamline the notification to the super fund, the ATO and DHS that employees have ceased employment? We don’t believe so. 11. Under what circumstances should the Commissioner of Taxation use his discretion in the administration of penalties? As mentioned previously, the UK RTI experience initially placed every component of the ecosystem under enormous pressure. This resulted in the HMRC putting their technology, internal systems and personnel under strain leading to them having to withdraw incorrectly levied penalties until they got to grips with how businesses actually process payrolls. Provided common sense prevails, there will need to be a stepped and cautious approach towards reaching the end goal and we would suggest education first and then compliance after. 12. If you are not currently using software to process payroll, what are the costs and barriers you face when acquiring software? No response – question for business. 13. Do you expect the costs of acquisition/subscription will be outweighed by the cost-saving from automated payroll reporting? No response – question for business. 14. If you are currently using software, what are the costs and challenges you foresee in upgrading to compatible software? No response – question for business. 15. Is the above transition approach achievable for business? Are there any other support/transition options that should be considered? Covered under question 11 16. Under what exceptional circumstances would employers face a significant barrier to implement Single Touch Payroll that they should be exempt? No response.

OTHER REMARKS – NOT IN THE DISCUSSION PAPER We have every reason to support the initiative subject to all or any reservations we have expressed in this submission. However, we have four thoughts in the following areas. • The UK experience was somewhat soured by the unexpected strain that was placed on the HMRC resources. This

created undue stress and hardship for everyone involved in the process proving that a project such as this really needs to be thoroughly researched and scoped to ensure it meets its objectives. Australia has a good record of industry meeting challenges but clearly this can only occur with clearly defined terminology and intent.

• Were we to go down the path of simultaneous reporting and payment, we are not clear on how the payment part would occur and who would be managing the gateway.

• We are concerned about the assumption that costs of creating solutions will be borne by software vendors as these will be passed on to businesses. Furthermore we are also concerned about the assumption that industry will absorb increased administration costs by way of streamlined pricing models.

• We would strongly recommend that intended processes and specifications for data fields and formats are absolutely clearly identified, as the SuperStream project has been tarnished by numerous changes as discoveries were made.

Thank you for the opportunity to participate in this discussion paper.

SUBMITTED BY: BEN SPINA, SPINA CONSULTING Single Touch Payroll - feedback and comments Interested parties are invited to lodge submissions on the issues raised in the Single Touch Payroll discussion paper. Single Touch Payroll reporting capability 1. Would Single Touch Payroll reporting reduce or increase red tape costs for business in the long run? For existing employers, this would increase the cost. For new start-up employers, the cost would be absorbed as part of the start-up. Single Touch Payroll - feedback and comments 2. What is the estimated size of this red tape cost reduction/increase? For existing employers, the per-head cost is likely to be about $150-250 depending on the size and scale of the operation. Of course, ministers in making announcements from non-business backgrounds, or having not funded any of these costs, would not be aware of this. Single Touch Payroll real-time reporting and payment capability 3. Would Single Touch Payroll real-time reporting and payment reduce or increase red tape costs for business in the long run? On new start-ups, it would be seen and used as an option for recording/reporting payroll, therefore misleading to measure in terms of reduced costs. 4. What is the estimated size of this red tape cost reduction/increase? For existing employers, the per-head cost is likely to be about $150-250 depending on the size and scale of the operation. Noting that with varying workplace agreements and union changes over the last 23 years in Victoria, most payroll systems we have been dealing with are custom designed and made to accommodate all circumstances of hiring staff; be they casual, permanent part/full-time, on contract, consulting arrangements etc. 5. What impact would the more frequent PAYG withholding and super payments have on your cash flow position, and how could this be mitigated? Well managed business setting-off provisions for tax, super, annual leave, sick leave, Long Service Leave (LSL), Payroll Tax, Fringe Benefits Tax etc., would have this under control and should not be a cash flow or timing issue. 6. Are there any additional reporting and/or payment functions that you would like to see included in the design of the Single Touch Payroll? Yes. The proposed Single Touch Payroll (STP) should have sufficient flexibility to accommodate all changes as previously mentioned; all types of employment and contractual hire arrangements, full integration with any readily available accounting software package. The STP system should provide a total record system for all employee, contractor entitlements, where the paid, due & payable, provisioning for future and qualifying dates. 7. What transitional arrangements would businesses require to adopt Single Touch Payroll reporting and/or payment capability (including mitigation of the initial transition impact on cash flow of moving to paying tax and super at the payroll event)? Note, the STP needs to do more than just payroll (gross and tax withheld) and super. Mitigation and migration from one system to another could well take months if not years. The STP - unless it can replace the custom designed payroll and contractor recording/reporting system - employers will be running to systems alongside each other, which is essentially pointless. Commencing employment 8. Are there any other opportunities to streamline the employment commencement process? Yes. Opportunities to streamline the employment commencement process have been on the offer for decades and private enterprise has dealt with the challenge. The system and systems work fine, business and owners have invested at start-up and continued to fund the maintenance and upgrade of the in-house software. In essence, the proposed STP system, if it is to go ahead, should be optional and discretionary as an available alternative for existing employers as for new start-ups.

9. Under the Single Touch Payroll real-time reporting and payment capability, how should the payment of SG for new employees be managed to ensure they have sufficient time to make an informed investment decision? Who drafted this question and the purpose of? With some employees, time, no matter how much time is provided, will never be sufficient to make a decision if they avoid making the decision. Cessation of employment 10. Are there any other opportunities to streamline the notification to the super fund, the ATO and DHS that employees have ceased employment? Yes. This system, the STP, needs to encompass and integrate all areas pertaining to payroll entitlements. Cessation of employment will also have a bearing on Work Cover, Payroll Tax, Leave Entitlements, etc. Administration of penalties 11. Under what circumstances should the Commissioner of Taxation use his discretion in the administration of penalties? Under no circumstances; there should be no penalties. Unless the time comes where the various government offices and other quasi-judicial bodies are willing to enter the regime of penalties, which means employers can impose penalties on them. For example, trying to get a report or a piece of sate or information corrected - if businesses have got 14 days, governments should have the same or less. Software 12. If you are not currently using software to process payroll, what are the costs and barriers you face when acquiring software? Finance and the acquisition depending on the value of it, could be using existing credit facilities or a fresh application for further financial accommodation. 13. Do you expect the costs of acquisition/subscription will be outweighed by the cost-saving from automated payroll reporting? No. We would envisage from the basis of this questionnaire and its preparation, that similar and like people will have a major hand in the narrow-mindedness of the STP and its formulation, design, implementation and application of (the bureaucracy endeavouring to bring about change upon private enterprise). 14. If you are currently using software, what are the costs and challenges you foresee in upgrading to compatible software? HUGE COSTS. This STP system would need to be discretionary offering and by choice by the respective employers. Transition options 15. Is the above transition approach achievable for business? Are there any other support/transition options that should be considered? Almost anything is achievable by business in true entrepreneurial spirit and motivation. Yes, other support/transition options that should be considered; re-jig of the total tax base thereby concentrating on GST and making payroll tax work - e.g. tax spending, don't tax incomes. The proposed STP, should not be mandatory if introduced. 16. Under what exceptional circumstances would employers face a significant barrier to implement Single Touch Payroll that they should be exempt? As stated earlier, being a proposed system, the STP should ideally be an option for businesses rather than an obligation or requirement. This system will consequentially be adopted by businesses for which it will prove cost-effective and efficient, rather than a block of money - if smoothing management of all funds relating to payroll is the primary purpose of this system, that is. The underlying assumption is that all small business is computerised, with access at all times to the network and no limitation on money available for IT support, computer input literate personnel and software upgrades. Please be advised, that some businesses are still very much operating on a manual recording and hard copy basis as distinct from a screenshot. Some businesses are in between manual and fully automated.

SUBMITTED BY: ZENA RONNFELDT, DOWNS TAX & ACCOUNTING Single Touch Payroll reporting capability 1. Would Single Touch Payroll reporting reduce or increase red tape costs for business in the long run? I think that for small business it will absolutely increase red tape costs. Running software always has a cost, you must pay for skills to maintain your software/computer system, and you must pay for training time or staff training. For small businesses without IT infrastructure in place, I believe that it will increase their time spent and cost of administration - particularly for older Australians in business who are less familiar and/or have no confidence with IT. For businesses in rural & remote areas, where internet access is extraordinarily expensive, painfully slow and unreliable (e.g. satellite / wireless broadband $120pm for 15GB) it could be a significant additional cost. In many remote areas the expansion of the mining & gas industries has severely over-extended existing internet transmission infrastructure, with many people having extreme difficulty maintaining a reliable connection. Despite the NBN being touted as the solution to these problems the Government has chosen to install it first in city areas, many of which were already serviced by cheap, fast internet access. 2. What is the estimated size of this red tape cost reduction/increase? Small/rural/remote business increase in cost of at least $3,000 per annum. Single Touch Payroll real-time reporting and payment capability 3. Would Single Touch Payroll real-time reporting and payment reduce or increase red tape costs for business in the long run? Increase costs - refer to my response at (1) 4. What is the estimated size of this red tape cost reduction/increase? Increase in cost of at least $3,000 per annum 5. What impact would the more frequent PAYG withholding and super payments have on your cash flow position, and how could this be mitigated? This system will encourage employers to change their payment arrangements for wages to a monthly cycle. Many awards allow payment monthly, but employers pay weekly to make it easier for employees to manage their budget. The additional cash-flow and administration cost of processing additional transactions I believe will cause employers to act to reduce those costs, shifting the cost and detrimental impact to the employee by switching their wages payment to monthly. This could cause a significant financial impact through the economy if employees find themselves unable to meet their commitments in the first month this is instituted or if they find themselves unable to budget. 6. Are there any additional reporting and/or payment functions that you would like to see included in the design of the Single Touch Payroll? - 7. What transitional arrangements would businesses require to adopt Single Touch Payroll reporting and/or payment capability (including mitigation of the initial transition impact on cash flow of moving to paying tax and super at the payroll event)? It needs to be optional for business with a PAYG withholding of less than $100,000, and for all businesses in rural & remote areas with access only to satellite or mobile broadband. The Government has provided only unreliable, painfully slow, and extremely expensive internet access to most rural and remote Australian businesses. The tyranny of distance is indeed an immense cost to businesses in rural & remote areas already, without this measure adding to their costs. Commencing employment 8. Are there any other opportunities to streamline the employment commencement process? - 9. Under the Single Touch Payroll real-time reporting and payment capability, how should the payment of SG for new employees be managed to ensure they have sufficient time to make an informed investment decision? -

Cessation of employment 10. Are there any other opportunities to streamline the notification to the super fund, the ATO and DHS that employees have ceased employment? Administration of penalties 11. Under what circumstances should the Commissioner of Taxation use his discretion in the administration of penalties? Anybody with IT or internet connection issues. The standard exemptions for disaster, illness etc. 12. If you are not currently using software to process payroll, what are the costs and barriers you face when acquiring software? By far the most immense barrier to this system is the unreliable, overloaded and extraordinarily expensive internet access that is all that is available to (geographically) most of this country. You undoubtedly have fast, reliable and cheap internet access in the city where you live, so spare a thought for those Australians spending 6 hours trying to connect to your 4GB per month that you are paying $40 per month to access, only to have it drop out before files can be transmitted. Cost: Internet Bigger Cost: the time you spend sitting in front of your computer, trying over and over again (and failing) to get an internet connection reliable enough to transmit your data Cost: computer system Cost: someone to train you to use software Cost: someone to maintain your computer Cost: travelling to somewhere that can fix your computer (often hundreds of kilometers if you live in a rural or remote area) Cost: someone to fix your software when you press the wrong button, because actually you don't understand how to use it let alone how to correct a mistake that you have made. Cost: paying someone else to do all of the above, instead That's a lot of costs. 13. Do you expect the costs of acquisition/subscription will be outweighed by the cost-saving from automated payroll reporting? Not for small business and not for businesses in rural remote areas. I expect it's just going to cost a lot of time and a lot of money. If you want to introduce this system on a compulsory basis, you need the Government to do what it promised and has so far failed to do - install low cost, reliable, fast internet access for rural and remote areas. 14. If you are currently using software, what are the costs and challenges you foresee in upgrading to compatible software? Increase in costs of maintaining IT system, increased subscription costs for software, increased cost for internet access, increase in costs for training to use software, increase in cost for professional help to maintain software, or increase in costs for outsourcing entire payroll function. Transition options 15. Is the above transition approach achievable for business? Are there any other support/transition options that should be considered? No. Definitely not in any way achievable for small business (many of whom do not have the time or the skill set to be able to use this system effectively) and absolutely not achievable for those businesses in rural and remote areas who have unreliable, limited, painfully slow and high cost internet. 16. Under what exceptional circumstances would employers face a significant barrier to implement Single Touch Payroll that they should be exempt? Anyone who can only access mobile broadband and satellite broadband. Anyone with a PAYG withholding of less than $100,000.

SUBMITTED BY: TONY CULBERG, A C CULBERG Dear Martin Mane SINGLE TOUCH PAYROLL (STP) Thank you for the invitation to make representations about this innovation. My practice includes three primary producers who engage employees on wages, two need fruit pickers for 2 or 3 weeks once a year, one needs shearers twice a year, for about one week on each occasion. All three live beyond the reach of ADSL – they may have dial-up access to the Internet, but dial-up is notorious for dropping out during the call. The NBN program is unlikely to reach any of the three within the foreseeable future. Two are of age pension age, and may well simply close the business. CONSULTATION QUESTIONS Q1 STP will increase the costs for these three clients. Extra costs may include

• Buying a computer • Renting an internet connection • Renting software • Attending initial training • Attending training every time there is a change

The obligations imposed by Fair Work will not disappear. Work place inspectors may still require the original signed documents to be available, the information to be sent electronically still has to be obtained, and the government issued form does a good job of organising the data. Payslips must be generated and handed over every payday. The only saving will be at the ATO, where a large team of data entry operators can be sacked. Q2 Estimated costs

• New computer, printer, modem etc perhaps $1000 - $1500 • Internet access $60.00 per month, forever. $720.00 per year. • Software $500 - $1000 per year • Training, travel to a regional centre, accommodation and meals, at ATO rates $300 - $500 every time. My

three clients each live about 100 km out of Hobart, in different directions, in each case well over an hour’s drive on winding, rural roads, and would need to stay at least one night, to be fresh at a morning session, or to avoid a tiring drive after dark, if an afternoon session. For people who live in really remote areas, like Thargomindah, Mungerannie, Hungerford, Noccundra or even Marree, the costs may be much higher.

Q3 I cannot see any significant difference for my clients. Actual hours worked have to be added up, overtime identified, correct award found, updates noted. The difference of pressing a button every week versus sending the data in a BAS every 13 weeks is, I suspect, not worth measuring. Q4 NIL, for my clients likely to be affected Q5 Sending PAYG(W) every week is likely to increase the size of the overdraft, especially for farmers where the cost to shear or pick fruit is incurred well before any cheque for sales arrives. With luck, my apricot farmer can pick and pack in January, sell in February, be paid in March and send the PAYG(W) amount by 28 April. The new model will have him sending money he does not have to the ATO as much as 16 weeks sooner. Q6 No Q7 Special treatment for primary producers, to allow them to not have to go into debt, just so the ATO can avoid a bit of data entry by its staff.

Q8 For my orchardists, starting an employee is very stressful. They arrive at about 6.00 am, and have to complete a TFN Declaration and Super Choice. Some are non-residents, on some kind of work permit. If the orchard had reliable internet access, then a system where the employer entered the TFN for the employee could be enhanced to give the last Superannuation choice. Then the employee can accept the fund offered. Super choice is a huge problem. Orchardists do not have the luxury of a long process for taking on staff. The fruit is ready, and has to be picked that day. There is no extended lead time, no HR department to advertise, winnow, select and recommend appointing the employee(s). Q9 For my primary producers, the time available for the employee to make a decision about Super is about 10 minutes. Would-be employees need to have all their paperwork ready as they leave their transport at 6.00 am. Work needs to start by 6.30 am, to ensure that the crop reaches the market in a form you wish to eat. Many fruit pickers might be employed for a few days; there are no days of grace for the employee to ‘get back to you with that’. Q10 I doubt that my primary producers issue a separation certificate, so this is not an issue. Q11 Penalties should not be applied where failure to use approved software is outside the control of the taxpayer.

• If the internet is not available, no penalty • If the software, based in ‘the cloud’ is hacked (by a foreign power, some malicious person) then no penalty

If the government wants full electronic reporting, then the government needs to provide reliable infrastructure. I am aware that in remote parts of Australia there are telephone services which rely on the top (galvanised iron) wire of the fence beside the drive to the house. Not everyone has a pair of copper wires, let alone fibre optic connection from the NBN. Q12 Estimated costs

• New computer, printer, modem etc perhaps $1000 - $1500 • Internet access $60.00 per month, forever • Software $500 - $1000 per year • Training, travel to a regional centre, accommodation and meals, at ATO rates $300 - $500 every time. My

three clients live about 100 km out of Hobart, in different directions, in each case well over an hour’s drive on winding, rural roads, and would need to stay at least one night, to be fresh at a morning session, or to avoid a tiring drive after dark, if an afternoon session. For people who live in really remote areas, like Thargomindah, Mungerannie, Noccundra or even Marree, the costs, especially travel, may be much higher.

Q13 No. The effort to engage an employee remains the same, and a 70 cent stamp is replaced by expensive software and hardware. Q14 None uses software for payroll, so no cost to upgrade, just a high cost for the initial set-up, and ongoing costs of actual internet access, software upgrades, retraining. I can see merit in this proposal for employers who have long-term staff, have a computerised payroll already and have good internet access. I can see that the audit function for the ATO can be streamlined, in that the cases most likely to need auditing are those not reporting in real-time. For my primary producer clients, I can see no saving of time or effort, and I can see them being seriously disadvantaged by being forced into a regime where the government has not provided the infrastructure.

SUBMITTED BY: ROBYN KELLY My name is Robyn Kelly. I am a registered BAS Agent, Accredited Partner of the Year with Reckon Australia & have been book-keeping in rural South Australia for over 10 years. The majority of my clients are small business with less than 19 employees, mostly whom are primary producers who employ casuals & seasonal workers. I see this initiative to introduce single touch payroll for the majority of my clients to be a big step backwards. I will explain why using your consultation questions below and using red font. I am available at any time to discuss this information further if required. Consultation questions 1. Would Single Touch Payroll reporting reduce or increase red tape costs for business in the long run? For small businesses, with fewer than 19 employees, in regional areas and seasonal workers, it would dramatically increase red tape costs in the long run. 2. What is the estimated size of this red tape cost reduction/increase? For a rough estimate; per business the cost would be at least $1,000 to implement a new payroll system and then at least another $100 - $200 per quarter to monitor and report. Some businesses would also need to include extra costs to upgrade internet plans at an additional $40 - $50 per month as internet is at an astronomical price for regional users, especially those who will never be able to access the NBN. Consultation questions 3. Would Single Touch Payroll real-time reporting and payment reduce or increase red tape costs for business in the long run? Increase – see above. 4. What is the estimated size of this red tape cost reduction/increase? As new payroll systems will need to be implemented and then only used once a quarter. Office staff would possibly need to be employed in some circumstances to be able to report electronically. 5. What impact would the more frequent PAYG withholding and super payments have on your cash flow position, and how could this be mitigated? Most small businesses with fewer than 19 employees are quarterly remitters anyway, for both PAYG & super. 6. Are there any additional reporting and/or payment functions that you would like to see included in the design of the Single Touch Payroll? No 7. What transitional arrangements would businesses require to adopt Single Touch Payroll reporting and/or payment capability (including mitigation of the initial transition impact on cash flow of moving to paying tax and super at the payroll event)? Better cost effective and reliable internet service and speed would be needed. Consultation questions 8. Are there any other opportunities to streamline the employment commencement process? Yes, being able to order online and employers KIT with all the information employers need to employ someone. As an example each KIT would include a) TFN declaration form b) Super choice form c) FWA NES Employment statement d) a form to complete for each employee with extra information that is supposed to be covered with a new employee eg what award, award rate, leave entitlements etc. KITS would be ordered online like the current online ordering system already works. I am suggesting this to still be in place for regional small business employers who employ staff casually and seasonally, and to not go electronic. 9. Under the Single Touch Payroll real-time reporting and payment capability, how should the payment of SG for new employees be managed to ensure they have sufficient time to make an informed investment decision? Superannuation funds to contact new employees with correct investment information for the employee to be able to make an informed decision. Consultation questions 10. Are there any other opportunities to streamline the notification to the super fund, the ATO and DHS that employees have ceased employment? When the employee completes a new TFN Declaration, a tick box could be included asking if this TFN Declaration form is the only current form in place / does it supersede all other forms completed. Consultation questions 11. Under what circumstances should the Commissioner of Taxation use his discretion in the administration of penalties? After consulting the employer and what steps have been made and what financial backing they have to be able to implement the new system. How many employees there are (the more there are the bigger the fine). Internet cost and availability should also be considered when considering fines. Consultation questions

12. If you are not currently using software to process payroll, what are the costs and barriers you face when acquiring software? See answer above; at least $1,000 initially but also ongoing quarterly costs to employ someone to enter the data. 13. Do you expect the costs of acquisition/subscription will be outweighed by the cost-saving from automated payroll reporting? For small, regional, seasonal employers YES. 14. If you are currently using software, what are the costs and challenges you foresee in upgrading to compatible software? Availability and costs of specialists to install (especial in regional areas) and reliable internet to lodge. Consultation questions 15. Is the above transition approach achievable for business? Are there any other support/transition options that should be considered? A lot of primary producers are not up with technology enough and do not have reliable enough internet. 16. Under what exceptional circumstances would employers face a significant barrier to implement Single Touch Payroll that they should be exempt?

8. Primary Producers 9. employers with fewer than 19 employees 10. Casuals 11. Seasonal Workers 12. Unreliable & costly internet

SUBMITTED BY: AMANDA ALLDRIDGE I’m sorry to say but this is a seriously bad idea. You are forgetting about the really little businesses out there who still do their payroll manually on a weekly or fortnightly basis for one or two employees. I, as a bookkeeper, then come in once a month or once a quarter and enter their payroll data into a payroll software. It would not be possible for me to help them out electronically every week or every fortnight. What happens to these people?? Also there would be a need for software upgrades. If you are trying to help small business, giving them another financial burden is not the way. It is not that onerous to compile payroll data for the BAS and EOFY reporting. Thank you Amanda Alldridge

SUBMITTED BY: ANDREW CRAWSHAY, CRAWSHAY CONSULTANTS We (Crawshay Consultants – a payroll bureau) believe there is great merit in taking advantage of technology to streamline processes. Whilst digital security needs to always be at the forefront of any new data initiatives, it is hard to imagine a business system in 5 or 10 years’ time that hasn't further evolved and become more efficient from the practices of today. However we are very concerned about the prospect of real-time payments of PAYGW and super at the same time as payroll. We believe that this would create severe cash flow issues for many clients that we provide payroll and superannuation services for, especially in the Hospitality and Retail sectors. In today’s difficult economic environment it is hard enough for many business to survive, without introducing new requirements that will shift the goal posts for a company's cash-flow position. If payment is NOT at the same time as data being sent; We are also concerned about the reconciling that all parties would need to carry out to balance the periodic data to any later monthly or quarterly payments. There are finer points such as SG thresholds that will complicate this. An unintended consequence might be that red tape increases at the business and ATO level if payment is not at the same time as data. We support the opening up of digital channels to employees to submit their personal information. Many people now find it easier to go online to submit their personal information, rather than repetitively filling out paper based TFN and Super Choice forms. As long as there is appropriate support and other options for when online is not possible or efficient we believe this will be very beneficial. Finally, we support the government's attempt to level the playing field. If providing data on a real time basis helps ensure that employers stay on top of their PAYGW and super obligations then we support this. We recognize that it isn't fair that while some employers pay their obligations in a timely fashion, others (often for very understandable reasons) might fall many many months behind in their payments. Sometimes these companies are wound up, leaving employees, and then the taxpayer, out of pocket, while some employers are then able to re-structure their finances in complex and intricate arrangements. We sincerely hope that any changes are well detailed and communicated, and that the complete underlying rationale is very well explained to the business community. Otherwise it will be seen as a grab for data with little real reduction in administration and little tangible benefits. Kind Regards, Andrew Crawshay

SUBMITTED BY: ANDREW WRIGHT The Australian Government, for quite some time, has promised “simplification” – and HAS NOT DELIVERED AT ALL. In the current economic climate, your proposition of Single Touch Payroll will only ADD extra unnecessary costs to employers – extra costs that they can ill afford. DO NOT PROCEED WITH THIS PROPOSITION.

SUBMITTED BY: BARBARA HELLER Is there any consideration being given to micro businesses who have only manual books with no business requirement for a computer or the internet? Is there any consideration being given to micro businesses who do use computerised software for payroll but who have no need for the internet or the associated financial cost involved? Elderly people like myself have no inclination or use for modern technology and shouldn’t be penalised because of it! I understand there are people who do the wrong thing but this shouldn’t mean that people who have always done the right thing have to be penalised financially and placed under “techno-stress”. Please have some consideration for the little people. Regards, Barbara Heller

SUBMITTED BY: CAROL HARGRAVE, SUPERAIR To the planning of the reporting system Electronic reporting is no problem, and if it is once a month the same as BAS that is OK - however We pay weekly – if I need to reconcile and submit each week this will add an extra half an hour each week to the payroll – it takes me half and hour once a month at the moment. Making submission more often than a monthly BAS will put a huge imposition on small business Carol Hargrave Administration

SUBMITTED BY: CAROL HAYWARD Hi, I am a bookkeeper and my clients are all small businesses. Most of them cannot afford to update their software every year, it is an expense they can well do without. I don’t see any benefit for these small businesses, in fact, it will cost them more in my time to process these transactions every pay. I think you need to consider the impact on small businesses. They are struggling to continue to trade as it is, they do not need more expenses created from the government. We do need small business. Regards, Carol

SUBMITTED BY: CHRISTINE ANDREWS, THOMAS GLC We wish to advise our following reservations about the Single Touch Payroll proposed by the ATO to be implemented by July 2016. We feel that there has been insufficient consultation with the public. Not many people/business owners are aware of this impending change, nor of the changes to BAS/IAS receipt and lodgments. Software is currently not available. The SBR reporting have been known as not user friendly with many business owners. The payroll software that most businesses use has not been upgraded to take this new reporting requirement and the timeframe (July 2016) is insufficient to meet business requirements. Software and upgrade costs could anticipate to be greater that $1000 to purchase and similar to upgrade, plus possible extra time in training on new systems. Some business owners still rely on paper reporting as they are small and may only employ one or two employees. Consequently they may feel that the cost of purchase of a computer, associated costs of software and hardware and training may outweigh any advantage to this proposed Single Touch Payroll. How is it expected that Single Touch Payroll will save the paperwork? Is it proposed that TFN declarations will cease to be completed and mailed by all employers? What happens when a new employee has never had a TFN and will have to complete a TFN declaration and provide proof of identity (100 points ID check). All documents have to be Original and there are insufficient ATO shopfronts with which an employee (young or old or expatriate) can have the time to attend ATO shopfront. Other employers/business owners – HR Department find that the following is required each pay cycle:

• 45 minutes to enter timesheets of all employees to the payroll software. • 15 minutes to print and check accuracy of data entered. • 15 minutes to check superannuation allocations.

It is not perceived that Single Touch Payroll will save that time. Superannuation Most new employees do not have a superannuation fund. Time is required by the employee to choose. This time is not allowed by Single Touch Payroll. It then becomes a requirement of most business owners to put them into a default fund which is onerous and time consuming for employers/business owners to set up. Employees with many changes of employment will have funds in different Super Funds. With the change of addresses for employees, this may result in more funds going into Unclaimed Monies currently held by ASIC. Single Touch Payroll reporting By using Single Touch payroll, the government collects the PAYG withholding immediately according to the business owner’s pay cycle. However, there could be instances that the business owner’s Business Activity Statement may require the PAYG to be offset against any GST credits accumulated in the quarter and this option has now been removed. There are also significant cash flow issues that will affect many businesses with the proposed Single Touch Payroll system. If the Single Touch payroll system is introduced, businesses would have to allow for the cash fortnightly for PAYG Withholding and Superannuation. However, most businesses do not receive the cash for their services on a fortnight cycle as most account terms are 30 days. The current quarterly or monthly cycle allows businesses to plan for their PAYG and Superannuation payments. It is noted that a study conducted by MYOB (one of the largest accounting software providers) small business are spending on average an additional $2,433 in fees to accountants and bookkeepers to assist them with GST compliance. The time lost to GST compliance equates to a productivity cost of $13.5 billion. The time spent in completing the BAS forms for businesses can cost as much as $1.75 billion in the productive capacity. The average

time spent complying with all taxes is 131.2 hours and the average time spent on GST is 84.1 hours. When this time and money cost is compared with New Zealand and their GST compliance, average hours spent by NZ business operators on GST is 39 hours which equates to an average of $2,446 in times cost. New Zealand spend overalls on all tax compliance 69.4 hours which equates to $4,340pa, 39 hours on GST compliance which equates to $2,446 in time costs. Average cost to NZ businesses for bookkeepers and accountants is $1,367 compared with Australia $2,433. In introducing the Single Touch Payroll reporting, this could effectively increase this productivity cost to businesses. Regards, Christine Andrews Principal

SUBMITTED BY: DAVID MELLOR Please see comments as requested by the Single Touch Payroll discussion paper. It would appear that the ATO is in dream land and not aware of the real and practical process of running a payroll system in any business. To think up a system and produce a discussion paper with a template to complete on-line that is bias to meet its own ends is bureaucracy gone mad. A single touch payroll system as described is the thin edge of the wedge.

What thought has gone into correcting payroll errors the next day for short payment or overpayment? Payroll is sacrosanct and anyone who says wait to next pay day to correct errors is not living in the real world.

Will the ATO refund overpaid tax by EFT the same way it wants to receive it or will it take 30 days like on most occasions in its dealings.

What consideration has gone into cash flow management of small to medium businesses? The traditional 21 days after month end of monthly payments of deducted tax and Super contributions allows business to at least invoice and retrieve sufficient funds to pay these taxes. Customers are now taking 60 to 90 days plus to pay their suppliers yet the ATO is now asking for zero days. This practice will surely kill off smaller businesses. What a big stick approach! Has any thought been given to requiring the bigger companies to pay their suppliers earlier in an effort to meet the ATO’s new found desire to be paid up front?

It would appear that since the ATO lost its priority as a creditor in insolvencies it is now making every business in Australia pay the penalty for such a legislative change. Surely developing software that monitors delinquent payers on a monthly basis would be a more efficient administration rather than forcing rigid uncompromising software on business. If the ATO managed its own affairs more effectively, and spent it efforts liaising with taxpayers rather than letting them build up huge debts before trying to collect them the result would be more satisfying and rewarding than this dictatorial approach being proposed.

Regards David Mellor

SUBMITTED BY: THE MCCLURE WELFARE REVIEW, DEPARTMENT OF SOCIAL SERVICES https://www.dss.gov.au/sites/default/files/documents/02_2015/dss001_14_final_report_access_2.pdf The McClure Review into Australia’s Welfare System highlights the importance of Single Touch Payroll in better targeting and administering the welfare system. (This echoes the Productivity Commission’s Inquiry into Childcare that also highlighted the importance of Single Touch Payroll.) Below are the highlights from the report: Recommendations: Making Work Pay …

“In the longer-term, as part of the redevelopment of ICT systems for payments, consider introducing real-time reporting and assessment of income and better integrate the tax, employment and income support systems.” (pg39)

… Transition and Implementation …

“The new [welfare] system will be the most fundamental structural reform of the income support system since its inception. Redeveloping the income support IT system in conjunction with income support payment reform is necessary for Centrelink to provide simpler, easier to manage claims and support services. In addition to the redevelopment of the IT system, the ability to capture and integrate real time data, particularly income data from the Australian Taxation Office, would significantly reduce reporting requirements for people receiving income support and reduce the likelihood of debts being incurred” (pg 21)

… Recommendations: Implementation …

“Develop a new IT system that supports the income support reforms, enables greater use of technology and integrates real-time data, particularly from the Australian Tax Office. This should make the system easier to administer and mean it is more transparent to individuals how working, or increasing hours, will affect payments. It should also reduce individuals’ reporting requirements and lower the likelihood of debts being incurred.” (pg 22)

SUBMITTED BY: DONOVAN BOLAR, A I CLYNK & ASSOCIATES Hello, I have been a Tax Agent for 12 Years now and have owned my own Public Practice for just as long. I am writing to advise you on my position on Single-Touch Payroll. I am NOT going to support this “Initiative” moving forward….. as there are too many significant implications, if all businesses were forced down this path. Yes, we have Accounting Software as Professional’s or even as Large Businesses/Corporations, but the ATO and the like are starting to forget about the Small End of Town…… the “Mum and Dad Businesses”…… In Australia, we already have too many Accounting, Bookkeeping and Compliance Costs associated with everyday Compliance of running a business, let alone more IT and Software Costs for Superannuation and Wages!!! If the ATO were to supply us the Software for Free, this would be another matter, but I don’t see you doing this at all (i.e. E-Record Software is no longer supported by the ATO). The Software needed will be left up to the usual players in the market such as MYOB, Reckon, Handisoft etc…… and within a few years, will become so expensive to own and run, that I see people giving up on having any employees at all, especially if it is just a small “Mum and Dad” Operation with one or two employees, as the complexities of the system we currently already have now is overbearing enough. Also, a lot of the “Mum and Dad Businesses” do not have the time nor the inclination to do any Training for something that they are currently already doing manually without any issues. Why make things even more complex than they already are? I know the ATO like everything to be Electronic and we can possibly be moved that way in years to come, but at the moment, I have a lot of Baby-Boomer Clients (and Clients who wouldn’t have a clue about how to use Computers), who are already having heartache just to deal without paper BAS/IAS forms!!! Let alone more work handed to them for Superannuation (Super Stream) and now Wages!!! Kindest Regards, Donovan (Don) N Bolar MIPA

SUBMITTED BY: DONNA DAVIES, THE ARNHEM LAND PROGRESS ABORIGINAL CORPORATION To whom it may concern, ALPA is a medium Aboriginal Corporation that also represents a number of small indigenous businesses. Although discussion paper states the proposed single touch payroll process to be a very effective and efficient process for small businesses, the example you give is for a business with 6 employees. We agree that there may be a benefit in the time spent processing paperwork, but a small businesses cash-flow would suffer difficulties under this process. For a business such as ours who have a multitude of entities, it could increase the workload 10 fold. Currently we carry out 10 pay-runs for different entities we manage per week and 15 pay-runs per fortnight. In one full fortnight we would process 35 pay runs and this proposed new process will increase workload and add to costs. At present we process and pay superannuation once a month and PAYG quarterly. Single touch payroll will have us processing and paying super and PAYG each fortnightjweekly, which increases our workload substantially; not an effective and efficient way for our business to move forward. Our understanding was Superstream would make the whole process smoother and faster? As far as we can establish, this process will benefit the individual and the tax office, not the employer. It appears the ATO, with this process, is passing on its roles and responsibilities to the employer. In our situation it will involve a considerable additional cost burden on the business. In closing the Federal Government makes much of its focus and effort in reducing red tape and compliance costs for small to medium business. This proposal is contrary to that aim and we oppose it. Yours Faithfully David Glover Chief Financial Officer

SUBMITTED BY: DOUG EAGER 26/02/2015 Amending Payroll is not as easy as amending GST GST real-time processing and reporting often proceeds on the basis of estimates. The estimates are reconciled to reality at income tax time. This is a fine system, involving only employer and ATO. Payroll real-time processing and reporting will also have to include estimates. Some reconciliation will be possible at end of year, but further reconciliation will be required at employer tax time. Such a system is not so fine, because a third party is involved, the employee. Employees will be increasingly faced with having to amend their income tax returns. More work for accountants For many employers, accounting software is already a mystical black box that they are forced to use. Their use of it is rough, and they have to pay an accountant to sort it out at income tax time. Cost saved in their office is offset by extra cost at the accountant. The Payroll black box will add to this transfer of duties from taxpayer to accountant. Payment A cornerstone of business is accrual of income and expenses. Real-time payment does not happen: businesses operate in the red. Expense amounts are carried in Accounts Payable, or to a lesser extent in overdrafts and credit cards. Small struggling businesses don’t have credit, just accounts payable. So these employers will have to intervene in the real-time payroll process to extract those elements that can be paid later. Doug Eager

SUBMITTED BY: EILEEN BLUNDEN, RIGHT APPROACH PTY LTD As a very small employer, I am not using current software for my employee. I would really object to having to buy and maintain software for such a small payroll. At present I can record and lodge payroll liabilities manually. Why should I have to go to this further expense? Eileen Blunden

SUBMITTED BY: ELIZABETH MAXWELL Hi, I am a registered BAS agent and bookkeeper. I work for a variety of clients most of which are micro business owners. I do payroll for a number of them but some still do their own. I don’t think is it feasible for all employers to use a single touch payroll system for two reasons. Firstly, some micro employers still use a manual payroll system and do not have a compliant or indeed any computerised payroll system. Secondly, the reliability of the portal and the internet is poor in our area and if I go to a client once a fortnight to do payroll and either is not working there isn’t another opportunity to lodge for another fortnight. The same may happen repeatedly. Until the portal and the internet service in regional Australia is more reliable this idea is doomed. Thank you for the opportunity to contribute. Elizabeth Maxwell

SUBMITTED BY: ERIC LLOYD, SOUTHTAX ACCOUNTANTS Dear Members of Discussion Panel, I cringe when I see a statement from the ATO saying that “the government will cut red tape for employers by simplifying tax and superannuation reporting obligations through Single Touch Payroll.” In 25 years in public practice, I cannot recall one single event in the past where the ATO has achieved the above. Since 1/7/2000, the Government has turned virtually all small business operators into unpaid tax collectors for GST, and information gatherers for other areas. Not only are small businesses unpaid, but they are forced to incur considerably more expense in meeting ATO red tape and tax and reporting obligations (for example, the new Taxable Payments Reporting requirements for businesses in the Building Industry). The proposal for electronic transmission of wage data will only increase the burden on these business operators. The proposal seems to be mandatory and does not appear to distinguish between small, medium or large businesses, or businesses which are not registered for GST. Our observation is that many small business operators do not use accounting or payroll software for their business activities and those that do have great difficulty in operating their software correctly, or understanding the many taxation requirements for their businesses. It is then left to us as tax agents and accountants to assist our clients with either doing the work on their behalf, or providing explanations to them on what they are required to do and hopefully recovering from them at least part of our costs when doing so. An example of our involvement in our clients understanding of their taxation affairs is the PAYG Instalment System. I have had to provide clients with detailed explanations of the workings of this system hundreds of times with no remuneration for our time. This is because clients will not ring the ATO as it is impossible to get a clear understanding of this system from personnel at the Tax Office. Our clients ring us and expect us to know all there is to know about taxation and any other matters, yet when we contact the ATO, more times than not we are connected to someone who simply reads off a script and only has limited knowledge on a single subject. The ATO is continually making changes which assist itself, but which has no benefit or is a hindrance to small business, including accountants. For example, the ATO has recently decided not to mail BAS and IAS forms to accountants, no doubt to save itself money (and reduce income to Australia Post). We now find that we receive around half of the BAS & IAS we handle by mail, and the remaining we have to spend time logging into the Tax Agent Portal to locate and download/print the forms we have not received by mail. Once again, this creates additional work for us as tax agents and accountants. This proposed payroll system simply means that employees and their tax agents will simply need to do more work and incur more expense on behalf of the ATO. As employers, small businesses are already inundated with regulatory requirements and costs under State and Federal legislation, and employers are already reluctant to employ staff due to this. Indeed, governments at all levels have now taken to employing staff under contract (with ABN’s) in lieu of direct employment, as a means of getting around their own legal or moral obligations. This new “Single Touch Payroll”, if mandatory, will do nothing to assist current or future small employers. The inference I take from the ATO’s actions in recent years is that it no longer wishes to spend time on policing the tax laws unless it’s staff can do this from the comfort of its offices and by simply operating software and having all taxpayers do whatever the ATO decides will assist their office, regardless of the effect it has on small business. No doubt the ATO is gaining on efficiencies all the time, but this is at the expense of those taxpayers and agents who are required to provide the necessary data to the ATO. If the ATO is going to force small business to incur additional costs in administration, we can do without the spin applied with it’s introduction. It would have been good to have more time to address the above issue and many other issues, but this invitation to comment on the proposed new payroll system was received by me only three weeks ago during a heavy tax and BAS preparation and lodgement period. It would be appropriate if the ATO had appointed officers who could visit tax agents on a regular basis to discuss the various issues affecting agents and taxpayers, and take action in ensuring their various views and problems receive proper consideration. Regards Eric Lloyd

SUBMITTED BY: GEOFFREY LEWIS, CUSTOM-MADE SOFTWARE PTY LTD Introduction Our payroll software package is Lewis PAY-PACK. It is used primarily by small and medium businesses in virtually all industries throughout Australia. There are approximately 700 different clients using PAY-PACK. Many of these clients have multiple employers such as subsidiary companies, so PAY-PACK is used by over 1000 employers. Typically the person doing payroll is not an IT person. Often the payroll person is working part-time. With many small employers this person is not a payroll professional or even an accounting or bookkeeping person. It appears to me that this STP proposal means that each employer will have to send to the ATO information about each pay run soon after or immediately after each pay run. Currently the employer sends data to the ATO for Payment Summaries at the end of the financial year. This means that the employer will have much more frequent reporting obligations, and consequently thee will be more red-tape for small businesses. Send the Data to the ATO Monthly I strongly suggest that employers should be allowed to send the data to the ATO at the end of the month, rather than after each pay run. Some small employers have to report quarterly for BAS and SuperStream, so maybe a quarterly reporting cycle should be available for such employers. I have no problems if the ATO allows the employer to choose either after pay run or after month. It is also fine if the ATO insists that suitably large employers have to submit after each pay run, or each week – these employers will have many IT people working full-time. Employers will do a regular pay run, usually weekly, fortnightly or monthly, but some do it bi-monthly. Also many employers pay some employees on different cycles, e.g. some weekly employees and some monthly employees. PAY-PACK allows the employer to process pay runs apart from the normal regular pay runs. This gives an enormous amount of flexibility to the employer. Examples include:

• Pay runs for bonus payments, sales commission or back-pay. This type of pay run could be for one person, for several employees, or for all or almost all employees.

• A termination pay for an individual, who has to be paid at a different time from the regular pay cycle. • An individual pay run. Maybe the employee commenced employment and was omitted from the pay run.

Maybe some overtime was omitted from the regular pay. There are many other examples. • A serious mistake was made and not realised until after the pay run was fully processed. PAY-PACK can do a

reversal of the original pay, which effectively is an individual pay with negative amounts. The employer will then enter the correct pay as an individual.

The correctional pay runs will be very difficult to handle if the ATO insists on the data being sent after each pay run. It will be absolutely necessary to be able to send negative values. The ATO must be able to accept these, rather than some clunky system of credit amounts as done for corrections to BAS statements. It will be so much easier if the aggregate data for each employee for the month is sent. There will be much less likelihood of negative values. What happens if the employer inadvertently forgets to send the data on one occasion? If the employer is sending data after each pay run, it will be difficult for the ATO to notice the absence if it is a regular pay. This will be the case for an employer paying on weekly and monthly. In the weeks over the Xmas New Year period many businesses do not do regular pay runs. It would be virtually impossible for the ATO to realise that an irregular pay was not sent. If the employer is sending data after each month, the ATO can send a polite reminder that the monthly data was not received. Linking with SuperStream I have noticed on the ABSIA newsletter that some software developers are asking for the STP and SuperStream data to be sent simultaneously. I am happy for ATO to have that option. However I would very definitely want to the employer to be allowed to send two distinct sets of data: one for SuperStream and one for the ATO. There is no necessity to pay SGC super for casual and part-time employees who earn less than $450 in a month. Most of these people are paid weekly. Thus we have a monthly test on a weekly pay. Hence there has to be some adjustment process after all real pays in the month, to reverse any notional SGC amounts generated during the month when the employee did earn less than $450. Consequently I cannot see how employers of casuals can ever send their SuperStream data more frequently than monthly. My experience with the PAY-PACK users is that they are all choosing as their clearing-house their default super fund. This is despite me trying to make available options with independent clearing-houses namely ClickSuper and Ozedi. Many are using the QuickSuper format. Others use a Generic CSV data file. Some employers key in their data to the ATO Small Business website. I believe that all these solutions are perfectly satisfactory for SuperStream but cannot be easily extended to include the payroll data. Let us face it - these methods are championed by the super funds,

and their objective is to ensure that they retain and gain as many members to their funds. It is very doubtful that they will be willing to extend their systems to let the employer provide this pay run information to the ATO, even if the time period of reporting was the same for SuperStream and Single Touch Payroll. Employer to ATO transfer of Data In one respect the Single Touch Payroll concept is simpler than SuperStream. Ultimately the data is going from the employer to just one organisation, the ATO. With SuperStream, the data was going to a multitude of super funds plus financial institutions, hence the need for clearing-houses. I strongly suggest that a very simple file format for this information is available. Some comments: It could be the existing payment summary data file sent at the end of the financial year. This is a fixed length record. It is possible it may be needed to include a limited number of new data fields. One proposal I support is the inclusion of super contribution amounts, but do keep it simple just with two amounts: the SGC amount; and the total of other contributions. It could be a CSV file, with the fields being based on those currently in the existing payment summary data file sent at the end of the financial year. For SuperStream the idea of the SAFF file is great in principle. However it was loaded up with so many fields unnecessary for small and medium businesses. The obvious ones were all the defined benefit fields. Also there are lots of questions about different salary amounts, which are totally meaningless for employees paid by hourly rates, especially part-time and casuals. It looks like it was designed by somebody who had only ever experienced public service payrolls. On top of that we have ComplianceTesting giving gold, silver and bronze certificates using tests based on these optional fields. No wonder small and medium businesses are flocking to the SuperStream solutions advocated by the super funds. Will it still be necessary to send Annual Payment Summary data and to produce Payment Summaries? I think that there will be so many cases where the aggregate of all data sent by the STP system (whether by pay run or by month) will be incorrect. I have stated above some of the many reasons why this will happen in the real world. The solution would be for the employer to send the annual payment summary data as at present. The ATO has to then decide what to in the very frequent cases when there is a discrepancy. Also the annual payment summary data is sent in whole dollars omitting cents. Will the STP data be sent with or without cents? If without cents, there will be perfectly legitimate rounding discrepancies. I think it should happen that the employer has to send the data at the end of the year. The employer will then have to explain discrepancies between the annual figures and the aggregate STP data. This will involve so much more work and red-tape for employers, than the current situation. It is reasonable that the employee will still want a payment summary from the employer. The employee or his/her tax agent will then be able to compare with what is on the ATO computer assembled from the STP data. Transition If the employer does not start STP from the first reporting cycle in the year (be it pay run, month or quarter), payments will have been made that were not reported as STP. Somehow the employer will have to report these payments. Conclusion A system like STP works perfectly well for payments of interest or dividends. Generally the payers of interest or dividends are large companies with access to extensive IT expertise. Typically there are only very few payments of interest or dividend throughout the year. The times for these payments are well-known. There are very few if any payments made at other times (an exception would be interest paid when a bank account is closed). The payers are definitely able to provide the ATO the information like payee name, TFN, ABN, amount, franking details, tax withheld, date of payment. Adjustments to these payments would be very rare. For payroll information, there are significant differences.

• There are many more payments. • Mistakes do get made with payroll, and adjustments have to be made. • With payroll, there are many reasons for irregular payments. • Many employers, particularly medium and small businesses, do not have the IT expertise or the

organisational systems to insist on systematically sending correct data. I just wonder if anybody in the ATO or the Government has considered what an incredible backlash this will provoke from employers.

SUBMITTED BY: AVINASH RAMDOSS, H&R BLOCK LIMITED Hi, This will significantly increase the compliance costs of employers especially if they are not using a software already. If forced, the ATO should provide the software for free. Kind regards, Avinash Ramdoss | Business Services Manager | H&R Block Limited

SUBMITTED BY: JANINE TURNER, SECRETARY – LOGAN PATTERNMAKING PTY LTD We strongly disagree with mandatory electronic reporting in any form unless the ATO is going to provide a fee free platform / software with which to met this new compliance requirement. We currently produce our periodical payroll using excel and the readily available free tax tables, annually we produce paper payment summaries. We do not use, and have never purchased, proprietary payroll software. Many software companies now require exorbitant monthly subscription fees for their payroll modules. We are already having to pay annual fees for software from three different suppliers to meet our ATO tax requirements another one for single touch payroll would be the last straw. For us to comply reporting ability would have to be within an existing free ATO platform like the ECI client. Alternatively it should be optional, with the current paper forms still available. If the ATO forges ahead with this change we will no longer employ staff, this is another compliance cost we simply cannot afford. It is my opinion the motivation for this change is for the benefit of the ATO not employers. Regards Janine Turner Secretary - Logan Patternmaking Pty Ltd Trustee - Turners Managed Fund Trustee – Turners Family Trust

SUBMITTED BY: JEREMY CLAFTON I am sure there are many business owners out there who feel the reporting obligations to the ATO impose a disproportionate cost on their businesses but there are many who do not. In my experience, 35 years as an accountant in private practice, there are also many that are quite happy with the computerised and manual systems that they have used for many years and would have no desire to change. Surely, if the primary intention is to assist business owners, the STP will not be compulsory but will be an option for those who see its benefits. If the benefits are clear and obvious then there will be a strong uptake. Larger employers may well have the time and staff to implement changes to their systems but many smaller employers do not. The carrot approach should be preferred to the stick. Second issue with the direct payment. There are many out of the ordinary payroll transactions that occur that require amending, deleting and adjusting payroll transactions. For example, say an employer pays wages in advance, e.g. pay on a Wednesday for the fortnight ended the following Friday. If the employee then takes a day of unpaid leave on the Thursday how is it proposed to reclaim the overpaid PAYG and SG. Presumably just another click! There will need to be processes in place within the STP enabled software to deal with a vast range of these types of situations which, although unusual, occur regularly out in the real world. I hope my thoughts are of interest. Regards, Jeremy Clafton

SUBMITTED BY: JOHN SCARAFIOTTI, CITY OF HOBART Hi, We think this is a great idea, which will improve efficiencies for organisations right across Australia as well as the Australian public. With the digital age we should move with the times and utilise technologies as they emerge. Majority of information is already collected by the ATO (from my experience completing tax return online) so why not streamline the entire process. Just one thing, until the ATO make this mandatory for either fortnightly or monthly reporting our software vendor (Technology One) may not make the functionality available / developed. Then will it be a CSV file?? Regards, John City of Hobart John Scarafiotti | Senior Advisor HR Systems | Human Resources

SUBMITTED BY: JUDITH PRICE, PBC ACCOUNTING For PSB with one employee, being the principle who run small businesses that do not use accounting software, but rather xl spreadsheets This is overkill Only one group certificate is issued and to be forced to purchase and run software for this would be a waste of time and money Super and PAYG are paid on time and all wages are drawn quarterly. Why should they have to computerise for payroll This approach by the ATO that “one size fits all” is extremely disappointing Regardless of the number of employees if a business elects to run a manual system and does it efficiently and all employee obligations are paid in a timely manner, why should the ATO force them to computerise Judith Price PBC Accounting

SUBMITTED BY: JUSTIN MCERVALE, PREMIER ACCOUNTING SERVICES PTY LTD Dear Sir/Madam I believe the new Single Touch Payroll system, if implemented, will present problems for many small business taxpayers. 1 – a number of small businesses with smaller payrolls do not use dedicated software to pay employees. Even those that may use a record-keeping system like MYOB will often NOT use that software to prepare payroll 2 – a large number of small businesses use bookkeepers to maintain their payroll systems, however it would be very rare for these bookkeepers to attend to this duty for each and every pay date (which may be weekly), instead performing the function perhaps once per month of quarter. Having to use bookkeepers to perform this function each and every week will become very expensive for some smaller businesses, and that’s assuming the bookkeeper will be available each and every week to perform the function (extremely unlikely in my substantial experience) 3 – payroll systems provided by software providers are often difficult to use, especially where a salary sacrifice arrangement has been entered into (in many cases the figures reported by payroll systems are wrong), thus requiring end-of-year modifications and/or the lodgement of paper documents 4 – a large number of small businesses do not currently use any type of software to maintain records, instead using paper based cashbooks, or simple programs such as Excel (which will not report payroll or do as is proposed) 5 – on occasion errors are made when paying employees (examples may be incorrect payee, incorrect amounts later amended, etc). This will present significant reconciliation problems if the original payroll transaction is reported to the ATO My submission is that Single Touch Payroll will suit many businesses, however a one-size-fits-all approach will create significant problems. On this basis, the Single Touch Payroll system should be VOLUNTARY rather than compulsory. Sincerely Justin McErvale

SUBMITTED BY: KATHY SHORTER, NANANGO SPARE PARTS I currently use a paper system as I am a small business. The requirement to purchase a payroll program would be an unnecessary expense and not necessary with only two employees. It would cause more work in the long run. There may be issues with my operating system as I am still currently using XP and to change all of my computers would cost of around $5000.00. This is a major concern and is not necessary for me to do at this time as everything runs fine on the XP operating System. There should be a choice for small business operators with 5 or less employees, or if not, 100% of the costs and also the associative costs such as having to update computer systems should be covered.. Regards Kathy,

SUBMITTED BY: KYLIE CALLAGHAN, PROFICIENT BUSINESS SERVICES (AUST) PTY LTD I am a registered BAS Agent with the Tax Practitioners Board and this change will affect most of my Clients. Firstly I am of the opinion that the Single Touch Payroll should be an option for employers /small business NOT compulsory like the ATO small business super clearing house. It just gives the Government a way of keeping a better eye on small businesses and their compliance and I feel that it is just a big brother tactic and not a red tape reducer. Small Business people will be too scared to push the single touch payroll button but too scared not to, I am definitely not a fan and anyone who thinks this will be a benefit has not had to deal with or process a pay and certainly doesn’t live in the small business or bookkeeping world. The small business owners/employers that process their own payroll are not confident with the payroll rules (as there is a lot to know) and often as a bookkeeper we have to check what an employer does and make sure everything is right before we lodge the BAS monthly or quarterly and at the EOFY with the PAYG Summaries. My Clients all comply beautifully but they are human and mistakes can happen, if this system becomes mandatory and the information is submitted when the pays are done, no doubt there will be a matching watchdog attached to all this cutting of the red tape and it will just make it harder and more expensive to fix mistakes when they can be captured currently before they are lodged. There are small businesses out there that are sole directors/employee’s and only lodge/pay quarterly when BAS’s are done by their bookkeeper and depending on cashflow, this will need to be taken into account in the process if it becomes mandatory as some of these clients are not computer savy and would just be a nightmare if they had to do payroll on a regular basis. As for employee’s notifying their details electronically is laughable. The information will not get entered, employers will forget then the nightmare begins as employers will not be compliant. In my opinion I think a monthly/fortnightly/weekly instalment VOLUNTARY option should be available for employer’s to meet their obligations for cashflow purposes. They just pay a nominal PAYGW amount based on previous year’s withholdings that can be amended or revised quarterly when BAS’s are lodged like PAYGI. This new system appears to just be a way of improving the cashflow for the ATO. Kind Regards, Kylie Callaghan

SUBMITTED BY: LEIZA COLE Dear Sirs In relation to single touch payroll, the ATO advises that it is moving in this direction in order to cut redtape however I'd be interested to know whether the ATO will be funding the small businesses to get access to SBR. Has the ATO considered that there are many small businesses that are not using accounting software or software that is not SBR enabled and so it will be a lot more difficult for businesses to comply with this new reporting the ATO wants businesses to comply with. I understand that it will make it easier for the ATO as the figures will be fed to you electronically and so it will cut your red tape but I am not sure that it will be helpful to small business. This will result in additional costs for small business 1) New software 2) Potentially New hardware 3) Training to use new software 4) Additional bookkeeping fees 5) Additional wages for time spend reporting to the ATO What benefits will single touch payroll have for small businesses? Regards L Cole

SUBMITTED BY: LINDA KAM, QANTAS AIRWAYS LIMITED Hi Martin I refer to the feedback sought in relation to the ATO’s Single Touch Payroll initiative. While I do acknowledge that there is a formal feedback form available on your website, the issues we have did not exactly fit within the questions posed. Accordingly I thought it best to email you directly with our concerns. These include:

• As discussed at our meeting earlier this year when representatives of our Payroll group met with yourself and your team, we were generally open to the Single Touch Payroll initiative. As mentioned, Qantas’ payroll system – SUMTOTAL – has largely been customised for us. While we do believe that the end to end process will be beneficial for our payroll in the long run as it should reduce red tape costs, there will be high resources required and high implementation costs for us to develop our systems to meet the ATO Single Touch Payroll requirements. Cost aside, the time, effort and change management required will be extensive, and we will need to treat this as a project. As mentioned at our meeting ,the implementation time will be between 18 months – 2 years.

• There was no mention of real time reporting / payment for defined benefits superannuation via Single Touch Payroll. How would this later be reported if annual payment summaries are no longer required? Same with the Reportable Fringe Benefit number.

• Cessation of Employment – we note that the Single Touch Payroll initiative will allow various government departments to be alerted when an employee ceases employment via a ‘cease employment’ indicator. Aside from not having to then issue separation certificates as a result, does this also mean ETP Payment Summaries (technically required to be issued 14 days after termination) will no longer be required as well?

If you have any further questions, please do not hesitate to contact me. Kind regards Linda Kam Manager – Benefits Taxation, Group Taxation Qantas Airways Limited

SUBMITTED BY: MELISSA HEATH, OHM AUSTRALIA PTY LTD Hello, My personal thoughts on single touch payroll are as follows;

- It shouldn’t be compulsory, rather only for those who wish to use it. Otherwise you’re forcing small businesses into a system that may create additional work and cost for them, exactly the opposite of what you say you’re trying to do (simplify and reduce red tape).

- There must be a simple method to modify / change information previously provided. As an external accountant for many small businesses, we see errors being made with payroll during the year. Our year end reconciliation and issuing of PAYG payment summaries gives us the opportunity to address and correct such errors. Such errors are often associated with non standard payments such as bonuses, leave payouts, and termination / redundundacy. If reporting each payroll, and these issues cannot be easily fixed at a later point in time, it will result in incorrect information for the employees, or put additional pressure on the employer to ensure their internal recording of payroll is correct at the time of recording.

Kind Regards, Melissa

SUBMITTED BY: MURRAY SMITH, MURRAY SMITH SOLICITORS Dear Sir Comments have been invited in relation to the ATO proposed Single Touch Payroll. I wish to make a comment on the threshold issue that the ATO should not be approaching this upon a pre-determined basis that whatever is decided at the end of the day is compulsory upon all taxpayers. On the contrary, if the Single Touch Payroll electronic system is introduced, taxpayers should be given the opportunity to either adopt it or continue with the present system. The issue underlying this is that there is no system that fits all. What is cutting red tape for one business will be creating a burden for another. At various times I have been employed in the public service, been a partner in large city firms and a sole trader, sometimes with and sometimes without employees. The needs and practices of these various size businesses are very different. A large business sees sophisticated payroll software as absolutely essential, whilst for thousands of small businesses a simple Excel spreadsheet that could be designed and updated by the average schoolkid in a few minutes is just right for their payroll needs. For those small businesses, it may well be preferable to continue with the single sheet of paper quarterly BAS statement as being the best method to provide particulars to the ATO of PAYG withholding as well as their GST, all done at the same time - and only once a quarter. A current example of the attitude of imposing a system on everyone being a burden on many is the Governments Super Stream that is currently being phased-in. Whilst this may be very helpful to the large employer with employees having nominated multiple super funds, for many small employers this is quite inappropriate. Thousands of small employers only make payments of superannuation to a related self managed superannuation fund. Being forced into the Super Stream system is totally unnecessary and an unproductive burden for them. These are not issues as to the payment of any amounts of taxation but are solely related to processes and systems. If the ATO is genuine in that a goal is to reduce red tape, then they will allow the businesses to “ vote with their feet” and adopt any new system or not, according to what is most beneficial to the system they operate. Sincerely Murray Smith Murray Smith Solicitors

SUBMITTED BY: NATALIE RICH Single Touch Payroll Discussion Paper I am an accountant and have been running a business as a self employed bookkeeper for the past fourteen years and am a registered BAS Agent. Prior to this I worked for a tax agent for eight years. I provide services to small businesses in a wide range of industries. I have a number of concerns regarding the Single Touch Payroll System: 1. Cost of upgrading software. Most of my clients use varying versions of MYOB. Only one of them is using the latest version and is not utilising the cloud. Not all of them use MYOB with payroll, but provide manual payslips and I record their payroll when I do their books. They don't require updated versions to manage their business and I visit them at varying intervals from weekly, fortnightly, monthly, six weekly and quarterly as their businesses require. One of my clients recently had to upgrade his MYOB as his old computer died. It cost him $800 to upgrade to the latest version of MYOB with payroll and a further $80 each for his other two entities. So this was a total of $960. This is quite a lot of money for a small business and it would not be feasible for most of my clients. In addition to this, they would require more of my time both to implement the system and train them to use it or to use it on their behalf. Can I also say that the current version of MYOB is not very user friendly and takes twice as long to do the same job as when I did it on the previous version! I am also critical of another alternative being offered, a solely subscription based MYOB version for $65 per month which allows cloud access. XERO also has a solely cloud based program, which costs roughly $50 a month for a version which allows up to 5 employees. This is also a substantial amount of money to pay for software and the only benefit is compliance. There wouldn't be any significant improvement in the actual bookkeeping time. While there are various "time saving" options available, for example having the bank code transactions and then download them directly into the client’s software program, in my experience there are major issues with this. They are coded according to the supplier you purchase from - with no facility to split expenditure between expense types or between business and private or allocate to job numbers. So, they still need to be changed manually. I would rather just do it properly the first time. There are also disadvantages to a solely cloud based system. For example, my ADSL internet stopped working on the 16th of February, I have spent 10 hours on the phone to Telstra and they can't send a technician until the 14th of March. As the MYOB version I use is actually on my computer this is not a major drama (although still extremely annoying). A cloud based system would have crippled my service. 2. The second issue is that most of my clients (and many people in small business) are not especially computer or bookwork literate. They are great at doing what they do in their business and employ someone to do the bookwork because they are not so good at that. This leads to severe problems with a requirement to report the PAYG Withholding and SG obligations every time they paid their employees. a. They might attempt it and do it incorrectly (with much frustration for them and the poor bookkeeper who has to clean up the mess). b. Alternatively they might have to pay their bookkeeper to come in weekly to do the payroll - more expense (and I don't have time to see all of my clients on a weekly basis). c. They could change their payroll to monthly - which would be difficult for many employees. Often they live week to week. I know people who are paid monthly and they struggle and often have nothing in the bank towards the end of the pay period. d. They could sack their staff and downsize so that they do not have to comply with the new rules. e. They could just close their business down because it is all too hard (which would mean I would lose my business too!) I know this sounds like a lot of resistance to change but I have clients who would react to the new rules in some or all of the above ways. 3. Some very small businesses with only the directors as employees don't take weekly wages as such. They draw funds during the year, pay tax and super when they do their bas statements, and then at the end of the year their remuneration is determined by the profitability of their business. This would not be possible if they have to report and pay on a weekly basis. They might end up with losses in their companies and payment of wages that the business can't afford, and they then have to put the money back in to fund the business but are taxed on it anyway. This doesn't seem to be fair. 4. Cash Flow Implications. The payment of PAYG Withholding and SG obligations on a weekly or fortnightly basis when employees are paid may also cause significant cash flow issues to small businesses. Often they provide invoices to their customers and are paid on 30 days from end of month or in some cases 60 days. This means that cash flow can be very tight during the month. Not everyone has a big buffer and so the payment of tax and super each week could cause businesses to close due to lack of cash flow. I know a number of businesses in this position. They are quite profitable but have cash flow issues due to the time taken for customers to pay them.

5. Although you have stated that payment arrangements are available with the ATO to help with the transition to the new system, this also means additional paperwork, time on the phone to the ATO and red tape. So I don't see that it will make life easier nor reduce costs. Someone will have to be paid to organise the payment arrangements, budget the extra payments and make it all work. This would prove too expensive for most of my clients. I understand the motivation behind the new system. I believe it is necessary for businesses to pay their tax and super and that it is hard for the ATO to monitor this without being provided with timely information. This would be an extremely costly exercise and would have unwanted consequences for very small businesses. Small businesses make up a large part of our economy. It would be very sad to see many close because the of the introduction of this system. Larger businesses with more employees (e.g. over 20) usually have larger earning potential and the costs associated with introducing this system would not be as prohibitive. Perhaps there could be an exemption for businesses with less than 20 employees? Some alternatives for very small businesses might be to have super obligations reported to the ATO on the BAS either on a monthly or quarterly basis. This could easily be matched to superfund receipts through the changes to the super contribution system. Even a change to monthly bas statements for small employers (e.g. those with less than 10 or 20 employees) would be preferable to reporting every time they pay their employees. Another option is to have a section on the BAS for the provision of employee tax file numbers, gross wages, PAYG Withholding tax and super contributions on a monthly basis, which would agree to the total of the PAYG Withholding Tax paid and the Super paid. This would provide the cross checking information without the issue of having to report on a weekly basis. It could also be done as a separate form with the BAS or on the Business Portal. I hope that you will consider the points I am making as I do feel strongly that this new system will impose significant costs and hardship to clients in similar positions to the ones I work for. I have discussed this with a number of other accountants and bookkeepers who also feel that this will disadvantage their small business clients. Hopefully they will write to you too! I am happy to discuss this further if required. Natalie Rich

SUBMITTED BY: STEPHEN COTTERILL, NO FUSS ACCOUNTING Dear Sirs & Madams Thank you for the opportunity to comment on the proposed Single Touch Payroll process. I am a sole practitioner based in a small and isolated rural area, and I find the Single Touch proposal quite disturbing. Due to my area being very sparsely populated, there are many very small business around here, and also some quite old people still operating businesses. Quite a few of these folk have neither the aptitude or interest in computers that the Single Touch process assumes, and some of these businesses do not at all need the extra costs of becoming computerised and subsequently maintaining a computer and the software that goes with it. I notice in your discussion paper that you comment on the increasing by business use of ‘cloud’ accounting software. Firstly, not everybody is comfortable with the concept of being on the cloud. Secondly, and perhaps more importantly, in regional areas such as mine there are many people who have no workable internet connection: I originally planned to run my own business from home, but dial-up internet speeds of sub 20Kb per second made doing so impossible. My only other option would have to go with a satellite service, which is expensive, slow and prone to dropping out – and therefore not suitable for critical data transfers. I can imaging all the accounting software vendors being excited by this Single Touch proposal, as they will be great beneficiaries of it, but, to many of us out here in small-business-land, it sounds like a whole lot of unnecessary expense and hassle for small businesses who are already struggling in very tough economic conditions. I cannot see this proposal cutting ‘red-tape’, but rather creating more complex problems for small-business people who are already having a tough time: It is another huge roll of sticky red tape. Best regards Stephen Cotterill FIPA JP Director

SUBMITTED BY: NOELLE DRUMMOND, Q-TECH SERVICES PTY LTD Hi. Have just read your discussion paper. Most issues are covered in the paper. Few comments: 1. For very small businesses (1-5 employees- usually longterm employees) this will SingleTouchPayroll cost a lot more in money and time, than the present system. Many do not have payroll software let alone SBR enabled software, and would see the extra costs to buy this software (desktop or cloud) as non-essential waste of money, and would also resent the extra time in setting it up, let alone doing many, many extra payments every month. These extra payments will incur extra bank fees as well as extra super fund fees, and extra staff time processing the extra payments. 2. With a business' accounting software open to the internet on SBR enabled software, and even with "good" security, many business owners are concerned with the increased risk of losing business data to hackers. I have one client who insists the Accounting software is kept on a computer not connected to the internet at all. 3. The section on Cessation of employment requires more consideration. You will find that most businesses do NOT mark an employee as "Terminated" in their payroll file, at the time of ceasing employment. Why? Because once marked as terminated (or ceased in your words), the payroll system does not include that employee in various reports, nor is the business able to generate a Payment Summary after they are terminated in the system. Importantly, most prudent businesses do not mark employees as terminated until all payroll reconciliations have been completed for the year ie annual reconciliations of gross, tax, super, other deductions etc. Then and only then, is the employee ceased in the payroll file. Perhaps large businesses use software that can accommodate this, but not small software( eg Myob). Hence to use SIngleTouchPayroll to advise others (ATO/Super/DHS) of an employee ceasing - software would have to have a different field for advising ceasing date - a field that did not terminate the employee in the Payroll system. ie If proceeding with this, it needs to be discussed with all payroll software companies. 4. Very few people in the small business community are aware of these potential changes coming (none that I have come across). Large business? And they do involve big changes. I would think the potential introduction dates are too ambitious. Kind regards Noelle Drummond

SUBMITTED BY: IAN OLVER, OLVER & MCCARTHY ACCOUNTANTS Dear Sir / Madam The Australian Government wonders why Australian businesses are not competitive and not profitable. One overriding factor is the amount of red tape (read as “administrative staff”) businesses have to carry in order to accommodate the continual fiddling imposed upon them. Costs are not just ongoing. There are set up costs, including accountants fees, that must be incurred. Stop the inane change and this country may progress. Ian Olver Partner

SUBMITTED BY: PHILIP AND GAIL - if there is added cost administering this program, than takes from incentive of employing staff in small business , will look to avoid any activities that involve employing staff - the fear of having to pay for another computer system/software to administer, the extra time to do the work , learn the process, implement the system and requirements, extra cost burden on small business – on small business just another cost burden when might only have a 4 casual staff, a total payroll under $20,000 means a huge cost for this

SUBMITTED BY: PREYAS BRAAKMAN 1. If we have to buy software to comply , we will not employ persons We currently use myob 18 . 2.if we can update this via the business portal or super clearing house without extra software thats ok for us. 3. if it has to be done when payment is made, more time. We would love to see a ato portal that we can enter pay slip information, prints payslip and automatic generates super payment,paye tax. thanks

SUBMITTED BY: ROMAN GARBUZ, D P LOEWY & CO PTY LTD Dear Sir/Madam I understand that the purpose of single touch payroll will reduce time for employers to report and calculate wages but my fear is that it will actually increase administrative time as you must report to the ATO more regularly and may actually increase the workload for small businesses. I put my points below: 1. Super is currently 9.5% of gross wages, if an employer pays an employee on the payroll event then they can quite easily contribute more than the SGC cap for the qtr. For example if an employee receives $100,000 gross base salary and receives a bonus of $50,000 in November then in the December quarter their wage will be $75,000 and the employer may pay super on 9.5% on the $75,000. This will more than the SGC cap for the quarter of $49,430 so it is possible for an employer to contribute more than they are legally required to. The current system is better as super is required to be paid quarterly. In this way an employer will be less likely to over contribute into super as they can ensure that they do not contribute more than the required amount by doing a quarterly calculation. 2. My other concern in relation to paying super on the payroll event is that it will be easily to contribute more than the concessional contributions cap. It will be very easy to over contribute when wages may fluctuate during a year and by over contributing the concessional contributions cap then potentially you can also over contribute the non concessional contributions cap. There is a potential for an employee to pay 93% tax if there are no safeguards to ensure that the 9.5% contribution amount on wages does not have to be adhered to in certain situations. Currently by contributing on a quarterly basis it is easier to ensure that the peaks and troughs are smoothed out. 3. Currently you only have to pay super to someone over 18 if they earn more than $450/month. The issue is that if your pay cycle is weekly then how will it be possible to ensure that someone will earn $450/month. It just adds extra complexity and it maybe easier to pay monthly or quarterly to ensure that the employee does earn the minimum amount otherwise employers are burdened with higher wage costs. 4. According to the Australian Bureau of Statistics a majority of businesses in Australia hire less than 20 staff. A majority of these businesses know in advance of what the net pay is by looking up the ATO website in relation to the PAYG withholding calculator and are aware of the net wage required to pay staff. They just pay the PAYG withholding in their BAS and this reduces their admin time as a bookkeeper is only required when BAS is due or once a month in certain circumstances. If they have to report this on each pay cycle they will then have to hire someone to do their bookkeeping and this will add more effort and more time to already busy employers and it will just add more cost to them. This is especially true for employers that pay weekly or fortnightly, this will just add more work to employers. Most employers do not use the software that is available in the marketplace, they hire bookkeepers to enter their wage information and if there is more reporting requirements then they will need to spend more money on bookkeeping rather than growing their businesses. 5. The reporting for wages under the Single Touch Payroll should only apply to large businesses as they have the capabilities to manage this reporting and the manpower to undertake the necessary accounting requirements. 6. Some businesses have mentioned that paying super and PAYGW on each pay cycle will have a significant effect on cash flow as some debtors pay late and they will suffer severely if they will have to pay their super and PAYGW on each pay cycle. Regards Roman Garbuz Partner D P Loewy & Co Pty Ltd

SUBMITTED BY: RONALD SKEOCH, MULI MANAGEMENT PTY LTD The probability of One-touch Payroll achieving acceptance and take-up is negligible. The concept of an employer providing in excess of 50 returns per year is an excessive increase in work to be dumped on employers, not to mention Cash flow implications. What information is needed on more than a monthly business cycle? Probably just TFN Declarations for employment start and employment termination. I would recommend you consider an extended Monthly BAS process with key information on an occurrence basis. It appears the scope of change emanating from this process will logically require a new SBR3 data structure, another substantial change. (that is required) Without being too blind – this project smells like an Abbot/Hockey Budget and has as much chance of success. If One-touch Payroll proceeds with timings in the current format, I will withdraw from the One-touch Payroll co-development team as ultimately it will just be a waste of time. Regards Muli Management Pty Ltd Managing Director.

SUBMITTED BY: ROSS FORRESTER, WESTCOURT CHARTERED ACCOUNTANTS Dear Mr Mane, By email: SingleTouchPayroll@ato.gov.au Single Touch Payroll Our practice assists many middle sized market businesses comply with their payroll obligations. The reporting and administration with payroll maintenance is complex. Thankfully software has helped a large part of this process become automated. However automation of a complex task can only reduce complexity to a certain extent. If the government is committed to reducing the cost of compliance; increasing the reporting cycle a business owner makes to the Tax Office to the payroll cycle will not achieve that. Reduction of red tape can be achieved by: • Removing the obligation to report wages paid in IAS and BAS. Simply take the yearly PAYG Withholding

reconciliation report as the correct amount. Requiring a quarterly, monthly or fortnightly report, then a yearly reconciliation, and then a further reconciliation in the income tax return simply creates three points for errors and mistakes.

• Removing the need to submit a tax file number declaration for each staff member. The obligation to obtain a TFN should rest with the employer and be reported in the yearly reconciliation. Employers who do not have the TFN for a staff member will be required to pay additional tax.

• Increasing the payment cycle threshold for monthly remitters considerably so that PAYG W is paid quarterly for most businesses. Many micro business owners are compelled to engage advisors monthly simply to attend to a IAS reporting. The monthly cycle simply increases administration time for business owners for a one-off cash flow benefit to the government.

• Changing the superannuation guarantee obligation for payments to associates of the business owners to a yearly obligation rather than a quarterly obligation. Many business owners operate through a company and view their wages and superannuation obligations differently to their staff. If a business owner was committed to paying their maximum superannuation contributions, and did so in quarter 4, while earning a wage, they have not met their SGL obligations for Q1 Q2 and Q3.

• Combine payroll tax reporting and payment for State Revenue into the BAS. While this will require integration between Federal and State revenue authorities, and will be a medium to long term goal, many small business owners find it difficult to deal with multiple State Authorities and often become confused as to why they have multiple forms for taxation.

If the government increases the payment cycle obligation for business operators the government will only increase the temptation for business owners to seek advice to circumvent the new laws and preserve cash. In a worse case scenario business owners will delay properly attending to their payroll obligations for staff (in terms of record keeping) until each quarter ends. This will add to red tape costs and increase complexity. Current reporting obligations for superannuation contributions is complex for employers who already struggle with their administration base. This reporting obligation on PAYG Withholding Summary Statements should be dispensed. The Tax Office currently has information from superannuation funds as to the total concessional contributions and personal tax returns disclose the personal concessional contributions. The excess is the employer contributions and the salary sacrificed contributions can be calculated by reference to the employee PAYG Withholding Statement. This information should then be reported by the Tax Office to The Department of Human Services for various income tested benefits. If an employee wanted to dispute the level of the assumed salary sacrificed contributions this should be an option for the employee and could be done by way of objection. However in the vast majority of cases the reportable superannuation obligations an employer discloses is either irrelevant to the employee or it will be a simple straight line calculation.

Disclosure of allowances is complex and rarely done properly. The need to report allowances should be dispensed and all allowances should be reported as a salary paid. If an employee is paid an allowance and is entitled to claim a corresponding deduction for the allowance the employee should do that in their tax return (which they do already). The concept of who is a contractor and who is an employee is difficult to determine in the modern economy. Laws preventing alienation of personal income are robust and the benefit of being a contractor or acting as an employee is marginal. Employers would like certainty on this topic without the need to make a full private ruling. The Tax Office online toolkit should be increased such that employers can submit copies of the employment contract and a binding ruling issued. The Tax Office could elect to charge an administration fee for business owners beyond a certain number (say 3) so that resources are allocated to mico business owners are assisted or to limit the service to entities with a turnover threshold. Please contact me if you have any queries. Thanks for the opportunity to provide input. Yours faithfully, Ross Forrester Director

SUBMITTED BY: JUDY RUTHVEN, B RUTHVEN TAX & ACCOUNTING

1. We have a client who manually pays their employees – using cheques – maximum 2 to 3 employees. 2. We then get the client’s paperwork/journal at the end of the quarter where we enter the data into Reckon

Software and utilise the payroll module to manage their PAYG and Super obligations quarterly.

3. We then send the reports to the client along with their GST lodgement and obligation and they take care of paying the applicable Superfund and GST payment.

4. This client is a farmer who runs several properties and does not have the ability to give us information weekly as you will require in order for us to assist with this automated system.

5. Why then can we not have exceptions such as this where they do not need to use the SBR system as it just will not make things easier but more difficult?

6. We would have to charge the client extra to do the data entry of their very small payroll obligations weekly. They don’t even use the internet! As I said very old farmers.

7. How do you propose we assist someone like this? Cheers, Judy Ruthven Office Manager

SUBMITTED BY: JUDY RUTHVEN, B RUTHVEN TAX & ACCOUNTING Cashflow will be a major issue for small businesses when you implement this system. It’s fine to say your Cashflow will be in a better position and by simply changing the terms of your invoicing to improve your Cashflow situation will solve the problem is extremely naive and short sighted. Each year it becomes more difficult for us and our clients to collect our fees and service invoices from customers. As the economic situation of this country becomes more dire, we find that they prioritise their payments and we end up very low on the totem pole. The increased costs of rent, electricity, petrol, annual fees from our software, and professional entities – it’s very difficult to manage. At this time, people can only pay when they have cash and even trying to have a cash only system would send them somewhere else. We must offer terms. If you are asking for payment of payroll and PAYG and Super weekly, it will definitely jeopardise cash flow to the point where many small businesses will end up closing down. Have you thought of the consequences of this idea and what it will end up doing to the economy? The only winner will be the ATO as they will ensure they have plenty of revenue where we will have nothing. Another area that you emphasise is the cost of Software and you seem to be pushing the idea of Cloud Software as the be all end all. This is incredibly irresponsible and seems to lack the proper consultation from Accountants and the general population who manage businesses. Have you any idea of how incredibly slow the internet is in areas outside of the Capital city centres? It is near impossible to get decent internet. In order to have success using Cloud Software you have to have very quick and reliable internet. However, the Government is doing everything in their power to slow down the internet with a cheaper version rather than looking at improving it. And the more people that use Cloud Software, the less reliable the internet is and the slower it becomes as it becomes “congested”. There are plenty of software programs that have desktop versions that will more than likely have SBR compatibility. We are professional partners with many of these software providers. We can tell you that most of our clients still use desktop versions and find the cost to run is much less than the monthly subscription fees that these big Software providers are pushing. For example if you have only 2 employees and the tax rate is the same or involves adding or subtracting a small amount of tax to satisfy the tax table figures, a client can configure their software to ensure they are deducting the correct amount of tax without having to buy the annual upgrade for the tax table. A lot of small businesses as well do not utilise or care about all the bells and whistles that the software provides and they only want a very simple program.

As long as their provider will have SBR compatibly they will not have to go into the cloud. Again, the fact that you are only focusing on cloud based programs is very suspect and irresponsible. You should discuss the use of both versions. Judy Ruthven Office Manager

SUBMITTED BY: SANDRA MCCARTHY, BELVEDERE BOOK-KEEPING Dear Sirs As a Bookkeeper in North Queensland I would like to highlight some difficulties I see presenting themselves for my clients with single touch payroll. A number of clients are micro-businesses employing from 1-5 people, and whilst this is insignificant in many ways, when multiplied by the number of businesses in Australia who operate at this level, overall they will represent a reasonable percentage of employees and again they will bear increased costs for compliance with the new system. It may help you by understanding how these businesses operate and utilise my services: • Wages are paid weekly – will this mean 13 reporting periods in a quarter. • Wages are calculated manually and data input into a computerised system in arrears on a monthly or quarterly

basis (depending on current BAS reporting cycles) – as the business owners are not competent in computerised payroll systems are they going to require assistance weekly not monthly/quarterly.

• Cashflow requirements for PAYG and Super as many service businesses get paid on account for the work performed – if these need to be paid at time of payroll this will impact cashflow of a business particularly for weekly wage runs.

• SBR log in connections for each individual business – currently BAS can be reported on behalf of client by bookkeeper through BAS Agent portal without individual businesses requiring the expertise to work online.

• Multiple entities – some client run through multiple entities so all requirements will then be multiplied. • At what stage will the “single touch” occur – how will the system allow for adjustments / corrections / and just

plain getting it wrong!

I understand the logic behind reporting and paying for PAYG and Super with the payroll, so the business is meeting the actual cost of the employees as it happens, as a family member has suffered from an employer going into liquidation, not having paid Superannuation for 2 years!! This could be all too hard for some businesses – resulting in jobs being lost as the cost of running a payroll is to excessive for the business to absorb. Some of my clients are very talented tradesmen who run good businesses, but have zero computer skills, the requirement to have every piece of information to hand within a week to initiate a pay run is incredibly onerous. Are you tempting people back to paying cash in hand by over regulation – for these micro businesses it could be an issue. For the amounts involved in an individual pay to be remitted to superannuation, the cost of making a weekly deposit will negatively affect the employees superannuation balances. Please consider a small (micro – say less than 10 employees) business level, that can remain on quarterly reporting for the benefit of all. The new Superannuation regime of lodging electronically should be sufficient for this level of business coupled with existing BAS arrangements. Perhaps the ATO just needs to monitor that these lodgements are actually being paid a little better. Regards Belvedere Book-Keeping Sandra McCarthy GCPA AIPA Financial Consultant

SUBMITTED BY: SILVIA I do not like this proposal as it will be hard to get the money back from ATO if I make a mistake on my BAS. Sometimes mistakes are noticed later down the track. Regards Silvia Sent from Windows Mail

SUBMITTED BY: SIMON JUNG, KKL ACCOUNTING & FINANCIAL SERVICES Mat Johnson: Called back and spoke with Simon Jung 05/03/2015 11:30am (AEST) in response to his question around using SBR. Clarified with Simon that, yes, SBR is the channel that will allow STP transactions to occur. In reference to his other question about frequency of paying wages and super to staff, business models he has in palce will remain, ie; if he currently pays weekly, he can remain weekly, if in future he wished to employ and pay staff fortnightly, that is his right to exercise that choice. Also answered his questions in response to what software industry is doing. Provided brief overview of working group established with SWD and ATO. Simon also wished to provide feedback on the discussion paper in terms of there was no specific mention of Tax agent impacts obvious throughout the paper. Simon happy for this to be his formal response as per below. Hi there, I am just curious how it will change to a tax agent’s work? Currently, we are reporting the wages and super be half of the clients in a quarterly basis, is there a way we will be able To do them for our clients with STP? I guess my question is whether we can lodge the wages and super info be half of the clients in a weekly basis via SBR? Thanks. THANK YOU ALL THE TIME. Simon Jung | Accountant

SUBMITTED BY: STEVE SILLATO, WARNERVALE MEDICAL SERVICES We already use Xero accounting software, so this should be automatically SBR compliant – I have no problems there. We process our pay every Thursday fortnight, so to reporting that would be fine. If we have to change to weekly payroll it will cause problems in many different ways, especially the extra administrative cost to run twice as many payrolls as well as cash flow impact (you have to chase up Debtors quicker or delay Creditors to manage weekly payroll payments). If it stays fortnightly, it is all fine. The biggest problem could casual employees who, for example, may work for 2 weeks straight then not required for several weeks or months. They are not terminated, they are just not required. They may then come back for a few days or weeks, some months down the track. We do not want to terminate & reinstate the employees each time this happens, so the system needs to accommodate nil returns or nil results ie the employee did not work but they are not terminated. I hope this helps. Kind Regards Steve Sillato

SUBMITTED BY: STUART LENTHALL, THE TAX COUNTER PTY LTD I am responding to the discussion paper. I have some serious concerns regarding the Single Touch Payroll (STP) initiative. Especially, relating to businesses with payroll withholdings of less than $100,000. As an accounting firm and tax agent, we find it difficult to convince many small (micro and nano) businesses of the benefits to have a computerised accounting system. I have many clients who still do not use computers for their accounting recording but use cashbooks and rely on their invoice book and cheque book to record transactions. They see no need to computerise. There are many clients who still do not have access to the internet or see no need to connect to the internet. They prefer a paper trail for all their transactions and payments to staff. Many of these “small” businesses may have only one or two staff. They pay weekly or fortnightly by cheque or by cash. Many of these employers do not have the capacity or income to employ a payroll officer or firm to pay staff if they are required to use STP. There are many farmers, fishermen, orchardists etc, who use casual labour such as shearers and pickers, who are still computer illiterate. There are many small business owned/run by older persons who are set in their ways and will not comply, see no need to comply, with a new system to pay a small number of staff ie shop keepers, small manufacturers, contractors etc. Many businesses are sole traders, partnerships, single director or family companies. Often their personal income is drawings from the business. The drawings often relate to the business income and can be variable and adhoc. It is not until the business tax return is completed that they know what their income was for the year. I noticed the mention of cloud based solutions. Many small businesses are being forced, against their will, to use cloud based accounting. There is still the stigma of where the cloud base is stored. There are still no guarantees that the data is not stored overseas or can be stored securely. They have difficulty is downloading their data from the cloud. Many small businesses still prefer to have in-house recording and storage of their data. There are many small businesses who refuse to have their business computers connected to the internet. There are a lot of small businesses who still do not trust the internet. I have had discussions with a major provider of internet hosting and they have noticed a trend away from various aspects of internet usage ie cloud/online storage, research, transactions, social media. Probably due to hacking, scams, reliability, use of data fishing/collection, lack of privacy etc. There is mention in the discussion paper that STP will eliminate paper-based reporting. This is not the case – a myth. There are legislative requirements for employers to provide a payslip when paying employees detailing gross pay, tax, SGL, allowances, net pay and other deductions. At the end of the financial year there is still a legislative requirement to supply the employee with an annual PAYG summary. There is mention that the employer must calculate the tax each time an employee is paid. What about the printed tax scales provided by the ATO? Many employers use these printed tax scales. There will be little reduction in time when completing BAS if/when STP is implemented. The time taken to add the figures for payroll and withholding tax is negligible. There is mention of the fees being charged through SuperStream gateways and clearing houses. That there may be opportunities for the marketplace to change the fee structures. Who are you kidding? The chances of any fee change will be non-existent. It will be a “cash cow” for these firms.

How is the ATO going to penalise small businesses for not electronically lodging their payroll through STP? Especially, if the small business does not want or has no need to be computerised? I believe that there are no real savings, reduction of paperwork, to be made for small businesses only added expense and burden in using the proposed STP. Sincerely Stuart Lenthall Director

Small Business – Turnover between $2 million and $25 million. Micro Business – Turnover between $150,000 and $2 million. Nano Business – Turnover less than $150,000.

SUBMITTED BY: SUE KELLY, RIVIERA AUSTRALIA PTY LTD Good morning Feedback and comments on Single Touch Payroll are as follows:- Commencement of Employment Your discussion paper mentions TFN declarations and Super Choice forms and the possibility of employees entering their tax and super information via a government portal directly into the payroll software and/or employees and employers entering their tax and super information directly into the payroll software with the ATO validating the details. Is incorrect information really that much of an issue that it justifies the costs to employers of system upgrades? Already payroll software can validate that a TFN is correct using an inbuilt algorithm. True it will just verify that the TFN is an actual TFN and may not necessarily be that person’s TFN. Also most people are quite good at supplying their super fund details these days. Couldn’t every super fund update their systems so that a member could simply print off a form which contained all the details an employer would need? Indeed I thought a lot, if not most already do this. This form could actually replace the need for the Superannuation Standard Choice Form. Then there would be no need for the ATO to get involved at this point of employment. If the ATO is to validate the details – at what point would this be done? When the pay run was complete and other data (PAYG, etc) is sent? – too late by then for payroll staff if there is an issue, or When the details are entered in the payroll system? – does this mean we would have to be logged into the ATO at various times or constantly? Issue for employers: cost of upgrade to payroll software with little or no benefit to the employer Cessation of Employment Your discussion paper mentions payroll software allowing for an “employee ceased” indicator to be entered and then this would be reported to the ATO, etc. In our business we have different payrolls with different pay cycles – weekly and monthly. How will we stop this reporting if we don’t want it to go to the ATO? i.e. an employee on the weekly payroll moves to the monthly payroll. That employee is terminated off the weekly payroll and is set up on the monthly payroll. If there is reporting to the ATO of terminations then this isn’t a termination as such. How could we differentiate from a normal termination so it isn’t reported ? I assume it would matter where for instance that employee had a child support deduction arrangement and that reporting could trigger a response from the CSA when it wasn’t needed. Would we be able to edit the information (but not in the payroll software) before it is reported? Issue for employers: cost of upgrade to payroll software with no benefit to the employer Superannuation – problems paying it each pay period Superannuation is payable when an employee earning $450 or more (before tax) in salary or wages in a month. Paying it each pay period if the pay period is less than monthly is fraught with danger and doesn’t make sense. Re our business:- Our Monthly payroll:-

This is processed on the 1st working day of each month with the whole month paid in advance. i.e. on 2/3/15 we paid 1/3 – 31/3/15. We hold this pay run open until as late as possible in the month in case there are any extra payments made that month as they should all be processed as part of that month’s payrun – i.e. extra pay for numerous reasons, terminations which may involve reversing some wages as employee are paid in advance. If we were to pay superannuation when we process the original payrun (on the 1st working day of the month) but then someone terminated and we had to reverse some wages which were paid in advance – we would have already paid superannuation on this to the fund and can’t get it back. So we would be out of pocket. Our Weekly payroll:- Superannuation is of course paid once OTE of $450 + is earned in a month but for those under 18 years of age they must also work at least 30 hours on each particular week to get super. Our payroll system has difficulty with the under 18 yr olds/30 hour week concept so I reconcile the super for each employer under 18 years of age at the end of each month to make sure we will be paying the correct amount of super. If necessary I would make manual adjustments so that the super was paid correctly and on time and then fix the payroll system the next month but would ignore that adjustment the next month. i.e. the payroll system calculated $60.00 super for the month for a particular employee but it should have been $70.00. So I manually change the contribution file that goes to our clearing house from $60.00 to $70.00. However I need the super records on our payroll system to be correct so I do an additional entry for $10.00 in the next available pay run (which relates to the following month’s super period) but I make a note for when I do the next month’s super payment that I am to ignore the $10.00 entry as it’s already been paid to the super fund in their previous month’s payment. So now the super fund has received $70.00 and our payroll system shows $70.00. If we were to pay superannuation when we process the payrun we would be unable to make any adjustments like this and depending on timing we may fail to meet our obligations and have to pay via the Super Guarantee Charge Statement. Reconciling:- I reconcile the superannuation each month (back to OTE) when I am doing my end of month procedures and before I process the super for payment. This gives me a chance to make any manual adjustments where necessary. If we were to pay superannuation when we process a payrun then for our weekly payroll I would have to reconcile each week instead of monthly (as I don’t want there to be any errors), which would mean a couple of hours extra work each week. Employees changing super funds:- Sometimes we have issues with employee’s changing their super funds. Changing super funds but their old account has been closed:- For instance, they close their super account without telling us and bring in a new super choice form part way through a month. If I haven’t paid the previous month’s contribution I have an opportunity to manually change our file before we send it to the clearing house. For the current month I can reverse the contribution entries from the old fund and re-enter as the new fund, thereby ensuring the contributions for the current month will go to the new fund. If we were to pay superannuation when we process the payrun then I wouldn’t be able to manually change the contributions going to the super clearing house so the new fund was paid and it would be rejected. I also wouldn’t be able to do entries like mentioned above where in the current month I could reverse from one fund and put to another fund .

We would have to go through the whole painful process of a rejected super contribution and depending on timing we might have to repay via the Super Guarantee Charge Statement. Reporting and Paying Superannuation each pay period:- We have a large number of super funds and are now using a clearing house. Our payroll system is quite old and we don’t have money to upgrade, so to comply with Superstream it takes me about 2-3 hours each month to reconcile and then produce an excel file in superstream format for our clearing house. If we had to pay super each payrun it would mean I would have to produce this file each pay period (weekly) which is a big impact on my time. Couldn’t you leave the paying of super as is, but instead implement 1 form for an employer to submit to the ATO each month or quarter that verifies super was paid? This form could also include some easily sourced information like total wages paid, total OTE. This would be much more cost effective for businesses and the ATO than the new proposed system of having to report/pay each pay cycle – you would get the same information just in a simpler format on a monthly/quarterly basis. You would still achieve your goal of identifying businesses who aren’t paying their super. Issues for employers: extra cost to employer to alter pay system, extra time required to produce more frequent contribution files to super clearing house or super funds, employers being out of pocket where “wrong” super funds are paid due to employee’s fault, errors not fixed due to inability to make manual adjustments (where payroll system is incorrect). Reporting wage information each pay cycle instead of producing Payment Summaries at the end of financial year If I have this right then the wage, tax information we would send via Single Touch Payroll each pay cycle would mean that we wouldn’t have to produce Payment Summaries at the end of the financial year. If this is correct, I don’t see a problem with this in many ways but a concern would be:-

• Payrolls are balanced at the end of financial year to Payment Summaries. If any errors are discovered either when balancing (or even during the financial year) will we have the ability to change what we have already reported?

Issue for employers: Can we make any changes to information intended for Payment Summaries after reporting? Closing Remarks This Single Touch Payroll has major implications for employers and until last week I hadn’t even heard of it. Major consultation is needed and more businesses need to be aware of what could be/is going to be happening. You must make sure a large amount of time is given to employers to make the necessary changes to their software, as the time and cost could possibly be huge – especially as it doesn’t seem to benefit the employer much at all. These changes will also have a big impact on how cash flow is managed so again employers will require a large amount of time to find ways to manage this. I can’t even imagine that this point what this would mean for our business with regards to the cost to upgrade our payroll system and change our processes, not to mention the impact on cash flow. Regards Sue Kelly Payroll Manager

SUBMITTED BY: STEVE BROWNING, TAXCORP PTY LTD Unless you are also going to include the FBT system in with this as well, there is very little to gain from this. The one real issue is that errors are always made and errors will thus be transmitted. When there is a sufficient time frame between payment and reporting, errors can be identified and corrected before the reporting is done. The FBT system though and the ridiculous valuation methodologies etc. are a joke and needs a massive overhaul and indeed a review of the very nature of it. There is likely to be a significant under reporting of FBT often because it is just too damn difficult and time consuming to get it right. If you standardized the value for each benefit, and yes there will winners and losers from this, and actually taxed it to the relevant individual it will be so much simpler and in all reality will generate greater tax receipts for the Govt as the compliance rate will be significantly higher. You should also look to the states to standardize payroll tax and potentially get this reported and paid on the same BAS documents. The various software systems will easily calculate the correct payroll tax and with online banking etc. you can collect it on behalf of the states and then send it to the various state treasuries. Regards S T BROWNING CA,B.BUS Director TAXCORP PTY LTD ABN 43 008 909 591 Accountants and Business Advisors

SUBMITTED BY: VICKI ROPER, UNITING RESOURCES Hi All I have now had an opportunity to read the full discussion paper and offer the following comments in addition to those penned below. I agree with Joe in relation to the implications and the financial impost. This has the potential to cost the church millions that will not be able to be recouped through subsequent cost efficiencies and red tape reduction. While not all our organisations operate a payroll, I used 1,000 organisations incurring an extremely conservative start-up cost of $1,000 to arrive at an initial outlay of $1M. We will have to purchase computers and software, train people in how to use computers and payroll software just as a starting point and that is likely to cost us more than $1K per organisation if you factor time and effort into the equation. This is no different to the financial implications arising from the requirement for us to create and maintain websites post the demise of the ACNC. The discussion paper fleetingly touches on BAS, PAYG and GST but it does not comment in depth on whether the current system will be changed or not. As it currently stands organisations can only claim back their GST input credits on their BAS if they have amounts such as PAYG to offset the GST. If there are no amounts to offset then the organisations forgo their GST. That is why the Payroll Bureau Service stopped remitting PAYG on behalf of its clients. For our smaller organisations the GST is often their sole form of funds. Cheers Vicki Roper | Employment & Industrial Relations Manager |Risk and Compliance |Uniting Resources

1

6 March 2015

Australian Taxation Office Single Touch Payroll Project

Per email: SingleTouchPayroll@ato.gov.au

Dear Sir/Madam

Submission on the ATO’s Single Touch Payroll discussion paper – 13 February 2015

The Affiliation of Superannuation Practitioners (ASP) welcomes the opportunity to make a submission on the Single Touch Payroll (STP) discussion paper, published on the SILU website on 13 February 2015.

At this time ASP is not in a position to answer the specific questions outlined in the consultation paper due to:

The consultation paper and questions are specific to software providers and employers and don’tadequately address scope and issues relevant for the superannuation industry

The ATO’s Superannuation Industry Relationship Network (SIRN) STP Consultation session held onWednesday 4 March 2015, raised a large number of newly identified issues as to how STP is affectingthe superannuation industry

However, as superannuation administration practitioners with considerable experience in implementing large scale and complex change programs, including the ATO’s SuperStream program, ASP is making the following comments and recommendations in relation to STP. In addition, ASP has a number of questions for the ATO to consider as part of the consultation process.

Governance and managing implementation risk

The superannuation industry is working tirelessly to implement the largest whole of economy change since the introduction of GST, i.e. SuperStream. This ATO led program of the implementation of the Superannuation Data and Payment Standards 2012, commenced in 2012 and has seen rollovers transacted electronically and in accordance with the Standards from November 2013. The industry is in the middle of implementing SuperStream for contributions. 1 July 2015 is the mandatory date for large and medium sized employers and 1 July 2016 for small employers. By 1 July 2016, one million employers will have to have implemented a compliant SuperStream solution. It is estimated that employers remit 120 million contributions annually, representing in excess of $100B.

ASP has significant concerns about the substantial risks that will be introduced by commencing another large scale whole of economy program of work impacting the same stakeholders in parallel with the SuperStream program implementation.

Questions to be considered by the STP project are:

1. Given the scale and scope of STP as well as the already legislated SuperStream requirements for bothemployers and superannuation funds, to what extent do SuperStream and STP overlap or arepotentially in conflict and what is the proposed way to identify and mitigate the risks andopportunities?

2. How could the STP project (and all affected stakeholders) leverage from the lessons learnt from theSuperStream program? How does the ATO propose to facilitate this in conjunction with keystakeholders?

2

3. Based on the proposed timetable in the STP consultation paper there is a clear overlap of activitiesaffecting both Superstream and STP. Has the ATO considered the capacity for employers (and agents)and the superannuation funds (and agents) to work on both programs? How will the ATO ensure thatthe introduction of STP is not putting the success of the SuperStream program at risk?

4. It appears that the ATO is treating both Superstream and STP as two discrete programs yet it is clear that one million employers and their agents (payroll and payroll software providers, bookkeepers, tax agents etc) as well as the superannuation industry will be impacted by both programs. What is theATO’s proposed governance framework to manage both programs simultaneously and how will itconsult and engage with the affected stakeholders? In particular, how is the ATO proposing to consultand engage with the superannuation industry?

STP and Superannuation

The consultation paper makes reference to superannuation in the context of, and through, the lens of employers remitting superannuation contributions to superannuation funds. However, the paper is silent on superannuation entities as a “payer” where funds make either regular ‘income’ payments (e.g. pensions, annuities, disability insurance) or ‘lump sum’ payments, including payments where PAYG tax is applicable.

The ATO confirmed in the SIRN meeting that all payments from superannuation funds (i.e. income and lump sum payments) are included in the STP scope. The inclusion of these payments in the scope of STP is of significant concern to ASP. If this had been explicitly included in the consultation paper then ASP believes the superannuation industry would immediately have raised concerns. Implementation is likely to require significant and costly changes to superannuation registry systems. Such changes and cost would be in addition to the cost already incurred to ensure compliance with SuperStream.

It is worth noting that superannuation registry systems perform a different function to that of payroll registry systems.

Superannuation registry systems are broadly designed to carry out the following functions:

1. To allocate contributions2. Record keeping and reporting transactions, including reporting to the regulators, e.g. tax to ATO3. To make benefit payments, including paying PAYG tax to the ATO where applicable, and4. To manage insurance.

As large superannuation funds are already making bi-weekly payment to the ATO and do not have a requirement to pay SG payments, the cost of the additional system and administrative burden on members would not be considered appropriate to mitigate the very unlikely risk of non-payment of withholding tax by the superannuation industry. Hence, any STP design issues impacting superannuation registry systems where superannuation funds are ‘payers’ should be excluded from the STP scope.

Questions to be considered by the STP project are:

5. To what extent has the STP project considered the appropriateness of treating the superannuationindustry the same as employers? What additional benefits are achieved and how do they compare tothe additional cost to superannuation members? Has the ATO consulted with the superannuationindustry in relation to treating superannuation funds as ‘payers’ and if so, who were the participants and what are the outcomes from this consultation?

6. Has the ATO consulted with the life insurance industry who are also ‘payers’ when making ‘regular’and ‘once of’ disability payments within and outside the superannuation environment?

3

Current reporting vs proposed ‘real time reporting

The consultation paper outlines the proposal that STP will require payers to report and pay the PAYG withholding and SG for employees at the payroll cycle. Currently, a majority of employers remit contributions monthly or quarterly. The proposed change to the remittance cycle will have the following implications for superannuation funds as follows:

1. Employers remit (and funds receive and allocate) over 120 million contributions transactions annually.Assuming contributions are remitted on a pay cycle basis employers could have to remit (and funds will have to allocate) over 500 million transactions annually.

2. Superannuation funds as payer – Superannuation funds are paying both income and lump sumpayments. Unlike payroll cycles, superannuation funds are required to pay lump sum payments on adaily basis to meet its legislative requirements under superannuation law. This means that the ‘realtime’ reporting and payment will change the way superannuation fund interact with the ATO.

Questions to be considered by the STP project are:

7. Has the STP project considered the impacts of increasing contribution activity by 400% in terms oftransaction cost (both payments and data messaging) for employers and funds, increased errorreporting and the ability for the SuperStream network to handle the increased volume including theATO enabling services provided under SuperStream? Has the ATO considered the impacts onstakeholders in terms of SuperStream readiness by employers?

8. Has the change in frequency by superannuation funds in reporting and paying been considered by theATO in light of the proposed changes to the Superannuation Data and Payments Schedules whichinclude reporting to the ATO by superannuation funds? What are the impacts of STP on the Scheduleswhich were released by the ATO on 3 March 2015 for consultation by the industry?

We would urge the ATO to work with the superannuation industry to identify, analyse and resolve any design issues that impact superannuation systems and the SuperStream Network.

Phasing in of STP

I refer to a comment made by the ATO in the SIRN meeting where it was suggested that the introduction of STP would be on an ‘opt in’ basis for a period of time before it would become mandatory. While this should have provided the industry representatives present some comfort that funds would have some flexibility in introducing these changes, it did not as funds are both senders and receivers of data. Based on our experience with SuperStream implementation, superannuation funds (as receivers of contribution data) must be ready before employers (as senders) are able to send. This means that there is little flexibility for funds in terms of STP readiness and STP implantation requires careful orchestration between employers (and agents), funds and the ATO.

Question to be considered by the STP project:

9. To what extent has the STP project considered the interoperability issues between senders andreceivers of data in implementation planning to ensure an orderly and controlled implementation ofSTP?

4

Onboarding of employees/members

At the SIRN meeting, we were presented with a proposal on how the ATO envisages the onboarding of employees/members, including the choice of fund process. It is important to note that as superannuation is a condition of employment it is subject to relevant laws, awards and agreements. Hence, it cannot be assumed that all employees have (full) ‘Choice of Fund’ nor that all superannuation funds can accept contributions. We strongly recommend that the ATO works with the industry and other relevant stakeholders to make this process work efficiently and comply with the relevant laws.

Consultation

In the short time ASP has engaged with the ATO STP project it is clear that the superannuation industry is significantly impacted by the introduction of STP. In addition, there appears to be an obvious overlap between STP and SuperStream which on the face of it has not been thoroughly explored. This could put both SuperStream and STP at risk. Having spent up to $1 billion on the SuperStream implementation (including $427 million SuperStream levy for ATO services) this risk to both the industry and the ATO is unacceptable. Therefore, we urge the ATO, as both owner of SuperStream and STP, to work closely with the superannuation industry through the issues raised that are impacting superannuation industry participants as well as any new issues that have not been discovered. Using the well-established SuperStream stakeholder engagement forums that have been in place over the past two years, including the ATO led SuperStream Reference Group seems a natural starting point.

Yours faithfully

Hans van Daatselaar Executive Officer

Cc: Philip Hind –National Program Manager Data Standards & Ecommerce, SuperStream Australian Taxation Office

About ASP

ASP has been established by industry practitioners as a superannuation industry body to identify, develop and implement operational efficiency improvements for the administration of superannuation funds and their members. It was formed in November 2010 to support the Federal Government in the delivery of its SuperStream initiatives. ASP was legally incorporated on 28 February 2013 as a company limited by guarantee.

ASP’s focus is solely on practical initiatives to improve efficiency of the system. ASP has a current focus on SuperStream, but based on the achievements to date, ASP is well placed to add substantial long term value to members of superannuation funds through working together on administration efficiency opportunities well beyond the completion of current government reforms.

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In recent years the superannuation industry has been going through extensive change, including the implementation of mandated data standards for the electronic exchange of superannuation payments and data between employers and superannuation funds. 

Given that the ATO has regulatory oversight of the adoption of the data standards, and is the standards setter, ASFA finds this lack of early engagement both surprising and disappointing. 

ASFA’s second concern is the apparent narrow scope of the project with respect to payroll deductions.  The consultation paper focus on payments to the ATO (PAYG withholding) and superannuation contributions (the ATO has regulatory responsibility for SG compliance) the paper ignores other payroll related activities.  For example, absent from the examples of “employer based” reporting are such items as: 

payroll tax

workers compensation insurance premium payments

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paid parental leave,

salary packaging arrangements and

employee requested payroll deductions for items such as health and other insurancepremiums and home loan repayments.

ASFA considers that if ‘single touch’ truly is the goal then the above items, and any other payments that flow directly out of payroll systems or are based on payroll information, should be contemplated and considered in the technical design. 

As an initial comment on the proposed implementation timeframe, based on ASFA’s experience with the implementation of SuperStream and the provision of ATO on‐line supporting services we consider that if the project requires the provision of ATO IT services, the proposed commencement date of 1 July 2016 is overly optimistic. 

Whilst the consultation paper sets out the basic objectives of the proposal, we note the absence of a clearly articulated business case, milestones and deliverables.  ASFA finds this omission disturbing given the significant reliance on private sector involvement in program outcome delivery and that the project has been endorsed by the Minister for Small Business. 

ASFA is also concerned that the paper also does not clearly articulate the underlying assumptions or business rules that will be adopted.  For example, in SuperStream there is a fundamental rule that all payments and the associated data are lined by a unique payment reference number.  However in the section headed Single Touch Payroll reporting capability the suggestion is that the ATO will be notified of the super contribution amounts that the employer will pay.  Reporting proposed future payments is merely an acknowledgement of an employer liability and does not overcome the existing problem of employees being notified on payslips of an SG entitlement that may or may not actually be paid by the employer.  ASFA is unsure as to whether the absence of fundamental business rules in the consultation paper does or does not reflect a lack of detailed analysis. 

A final, and major, concern is the advice in recent days that the Single Touch Payroll proposal extends to the payment by superannuation funds of PAYG withholdings on benefit payments to the ATO on an as‐deducted basis.  PAYG withholdings on superannuation benefit payments (pension payments and lump sums made from income streams as well as lump sums from accumulation accounts and income protection insurance benefit payments) are not a payroll function.  That is, 

they are not related to an employer/employee relationship but are a part of a superannuation fund’s benefits administration function.  Extending the project scope to these withholdings may also impact on insurance companies. 

Given that the risk of superannuation funds defaulting on PAYG withholding remittances to government is negligible, this expansion of project scope seems to be more about an earlier receipt of revenue than an attempt to resolve other problems. 

The superannuation industry is currently in the middle of re‐engineering its administration system to maximise the benefits from the implementation of SuperStream, gearing up for changes to the SuperStream Message Implementation Guides and is also considering the ATO’s SBR2 roadmap.   Inclusion of superannuation PAYG withholdings in the Single Touch Payroll project would add an unacceptable level of risk to the implementation of these current large scale industry projects. 

ASFA urges that no firm commitment be given to including superannuation fund withholding payments in the Single Touch Payroll projects scope until extensive and detailed consultation has been undertaken with the superannuation industry and a full cost benefit analysis has been undertaken. 

ASFA suggests that the Single Touch Payroll project be subject to further rigorous analysis, including a review of the proposed scope and detailed mapping of the activities required of both the private and public sectors. 

Responses to specific questions 

The responses below are based on the content of the consultation paper.  That is, they address the questions from the perspective of an employer’s payroll operations and the proposed increased frequency of superannuation contribution payments but not the myriad of issues that will follow from the proposal that the project would also cover PAYG withholdings from superannuation benefit payments. 

ASFA considers that PAYG withholdings from superannuation benefit payments should be subject to a separate consultation paper and process. 

In responding to the questions posed in the consultation paper, ASFA is working on the assumption that there would be no disturbance to the arrangements under which superannuation funds receive SuperStream compliant messages through channel A.  That is, ASFA is working on the assumption that there is no proposal to change the current legislated requirement for employers to comply with the Superannuation Data and Payment Standards nor to the method by which they are required to comply. 

Single Touch Payroll reporting capability 1. Would Single Touch Payroll reporting reduce or increase red tape costs for business in the long

run? 

Single Touch Payroll has the potential to significantly reduce red tape costs and other business costs associated with payroll providing what is delivered provides a comprehensive payroll processing solution. 

However, it also has the potential to produce both costs and benefits for other entities.  For example, if the proposal for more frequent superannuation contributions is adopted then employees’ would benefit as contributions would be received and invested earlier.  However, the increased transaction flows would also result in increased processing costs for the recipient funds.   

ASFA considers it essential that the Single Touch Payroll design for paying contributions replicates existing SuperStream processes.  If not, superannuation funds would face significant costs in adapting their newly installed arrangements. 

2. What is the estimated size of this red tape cost reduction/increase?

It is difficult to estimate the size of the cost reduction for employers without more information on the scope of what is proposed to be delivered.  For example, if Single Touch Payroll does not cater for all deductions and transfers which can legitimately be made from an employee’s remuneration then the employer benefits will be limited as a significant processing workload would be retained. 

The quantum of any benefits would also be dependent on the existing capabilities of an employer’s payroll system. 

Single Touch Payroll real‐time reporting and payment capability 3. Would Single Touch Payroll real‐time reporting and payment reduce or increase red tape costs

for business in the long run? 

It is conceivable that, in the long run, real‐time reporting and payment capability could reduce red tape costs.  However, the extent to which costs may be reduced is dependent on the completeness of the solution offered. 

Ideally, the solution should allow for the embedding within payroll systems of process rules and facilitate integration across the value chain.  Such an outcome would improve data quality, reduce error levels and minimise reverse workflows. 

It should be noted that for businesses which also offer superannuation products there may be increased costs in moving to a single touch payroll platform due to the disruption of existing internal efficient superannuation contribution arrangements. 

As stated in the paper, where fees charged are transaction based, increased frequency of transactions, particularly in the superannuation space, will result in increased costs in the short term.  Where the burden of these cost increases will fall depends on the commercial arrangements between funds and contributing employers.  However, countering this, in the longer term the introduction of Single Touch Payroll may see the emergence of new market players with more efficient and lower cost payroll solutions. 

A significant unknown is the proposed transaction pricing for the banking system’s New Payments Platform. 

4. What is the estimated size of this red tape cost reduction/increase?

The red tape cost impact is unquantifiable at this stage. 

5. What impact would the more frequent PAYG withholding and super payments have on yourcash flow position, and how could this be mitigated?

For superannuation funds, more frequent contributions would result in a smoothing of cash inflows. 

However, should employers be concerned at the impact on cash flows then a potential outcome of alignment of payments with payroll cycles may be a shift from fortnightly to monthly cycles. 

6. Are there any additional reporting and/or payment functions that you would like to seeincluded in the design of the Single Touch Payroll?

As stated above, ASFA considers that a complete solution is desirable and achieving this would require the inclusion of other functions such as payroll tax, workers compensation insurance, child support, paid parental leave, and salary packaging arrangements.  

7. What transitional arrangements would businesses require to adopt Single Touch Payrollreporting and/or payment capability (including mitigation of the initial transition impact on cashflow of moving to paying tax and super at the payroll event)?

For most employers, the move from the current to the new arrangements will result in a bringing forward of payment obligations.  However, for some employers, those large remitters on a twice weekly payment cycle, it would appear that under event based reporting they would pay on a much less frequent cycle, perhaps monthly in some cases. 

Whilst for those who will be required to pay more frequently this will be a one‐off event, the quantum of the brought‐forward payment liabilities could have a significant impact on many businesses. 

It is suggested that consideration be given to addressing the problem by, for those employers moving to more frequent payment dates, aligning the transition in commencement dates with the employers current reporting framework and permitting employers to pay the final PAYG withholding debt under the existing arrangements over the remainder of the financial year. 

For example, a medium employer could enter the system on 1 July and pay their July debt by 30 June the following year.  A medium employer entering in November would pay their November debt by June the following year.  Similarly, a small employer entering the new system in the September quarter would pay their debt for the quarter accumulated under the old system by the following 30 June.  Consideration could be given as to whether these deferred debts should be paid off as a lump sum at the end or progressively during the remainder of the financial year.  

Commencing employment 8. Are there any other opportunities to streamline the employment commencement process?

ASFA notes that the emphasis is on the employee supplying their details electronically through an on‐line government portal.  ASFA questions this focus.  If the aim is to provide a complete single Touch Payroll solution then this suggests that the employee interface should be directly with the employer’s payroll solution which in turn would interface with a government portal.   Such an employee centric approach would facilitate the provision of enhanced services to employees whilst still meeting the fundamental objectives of the program. For example an employee could directly interface with the payroll solution to update payroll deductions etc. which would further reduce the administration burden on employers.  

Separately, there exist significant differences between employee data given to/held by employers and member data held by superannuation funds.  These differences should be resolved at the commencement of the employment process and this could be achieved by careful system design that facilitated interactions between employee payroll portals, payroll systems, superannuation fund administration systems and ATO online services.  While designing such interactions will require a robust design process within an agreed consultation framework and will require considerable time to design develop and implement, they have the potential to produce significant economic benefits to all parties involved in the process. 

9. Under the Single Touch Payroll real‐time reporting and payment capability, how should thepayment of SG for new employees be managed to ensure they have sufficient time to make aninformed investment decision?

ASFA considers that the system design should contemplate and accommodate the legislative timeframes for both the provision of information to the employer and the timeframe for SG payment.  ASFA can see no reason why a payroll system could not be designed so as to operate under both sets of rules such that it can recognise unpaid SG entitlements and, if necessary, pay those to the employer default fund before the statutory deadline.  

Cessation of employment 10. Are there any other opportunities to streamline the notification to the super fund, the ATO and

DHS that employees have ceased employment?

ASFA has not identified any further opportunities. 

Administration of penalties 

11. Under what circumstances should the Commissioner of Taxation use his discretion in the

administration of penalties?

ASFA considers that the Commissioner of Taxation should use his discretion to not impose a penalty, 

or to impose a penalty at a reduced rate, where the non‐compliance can be attributed to matters 

that are reasonably beyond the control of the employer.  Such matters would include the failure of 

software, the unavailability of supporting ATO services and the failure to provide, or the incorrect 

provision of, information by an employee. 

Software 

12. If you are not currently using software to process payroll, what are the costs and barriers you

face when acquiring software?

No comment 

13. Do you expect the costs of acquisition/subscription will be outweighed by the cost‐saving from

automated payroll reporting?

Whether or not the cost saving from automated payroll reporting outweighs the costs of 

acquisition/subscription will depend on the completeness of the payroll solution delivered. 

14. If you are currently using software, what are the costs and challenges you foresee in upgrading

to compatible software?

The principal challenge will be whether the current payroll system can be upgraded to accommodate 

the Single Touch payroll requirements.  If it cannot, then costs will be incurred in moving existing 

employee information to any new payroll platform.  However this should be a one‐off cost that 

could be recovered over time through more efficient processing.  There is also the prospect that new 

payroll offerings that support Single Touch Payroll may be cloud‐based, with the prospect of being 

cheaper than existing payroll service offerings. 

Transition options  

15. Is the above transition approach achievable for business? Are there any other

support/transition options that should be considered?

Based on our SuperStream experience with the delivery of ATO supporting services and vendor 

software, ASFA does not consider the proposed timetable to be achievable, particularly given the 

narrow consultation conducted to date. 

ASFA considers that a minimum further 12 months of extensive consultation and design work is 

needed before the project will be in a position to make a judgment on what is an appropriate 

implementation time frame and path. 

16. Under what exceptional circumstances would employers face a significant barrier to implement

Single Touch Payroll that they should be exempt?

ASFA considers that while universality of adoption should the goal, new business start‐ups may face 

implementation challenges to the extent that a limited time‐based exemption from compliance may 

be warranted.  

 *  *  *  *  * 

Yours sincerely 

Glen McCrea Chief Policy Officer 

Australian Business Software Industry Association (ABSIA) PO Box 576 Crows Nest NSW1585

T: 02 9431 8623 E: info@absia.asn.au W: www.absia.asn.au

Attention: Martin Mane Service Delivery (Customer Service & Solutions) Australian Taxation Office

6 March 2015

Submission: Single Touch Payroll Discussion Paper

Executive Summary

ABSIA is of the opinion that a start date of 1st July 2016 is unrealistic given that at this time the scope of Single Touch Payroll (STP) has not been finalised. It is unlikely to be finalised for several months, with the supporting legislation to take even longer. Software developers will require a clear 12 month period from the passing of legislation before the introduction of STP; this is a message that has been delivered to government repeatedly.

The ABSIA Single Touch Payroll (STP) proposal is split into two separate sections:-

1. The replacement of the Tax File Number Declaration and the Choice ofSuperannuation Fund form into a single service. This is a sensibleproposal subject to the method(s) of implementation. However, ABSIAfeels that for STP to provide real value to the employer, the originalproposal raised 5 years ago needs to be implemented. This entails allprocesses associated with the addition of a new employee to beautomated in one single process.

2. The sending of payroll data and potentially the payment of PAYG andSuperannuation at the time of finalising the payrun. ABSIA feels thatthe determination of whether this proposal is workable depends on thefinal scope of STP. If the date of payment is separated from whenpayroll data is lodged, the problems caused by reconciliation issues arelikely to outweigh any benefits

The inclusion of STP into our payroll software will put a significant cost onto developers which our members will not be able to recover from our customers as it will be perceived by their consumers to be a “compliance update”.

There are significant other issues detailed below which do not appear to have yet been fully considered. These include cash flow, rounding issues, superannuation threshold and adjustments (including negative amounts). These need to be clarified very quickly for the success of the project.

Australian Business Software Industry Association (ABSIA) PO Box 576 Crows Nest NSW1585

T: 02 9431 8623 E: info@absia.asn.au W: www.absia.asn.au

What is ABSIA?

ABSIA is the Australian Business Software Industry Association and was formed to represent the business software industry at the highest level. Its vision is that as the premier association, we support and represent all the stakeholders in the software community, advocating a thriving software industry and providing leadership to the global digital economy.

ABSIA aims to serve all stakeholders that form the totality of Australian Business Software Industry, including business software developers and service providers, all-of-Government, corporations, SMEs and individual consumers, as well as other industry associations.

We represent business software developers at many levels including with the Australian Taxation Office, Department of Prime Minister & Cabinet, Treasury, State Revenue Offices and on a number of forums including SuperStream, Small Business Liaison Group, Business Advisory Forum, Tax Practitioners Board, Reinventing the ATO committees, SBR Board, SuperStream committees and various working groups.

The contact details for ABSIA are:-

Mailing address – PO Box 576, Crows Nest, NSW 1585 Email address – info@absia.asn.au Website – www.absia.asn.au

Submission Details

Software developers have been aware of the Single Touch Payroll proposal for at least two years following a presentation given to the Software Developers Consultative Group (SDGC) at the March 2013 meeting. At that time the proposal was detailed as follows:-

1. The replacement of the Tax File Number Declaration and the Choice ofSuperannuation Fund form into a single service.

2. The sending of payroll data and the payment of PAYG andSuperannuation at the time of finalising the payrun.

The second part of the scope of STP now appears to be under debate, with discussion as to whether the payment of PAYG and Superannuation will take place as the same time as the sending of the data. Without the alignment of the timing of data and payment, much of the benefit of Single Touch Payroll is lost. STP is being promoted by the Government as a Red-tape Reduction

Australian Business Software Industry Association (ABSIA) PO Box 576 Crows Nest NSW1585

T: 02 9431 8623 E: info@absia.asn.au W: www.absia.asn.au

measure however it has the potential to be quite the opposite if not handled correctly.

The issue of bringing forward the payment of PAYG and Superannuation to be made with each payrun is likely to cause significant cash flow issues for a large number of employers. This is recognised by ABSIA and it is noted as a significant hurdle to be addressed. ABSIA is currently preparing a survey for its software developer members to send out to their business clients to identify the full extent of the impact of this measure.

ABSIA would also like to point out on behalf of its members that there will be a significant additional workload placed on all payroll software developers and it is unlikely that there will be any ability for payroll software vendors to re-coup these costs from the end-users. STP will be seen as a “compliance issue” by the users of our software and therefore something that we should provide as part of the payroll software offering.

In specific response to the questions that have been raised in the consultation document:-

1. Would Single Touch Payroll reporting reduce or increase red tapecosts for business in the long run?

This depends on the scope of what is included in STP. If data and payments are separated then red tape may increase significantly.

2. What is the estimated size of this red tape costreduction/increase?

If payments are included, then the annual reconciliation required at the time of creating payment summaries at financial year end will be eliminated. This reconciliation would take place at each payrun and any issues would be much easier to resolve. However, one factor which has not yet been quantified is what the cost of doing more reconciliation every week would be to every employer.

If payment is not included, each month or quarter when payments are made there would be reconciliation issues to resolve. The extent of this does depend on the exact method by which data will be sent, for example, would superannuation information be sent to each superannuation fund with each pay or only when payment is made?

This is an important question as all superannuation funds have built a reconciliation system around the SuperStream Payment Reference Number (PRN) and this operates on the basis of one payment matched to

Australian Business Software Industry Association (ABSIA) PO Box 576 Crows Nest NSW1585

T: 02 9431 8623 E: info@absia.asn.au W: www.absia.asn.au

one remittance advice (as per the SuperStream Standards). Changing this to a many-to-one relationship will have a major impact on the superannuation industry for both APRA and SMSFs.

3. Would Single Touch Payroll real-time reporting and paymentreduce or increase red tape costs for business in the long run?

In the long term there will be easier reporting for businesses, which has the potential to offset the cost of making payments sooner. Noting that there may be a cost to a business caused by the reduced cash flow, for example, a business may have to borrow money to cover the earlier payment of PAYG and superannuation.

4. What is the estimated size of this red tape costreduction/increase?

The answer to this depends heavily on the nature of the business involved, their cash flow situation and the number of employees (for example, many retail businesses may employ a large number of casual staff working only a few hours per week). ABSIA is therefore unable to give a meaningful answer to this question.

5. What impact would the more frequent PAYG withholding andsuper payments have on your cash flow position, and how couldthis be mitigated?

ABSIA believes that this depends on the nature of the business. A retail business with predominantly cash sales is likely to have less cash flow issues, whereas a business receiving payments 30 to 60 days after the issue of an invoice may have significantly increased cash flow problems. This issue has had only superficial treatment to date by the ATO and has a potentially disastrous effect on the Australian economy.

It seems there is a perception that these funds are held in trust for the employee, however this is not the reality. This revenue is derived from the efforts of the business and is then dispensed to pay overheads when they are due. In the case of payroll, the money derived from sales is paid to cover wages in three stages – net pay to employees, PAYG to the ATO and Superannuation to the funds. The employer has a legal obligation to make these payments on specified dates and is fully entitled to use his sales revenue for any other business purpose in the interim period.

Some of the anticipated effects of the change outlined by ABSIA members are detailed below:

Australian Business Software Industry Association (ABSIA) PO Box 576 Crows Nest NSW1585

T: 02 9431 8623 E: info@absia.asn.au W: www.absia.asn.au

A retail business claims it will have to reduce its stock holding,which could reduce sales which could reduce its ability to hire staff

Another retail business makes over $1 million per annum by payingsuppliers early and taking settlement discounts. Moving 40% of itspayroll costs forward by a month on a permanent basis may mean itwill have to curtail this practice. This would therefore incur a cost ofone million dollars per year. It also has a ripple-on effect throughthe economy by delaying payments to its suppliers, who in turn willdelay payments to their suppliers

A significant part of the workforce is paid by labour hire firms andthey generally pay the staff weekly, however in the realities ofbusiness life the labour hire firms are not paid by their client for 30to 60 days. Correspondence received by ABSIA from this industryindicates that it may have to resort to debt financing with the adventof STP which will squeeze profit margins greatly

ABSIA feels that the effect on business cash flow has not been analysed sufficiently by the ATO to date as there has been limited evidence released other than some simple charts. A more in-depth and realistic analysis will be required.

6. Are there any additional reporting and/or payment functions thatyou would like to see included in the design of the Single TouchPayroll?

To make Single Touch Payroll work properly, it must include data for all payments made out of a payroll system which may include Payroll Tax, Child Support, garnishee payments etc.

ABSIA feels that this is a critical part of STP as the initial premise of STP was to streamline the process of “on-boarding” a new employee. There is a perception that this focus has moved towards ensuring employers pay their PAYG and Superannuation early.

7. What transitional arrangements would businesses require toadopt Single Touch Payroll reporting and/or payment capability(including mitigation of the initial transition impact on cash flowof moving to paying tax and super at the payroll event)?

A business expecting to have cash flow issues should be able to apply for short term funding from the government to mitigate the negative cash flow. This could be scaled back over a number of years until being phased out, for example, in year one a 90% loan is provided, in year two a 70% loan, in year three a 50% loan, etc. After five years, each business pays all PAYG and Superannuation on the payment due date and businesses have had plenty of time to adjust to the new cash flow requirements.

Australian Business Software Industry Association (ABSIA) PO Box 576 Crows Nest NSW1585

T: 02 9431 8623 E: info@absia.asn.au W: www.absia.asn.au

Given every business will have cash flow issues from this development; it would be likely that every business would require a loan. This will be a challenge as the loan evaluations would be based on future projections rather than fact.

ABSIA feels that moving the payment of GST back a few months would go a long way to help.

8. Are there any other opportunities to streamline the employmentcommencement process?

Obtaining an employees bank details, Tax File Number and Superannuation fund information are the main difficulties for businesses currently. The ability to also send down an employee’s address and next of kin information (with the employee’s consent) has the potential to assist this process. The ATO already holds the majority of this information (including bank account details) and so if this can be provided to an employer reducing the requirement for the employee to supply this information, this would be extremely beneficial.

9. Under the Single Touch Payroll real-time reporting and paymentcapability, how should the payment of SG for new employees bemanaged to ensure they have sufficient time to make an informedinvestment decision?

Unless an employee is entering the work force for the first time, they will almost certainly have an existing superannuation fund. It is very important that an employer has a clear decision from an employee as to which fund they wish to use at the commencement of employment. A pay may occur very soon after the start of employment (for example, the author of this submission was once paid on the second day of employment) and by this time the superannuation fund must be known as this information is required to be displayed on the pay advice per Fair Work requirements.

If an employee does not have an existing fund, they can use the employers default fund until such time as they have had an opportunity to take suitable financial advice. Alternatively, an employee with no fund could have the money sent to the ATO as a short term measure until they have selected a fund. After selection, the ATO could pass the money on to the selected fund and advise the employer where future superannuation payments should be made. This would avoid the employer having to have a default fund (which no employees may use), this becomes another red tape reduction.

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A hasty or temporary solution has the potential to have a massive impact on superannuation funds – the rollovers generated as a consequence of STP could be a major overhead for funds to absorb.

10. Are there any other opportunities to streamline the notification tothe super fund, the ATO and DHS that employees have ceasedemployment?

Notifications must be handled from the ATO with them passing information on to other government departments. All the details required by government (at all levels) must be handled in one reporting file. One issue that should also be covered is the issue of the termination of an employee due to death and making it an obligation of the employee’s superannuation fund to accept payment of superannuation after death. At present some superannuation funds will refuse these payments causing an additional burden for an employer.

11. Under what circumstances should the Commissioner of Taxationuse his discretion in the administration of penalties?

The commissioner should always have discretion in the administration of penalties an employer who has a system issue or other unforeseen circumstances which causes a delay in sending data or payment is not unnecessarily penalised.

12. If you are not currently using software to process payroll, whatare the costs and barriers you face when acquiring software?

As software developers we are already likely to have our own payroll systems.

Like all employers we will be faced with the costs of change management and the implementation of STP. These are as yet unidentified due to little available information about the technology platform or the actual business requirements for STP. Given the uncertainty around the separate implementations of the AS4 standard for SBR and SuperStream, this may be costly for all employers.

13. Do you expect the costs of acquisition/subscription will beoutweighed by the cost-saving from automated payroll reporting?

This is primarily a question for a very small business not currently using any payroll software. Systems are likely to be available at low cost covering a business with a few employees and they are likely to find that their burden in doing payroll is reduced overall by using a software package rather than a manual process.

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However again, there may be costs faced with change management and the implementation of STP as outlined above.

14. If you are currently using software, what are the costs andchallenges you foresee in upgrading to compatible software?

This question is not directly applicable to software developers; however software developers will bear significant costs in training and implementing STP for their clients.

15. Is the above transition approach achievable for business? Arethere any other support/transition options that should beconsidered?

This question is not applicable to software developers.

16. Under what exceptional circumstances would employers face asignificant barrier to implement Single Touch Payroll that theyshould be exempt?

For Single Touch Payroll to work well, it should be compulsory for all employers. There must be no exceptions otherwise the whole process becomes undermined.

Software providers, particularly cloud based solutions, are generally reluctant to make too many options available to their clients. Multiple options creates confusion with clients, additional help desk loads and higher development costs.

Additional Comments

ABSIA wishes to raise the following points that need to be considered during the implementation of Single Touch Payroll. Whilst some of these may effectively argue against points already raised in this submission, they are issues that need to be discussed as the scope of STP has not yet been finalised:-

Superannuation Threshold

Currently an employee needs to earn a minimum of $450 in a calendar month before the Superannuation Guarantee (SG) is payable by an employer. This threshold was introduced at the time SG Super was introduced in 1992 and when SG superannuation was at a rate of 3% to stop extremely small amounts of superannuation from having to be paid.

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With the rate of SG superannuation now being 9.50% and earnings levels much higher, the $450 threshold is now outdated. To assist with the smooth implementation of STP it is suggested that the threshold of $450 should be removed as it may have the effect of causing uncertainty where an employee is shown on a pay slip to have SG accruals in the early part of a month only for these to not be paid if the threshold has not been reached by month end.

One suggestion is to replace the $450 threshold with a once one-off threshold of $1,000 so that an employee who only works for an employer for a very short period (eg a few days) does not have to be set up superannuation. Once the threshold has been passed, all additional salary and wages will attract SG. The removal of the $450 threshold will also mean that casual employees working only a few days each month for a given employer will still receive superannuation and have the opportunity start to build up some meaningful superannuation.

Negative pay amounts caused by adjustments

It is often found that after a payrun has been completed that there are some problems with the pay. This can lead to adjustments both positive and negative needing to be made. If all payroll details have been sent, and potentially also been paid, how will these adjustments be processed, particularly if they result in a negative adjustment to an amount that has already been to a third party?

One ABSIA member has reported that one client reversed a payrun for almost 1,000 employees over 20 times in a single day. This situation would have resulted in 50,000 transactions going to the ATO. Will the ATO systems cope with this? Has there been consideration of situations such as these?

Payroll Bureaus

Many employers use the services of a payroll bureau rather than calculate salaries and wages themselves. As part of the service provided, many bureaus also pay the employees and then claim back the amount of the payments made from the employer. In this respect they are providing a level of financing to employers. If PAYG and Superannuation now have to be paid as part of STP, this will put a considerable additional cost burden on the bureaus which they may be unable to meet.

Monthly Reporting

Has monthly reporting been considered as an option instead of reporting and the making of payments of PAYG and superannuation at the time of the pay taking place? In New Zealand, each employer is obliged to create an Employer Monthly Schedule which details information for each employee in

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respect of pay amount, tax withheld, student loan repayments, child support and KiwiSaver (superannuation) contributions from both employer and employee. An EMS was also introduced in Fiji from the start of 2013.

Monthly reporting allows for employee pay details to be finalised at the end of each month, adjustments to be processed and reconciliations made prior to the reporting date. It achieves most of the objectives of STP whilst eliminating many of its disadvantages. For large withholders, an interim payment or payments of PAYG can continue be made as happens in New Zealand.

Multiple Pay Frequencies

Many employers will pay employees on different frequencies. Some staff may be paid weekly, some fortnightly and some on a monthly basis. For these employers, Single Touch Payroll may become a challenge as they will have to finalise pays on multiple occasions each month.

There is also the issue of payruns made outside the normal pay cycle. This can occur for example with the payment of a bonus, a termination payment made to an employee who has ceased employment or when a payment (eg overtime) was omitted from the original pay.

The cash flow issues associated with STP may result in employers moving their employees to monthly pays instead of weekly or fortnightly.

Superannuation Paid Through the Small Business Clearing House

Small employers (ie employers with fewer than 20 employees), can make use of the Small Business Clearing House (SMBCH) for superannuation payments. At present, the entry of details of the amounts to be paid for superannuation are entered manually through the Small Business Clearing House website. For Single Touch payroll to work, the Small Business Clearing House must be able to accept a file showing the payment details.

Building an interface to the SMBCH would be a large and expensive exercise for most software developers.

Transition to Single Touch Payroll Part Way Through a Financial Year

Consideration must be given to what will happen when an employer transitions to STP part way through a financial year. Does this mean that a Payment Summary must still be issued to an employee for that part of the year when they were not paying through STP? This may cause many questions from employees when their Payment Summary does not match their pay for the year. This problem can be reduced by the inclusion of Year to Date (YTD) information within the reporting details sent each pay. This allows

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for an employer to start using STP at any time during a financial year and not have to produce a payment summary covering only part of a year.

Rounding of Reported Amounts

Current reporting requirements for a payment summary and the associated data sent to the Australian Taxation Office truncate the cents from all reported amounts. This is of no consequence for an annually reported amount. If cents are truncated for each pay, this will add up to a significant discrepancy over the course of a year leading to more reconciliation issues and the under reporting of income.

Payment Summary Reporting Requirements

As part of Single Touch Payroll, ABSIA suggests there also be a review of what actually needs to be reported. On the current Individual Non-Business payment summary, certain allowances have to be itemised. For the Foreign Employment payment summary, the itemisation of allowances is not required. This is an area where there needs to be consistency of reporting requirements.

If a payment summary is no longer required, can the requirement to issue any form of part year payment summary also be eliminated.

Payments made outside Payroll Software

There are a number of situations where the payments of staff, PAYG and superannuation are made outside the payroll software and the payroll software is completely unaware of the payments. Some of these situations are:

Employer uses a payroll bureau which pays the payroll net pay to theemployees directly, but leaves the payment of the PAYG andsuperannuation to the employer to do directly

Employer uses a payroll system which is different to their accountingsystem. In this situation the payroll data is all held in one system andsummary reports are generated which are usually fed into theaccounting system manually for payment. The two systems aregenerally not interfaced in any way.

Large ERP systems often operate in silos. In other words, while acompany may be running a high end ERP system the payroll/HRdepartment may have nothing to do with the accounting departmentand the two ERP modules do not necessarily interface seamlessly

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Dual model software development It has been suggested that the software developers should all build a dual solution for STP, one which deals with direct payments in the specification and another which deals without direct payments being included. ABSIA feels that this is an extraordinarily expensive road to take for its members, particularly when the software to be developed will generate zero revenue.

SuperStream 2

There is a challenge with the concurrent development of the MIG for SuperStream version 2 which is tentatively to be implemented in the same time frame as STP.

Requiring software developers to develop SuperStream 2 at the same time as STP and dealing with two ATO groups at the same time may be an extremely difficult for software providers to handle, let alone their clients to implement.

There is a further question as to the ability of the superannuation fund managers and their registry systems to accommodate changes at this rate.

SBR 2

In addition to SuperStream 2, there is also the use of SBR 2 to be considered. The take-up rate of SBR 2 at this point by software developers is even less than SBR 1 and as STP is dependent on this; it is another major piece of technology to be absorbed by the industry.

Tax Practitioners Board

The ABSIA board met recently with the Tax Practitioner’s Board (TPB) and the TPB wants the software developers to build a digital signature//declaration facility into their software for all lodgements made for STP.

This is another significant piece of work for software developers tied to STP.

ebMS 3.0 AS4

This messaging technology is being put forward as the cornerstone of STP. However, the government, despite significant resistance from some members of the software community has overseen the development of two AS4 standards:

The ATO has paid $100 million dollars to have a vendor specificversion of AS4 built for SBR2

Concurrently, the ATO has been directly involved in the oversight of thedevelopment of the AS4 standards for SuperStream

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The two implementations are not compatible and there is a view that the SBR implementation is not strictly in conformance with the standard. This is not an ABSIA view but a view expressed by experts which is being presented to the SuperStream gateway Governance Group on 12th March.

Given that this technology is key to STP, this will be an additional hurdle for software developers who do not want to be supporting two standards of AS4.

Overall Project

As expressed above, Single Touch Payroll for a software developer is much more than just Single Touch Payroll. It consists of the following:-

Single Touch Payroll Standard Business Reporting 2 (SBR2) which has not yet been fully

implemented by any software provider SuperStream2 - the MIG is still only at draft stage Digital signature/declaration to meet the requirements of the Tax

Practitioners Board (TPB). ABSIA is still waiting on the requirementsfrom the TPB.

Multiple AS4 standards (this conversation is only just beginning)

The current deadline of July 2016 is not realistic. If we are not careful it could turn into a recipe for disaster.

ACCI – Single Touch Payroll – March 2015 1

SINGLE TOUCH

PAYROLL – ACCI’s

response to the

ATO’s discussion

paper

MARCH 2015

ACCI – Single Touch Payroll – March 2015 1

EXECUTIVE SUMMARY

The Australian Chamber of Commerce and Industry welcomes the opportunity to comment on the Australian Taxation Office’s Single Touch Payroll discussion paper and welcomes the fact of consultation. ACCI realises that Single Touch Payroll (STP) is a major initiative which will affect every employer.

The timeframe for responding has been tight. ACCI recognises that consultation about this discussion paper is part of a process but the timeframe has affected its capacity to respond to the questions in the discussion paper. It will also reduce the likelihood of significant numbers of employer submissions.

In its response ACCI does not specifically address communication, but not because communication is unimportant. Communication which is directed towards explaining the need for change, the nature of what’s required to get on board and what to do when things don’t work is crucial for any change project to work. Communication is a challenge. Any change is a challenge for some and it is intrusive for all who are impacted. On the one hand people do not like to be blindsided, so they need to know in advance. On the other hand, the reality of the pressures on their daily operational existence also means that many businesses don’t have the time to give attention things which are or seem to be in the distance.

Communications need to be staged and multi-channel.

ACCI welcomes the government’s focus on red tape reduction and recognises the potential that reporting automation has for achieving that. However implementation is everything.

STP is being initiated in a post SuperStream environment which may lead to the view that there is a capacity amongst employers to adapt to STP which is in fact not there. ACCI’s response outlines why this is the case and what it understands to be the actual state of readiness. This suggests that the STP implementation process needs to be adjustable and responsive to emerging lessons. ACCI’s response draws attention to the relatively similar United Kingdom Real Time Information initiative as further evidence of this fact.

ACCI argues that STP implementation should not attempt too much at once.

SuperStream is essentially a linked payments and data transmission system and although there are differences between SuperStream and STP, STP could also be a platform for automatic bank transfer requests (payments) which are linked to data transfers. Even more so than STP with a pure reporting function, STP with pay-on-report facility raises the importance of understanding business’ cash flow and designing around that. As with readiness, there is not one cash flow story, there are many.

ACCI – Single Touch Payroll – March 2015 2

ACCI could not support any over-early implementation of mandated STP payment system.

Setting cash flow aside, but not so as to diminish its importance, and setting aside questions about the compatibility of SuperStream contributions enabled in-house systems, about which ACCI is not qualified to comment at this point, the concept of linking report compilation and transmission with bank transfer request is attractive. ACCI would be open to discuss this kind of proposal if considered as an optional feature (at least initially, with capacity to reverse opt-in).

For STP enabled employers, capacities such as more automated on-boarding relying on employee sourced information, are, subject to cost, very attractive and supported in principle for that reason.

The STP initiative is essentially seeking to mandate not only what information government requires but how it is to be delivered. This has market implications which need to be dealt with carefully, and this is a particular issue in the beginning, during the implementation stage. Apart from anything else this is when the contracts are signed.

In response to the proposed introductory timetable ACCI submits that the most important feature of a change and compliance programme with statutory dates is the capacity to be able to change dates to respond to the actual implementation problems as they occur. At this point ACCI doesn’t know how design ready STP will be by 1 July 2016, and on the other side the perceived readiness of those acquiring the new obligation may be exaggerated.

Contact: Dick Grozier

Associate Director Workplace Relations

Australian Chamber of Commerce and Industry

ACCI – Single Touch Payroll – March 2015 3

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ACCI – Single Touch Payroll – March 2015 4

CONTENTS

EXECUTIVE SUMMARY .................................................................................... 1

CONTENTS ....................................................................................................... 4

1. INTRODUCING SINGLE TOUCH PAYROLL ............................................... 5

1.1 INTRODUCTION _______________________________________________ 5

1.1.1 SILENCE IS NOT ASSENT, NOR LACK OF INTEREST ....................... 5

1.1.2 INFORMATION AND CONSULTATION ABOUT STP ....................... 6

2. SINGLE TOUCH PAYROLL REPORTING CAPABILITY ................................ 7

2.1.1 DOES STP MEAN CHANGES TO BAS AND PAYMENT

SUMMARIES? .................................................................................................. 7

2.1.2 THE CONTEXT OF STP ...................................................................... 8

3. TRANSITION ............................................................................................ 10

3.1 THE COST OF TRANSITION ____________________________________ 10

3.1.1 INTRODUCING REAL TIME TAX AND SUPERANNUATION

REPORTING ................................................................................................... 11

3.1.2 ASSESSING THE COSTS .................................................................. 13

3.2 SMOOTHING CASH FLOW ___________________________________ 13

3.3 SHOULD STP INCLUDE AUTOMATIC PAYMENT? ________________ 15

3.3.1 A ROBUST TRANSACTIONAL SYSTEM .......................................... 16

3.3.2 OPT-IN AND TRIALLING................................................................. 16

3.3.3 EXISTING COMPLIANCE OBLIGATIONS ...................................... 16

3.3.4 AVOIDING UNFAIR COMPETITIVE ADVANTAGE ....................... 17

3.3.5 SUPERANNUATION AND STP ........................................................ 17

3.4 TRANSITION INTO STP ________________________________________ 18

4. ABOUT ACCI .......................................................................................... 20

4.1 WHO WE ARE _______________________________________________ 20

4.2 WHAT WE DO _______________________________________________ 20

ACCI MEMBERS ............................................................................................ 22

ACCI – Single Touch Payroll – March 2015 5

1. INTRODUCING SINGLE TOUCH PAYROLL

1.1 Introduction

On 28 December 2014 the Minister for Small Business and the Assistant Treasurer jointly announced that the government would introduce Single Touch Payroll (STP) so as to simplify PAYG and superannuation guarantee (SG) reporting to the Australian Taxation Office (ATO)1. Under STP the employer’s accounting software would also generate and despatch PAYG reports to the ATO when employees are paid. This is intended to replace current Activity Statement and Payment Summary PAYG reporting. In the case of superannuation the ministers advised that STP would simplify TFN declaration and superannuation choice and potentially advise terminations.

On 16 February 2015 the ATO released a STP discussion paper and invited submissions by 6 March 2015. The Australian Chamber of Commerce and Industry (ACCI) welcomes the government’s focus on red tape reduction because of its direct benefits for employers and because of its national economic benefit. ACCI welcomes changes in the nature of business to government reporting obligations and in the method of reporting which do actually reduce red tape.

ACCI was represented on the Cooper Committee which reviewed the governance, efficiency, structure and operation of the superannuation system. ACCI generally supports its recommendations including those towards streamlining the superannuation transactional system and has been continuously involved in their implementation. ACCI sits on the SuperStream Reference Group. ACCI recognises that standardised reporting terms, electronic information generation and transaction and the provision of a secure transactional environment are the way for the future and supports their development. The crucial issue is implementation.

ACCI thanks the ATO for the opportunity to comment. That said, ACCI also notes that the time allowed to respond to the discussion paper is very brief for a project of this size and impact. This will effect submissions.

1.1.1 Silence is not assent, nor lack of interest

The STP project is a major change which will impact all employers. STP is very important for employers. Nonetheless, it is very unlikely that there will be large numbers of employer submissions in response to the discussion paper. This is for three reasons.

Few employers are aware of the discussion paper and the associated consultation arrangements and the short response period means there is little prospect of that changing before 6 March.

1 http://jaf.ministers.treasury.gov.au/media-release/001-2014/

ACCI – Single Touch Payroll – March 2015 6

Second, although the discussion paper is relatively brief for documents of this sort it is most unlikely that many employers, particularly small employers, even if directed to the discussion paper, would have the time and resources to digest and respond to it.

Further, the discussion paper is really the first public explanation about STP and the questions it poses require a better understanding of what is intended with STP and what it implies than is provided in the paper. Most employers wanting to answer the questions which have been posed would not be able to. The discussion paper asks a number of questions about costs, estimated disruption and transitional timing. Because of the diversity of different employers’ circumstances and current processes costing is difficult to model and the short consultation time on the discussion paper has meant that it was not possible to develop a way of costing proposals or effects as have been asked about.

ACCI has sought to bridge this gap in conjunction with its member the NSW Business Chamber by surveying Chamber members’ views about STP. Chamber members (potential respondents) were advised that the government was implementing STP which meant replacing paper reporting PAYG and SG with employer payroll software enabled reporting and requiring reporting at the time employees are paid. Members were also advised that the government was considering simultaneous payment. They were asked a number of questions about how they operated now and the costs and what they saw as the benefits of STP.

Timing did not permit survey testing nor extensive publicity of it, and the survey was only open for 8 days. 471 members responded. 66% of respondents were small employers (fewer than 20), but disproportionately (43% of respondents) in the 5 – 19 employee range. Respondents were split 50-50 between up to and above $100,000 PAYG withholding.

A number of the survey questions were open. For example, respondents were asked to identify benefits they perceived from changing to reporting under STP and then asked to quantify them. Responses have not yet been properly grouped and analysed but, as with the other sets of open questions in the survey, large numbers of respondents skipped the question, presumably because it was too difficult. In this case only 268 respondents answered the “benefits” question and 108 the “quantification” question, and many of those said that they could not.2

1.1.2 Information and consultation about STP

ACCI recognises that STP consultation has not been confined to responses to the discussion paper and notes that both the Treasury and the ATO have also been seeking to consult about STP in other ways including by discussions with ACCI and ACCI members. This is important and must continue. ACCI sees benefit in more explanation/roundtable sessions and would be pleased to work with ATO/Treasury to assist with this.

2 There were 17 respondents who quantified benefits and they reported an average $10,600 and a

median $2,000 benefit.

ACCI – Single Touch Payroll – March 2015

7

ACCI also understands that there is scoping and system design work currently being undertaken in consultation with software developers and potential service providers such as payroll service providers and accounting package suppliers. This, too, is appropriate but every care must be taken to avoid creating unfair competitive advantage. SuperStream and STP are disruptive. They involve moving from multi-standard and paper/electronic reporting to standard electronic transactions which means significant challenges for many existing business models, reallocations of advantage amongst existing models and possible new entrants with new models. To take a simple example: software development and the potential to expand STP over time mean it is likely that there will be software updates, possibly relatively frequently. This would suggest that employers with STP software may be better off using subscription services rather than update services, and that for employers which use some other third party supplier, the subscription model may also be more appropriate than the update model. This raises the issue of how best to ensure competitive efficiency to bid down costs, especially in the implementation phase, but it also means that many employers must contemplate a new additional continuous cost of doing business, rather than making changes (innovating) at a time which is economically appropriate for the business’ activity level and cash flow position. The likely need for updates also has implications for possible forms of government support, such as providing access to basic STP software.

2. SINGLE TOUCH PAYROLL REPORTING

CAPABILITY The discussion paper advises that STP would require employers to report employees’ income, withheld PAYG tax and SG accruals at the time of paying employees’ wages which would eliminate other employer PAYG reporting obligations, including the current payslip obligations. However it is unclear what these alternatives actually mean for current reporting.

2.1.1 Does STP mean changes to BAS and

payment summaries?

Currently in the BAS form the only declaration about employee remuneration gross of any witholding is “W1”, total salary wages and other components, a significantly broader concept than “ordinary time earnings” and broader even than “salary or wages”. Various types of withheld monies are reported in lines “W2” – “W4”, none of which correspond to, or result in balances equivalent to, ordinary time earnings. Similarly, payment summaries do not report ordinary time earnings and only report superannuation contributions which fall outside SG obligations and those imposed by industrial instrument.

ACCI – Single Touch Payroll – March 2015

8

This suggests STP is not just a replacement way of reporting but that that different information from that currently reported may be required. If this is correct there are implications, including legislative implications, for transition.

2.1.2 The context of STP

STP has been proposed in a post-SuperStream environment, or seemingly so, and draws upon SuperStream standardised terminology, message language, format, security and enabling services. This is welcome, but it is important that the legacy that SuperStream provides is itself properly understood and also that the experience of SuperStream implementation and its lessons are properly recognised. It is a little early to tell but it may be that the general level of employers’ electronic transactional capability arising from SuperStream is not quite what it seems.

2.1.2.1 All employers will have to comply with SuperStream

by 1 July 2016

It is proposed that STP will be available from 1 July 2016 and that “large employer” implementation takes place over the ensuing year. This appears to imply an assumption that by 1 July 2016 there will be a level of employer capability supporting such a significant employer STP on-boarding process. It seems to assume a SuperStream legacy sufficient to support STP. Under the Superannuation Industry (Supervision) Act 1993 (Act) employers must deal with payment and information relating to an employee’s superannuation contributions consistently with the requirements in the regulations and the superannuation data and payment standards (SDPS). These provisions apply to medium-large employers from 1 July 2014 and to small employers from 1 July 2015. These commencement dates are in turn dealt with and modified by the SDPS. The SDPS provisions prescribing employer contributions induction (2nd phase SuperStream implementation) were themselves amended in 2014 because of the lessons from the first phase of implementation (roll-overs between funds). The SDPS amendments extended the time for “direct” compliance with SuperStream until 1 July 2015 and 2016 respectively by providing 12 month induction periods. The effect of the induction periods is to delay the take up time for many employers and the major inflows of new employers into SuperStream will now take place towards the end of the twelve month induction periods, not around the commencement dates provided under the Act. Second, there is capacity for “indirect” compliance with SuperStream. The amended SDPS also provide a contribution transition-in period which continues until 30 June 2017. The contributions transition-in period supports “Channel B” solutions which are essentially agreements between a fund and contributing employer to supply data in a mutually convenient format. Access to some “Channel B” solutions such as web portals

ACCI – Single Touch Payroll – March 2015

9

is not confined to large employers, and the entity transacting with the fund may be a service provider rather than the contributing employer. On 1 July 2016 there will be many SuperStream compliant employers which are not directly engaging with the gateway network or using updated software.

2.1.2.2 SuperStream compliance does not mean universal

updated employer IT

As outlined above employers’ compliance obligations under the Act are to deal with contributions, contributions data and default registrations so that they comply with SuperStream. Two points follow from this. First, “dealing with” superannuation transactions does not mean that employers have to be able to send contributions and registration data and contributions which comply with SuperStream, it means that their data and contributions must reach the fund in a way which complies (or more accurately whilst “Channel B” continues, in way which satisfies the fund given its SuperStream obligations). Even after the contribution transition-in period ends, SuperStream compliance does not require complying employer contributions initiation.3 Second, the pre-SuperStream complexity of the superannuation transaction system has meant that many employers transact via a third party intermediary, including the Small Business Superannuation Clearing House which is itself a web portal solution and not dependent on accounting/payroll software. Available evidence suggests that many employers are moving to SuperStream compliance on the basis of their current solution, or in some instances through some new more appropriate third party supplier. It is difficult to see that all these intermediary solutions, whilst they may well provide a satisfactory, or first stage, solution for SuperStream, are a basis for meeting STP. The combination of fund processes and third party service provider offerings means that SuperStream compliant employers will be able to “deal with” their superannuation transactions in many ways, including paper-based. SuperStream compliance does not mean that every small business will own a computer, that the business’ computer is connected to the internet and still less that every small business will have accounting or payroll software. Internet access would seem a pre-requisite for STP. Current levels of internet access are not promising for easy transition into STP for all. The most recent ABS figures4 advise that 92.6% of businesses had internet access in 2012-13. Access rate of growth is not rapid, 92.6% is up from 91.2% in 2010-11 and, unsurprisingly, proportionate take-up is skewed by business size. In 2012-13 91.0% of businesses with fewer than 5 persons had internet access.

3 This is merely a statement of fact but not a criticism. It is legislative recognition of the fact that not all

employers are similarly enabled. 4 ABS Cat 8166.0, Business Use of Information technology, released 19 June 2014

ACCI – Single Touch Payroll – March 2015 10

The ABS also measures transactional activity on the basis of placing and receiving orders over the internet. Transacting orders is not identical with reporting, and undoubtedly SuperStream will impact internet transactional rates, but the transactional skew between micro and large businesses was even more pronounced than was the skew in rates of internet access. In 2012-13 45.8% of micro businesses placed orders by internet compared with 82.4% of businesses with 200 or more persons.

Similarly strong skewing was evident amongst businesses introducing innovative organisational/managerial processes. In 2012-13 only 14.2% of businesses with fewer than 5 made organisational/managerial process innovations compared with 48.2% of those with 200 or more.

2.1.2.3 Some employers are seemingly ready

The Chamber’s survey respondents obviously sit at the more capable end of the spectrum. 84% described their computer competency as good (39%) or very good (45%) and 84% of respondents used payroll software. However, 28% reported using paper forms to report PAYG and SG and 24% reported via a tax agent. This “how do you currently report?” question allowed for more than one answer and about 100 respondents reported using more than one method which suggests that there are some instances where respondents are reporting having to use paper because on-line reporting is not available for all their PAYG/SG obligations.

Presumably some respondents are having to, rather than choosing to, report in more than one way.

3. TRANSITIONThere is a compelling logic in the idea that increased automation of these types ofinformation processes is beneficial, but, as noted above, the real story is aboutgetting there.

3.1 The cost of transition

There is little doubt that change projects of this kind are always more complicated in their implementation than in their conception, and STP would affect every operating employer and impact start-ups. This is not a reason to avoid change projects, nor to too readily postpone them, but it does mean that realistic understanding is crucial. In another context this gap between conception and execution has been put as follows:

“…Borland (2012, p. 286) raised the issue of transitional costs more generally:

I think that too often policy-makers suffer from what I label the ‘Ikea fallacy’. We see the furniture in the store and think how good it would look where we live. But, we forget about the costs of putting it together. Similarly, with policy. Policy-makers are great at visualising what they think will be the end

ACCI – Single Touch Payroll – March 2015

11

product of policy reform, but not so good at taking into account the adjustment costs, a real cost of the reform to society, in getting there.”5

This is why testing, continuing consultation, communication and preparedness to adapt are so important in projects of this kind. It is also important to not try to do too much at a time.

3.1.1 Introducing real time tax and

superannuation reporting

The SuperStream transition-in period is to be understood in the context of the fact that the SDPS were registered on 11 January 2013. SuperStream has demonstrated that implementing widespread change is not easy and takes time and adjustment, and STP promises a more revolutionary change. Similar lessons are provided by the implementation of the Real Time Information (RTI) initiative by the United Kingdom Revenue and Customs’ (HMRC). RTI is being introduced to require wages and withheld PAYG to be reported at the same time as the employee is paid, and the RTI initiative is confined to reporting. RTI implementation has not gone smoothly according to its pre-planning as is illustrated by a series of press reports taken from the Telegraph. On 11 April 2012 the Telegraph reported a RTI pilot, “New PAYE system promises to end shock tax demands”:

“The taxman has begun a pilot test of a new system that should ensure that people pay the right amount of tax first time. If successful, the system should see far fewer taxpayers hit with demands for extra tax months or years after they thought they had paid the right amount. The new system, called "Real Time Information (RTI)", will see employers send the Revenue monthly details of how much each employee has been paid and how much tax has been deducted under the PAYE system. Currently such details are sent only once a year, allowing incorrect tax deductions to mount up. … Most employers will join RTI from April 2013 and all employers will be using the RTI service by October 2013, HMRC added.”6

Ten months later, on 4 February 2013, the Telegraph reported the implementation of the RTI transitional requirement for employers to report PAYE on a monthly rather than annual basis, “Small companies not ready for huge RTI change”:

“Almost half – 46pc – of companies have never heard of the new system, which is called Real Time Information (RTI), the survey of small firms found.

5 P 4, Workplace Relations Framework: Other Workplace Relations Issues, Productivity Commission

Issues paper #5, January 2015 6 http://www.telegraph.co.uk/finance/personalfinance/tax/9198002/New-PAYE-system-promises-

end-to-shock-tax-demands.html

ACCI – Single Touch Payroll – March 2015

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RTI will mean that employers must send HM Revenue & Customs monthly details of how much each employee has been paid and how much tax has been deducted under the PAYE system. Details have previously been sent to the taxman just once a year.

One in three companies said they were only “vaguely aware” of RTI, while 81pc admitted to being unprepared for it. … Companies will need to invest in new payroll software, or update their current systems to comply with RTI, with advisers warning there could be disproportionate cost implications for the smallest businesses.

The change to the PAYE tax system is one of the most fundamental since 1944.

Payroll information including salary, income tax and national insurance will need to be submitted monthly rather than annually. Businesses that are not “RTI compliant” by 2014 will face penalties.”7

Seven months later, on 10 September 2014, the Telegraph reported that small employers’ full RTI reporting obligations were to be deferred, “Small firms win more RTI breathing space from taxman”:

“The taxman's 'Real Time Information’ (RTI) initiative originally required employers to provide information about tax and National Insurance deductions every time they paid an employee, rather than annually, by October this year.

However, HM Revenue & Customs (HMRC) has now announced that it will exempt small employers with 49 or fewer staff from RTI late filing penalties until March 2015.

Until that date, they will be allowed to submit PAYE information monthly.

This is the latest in a series of relaxations since RTI was rolled out in October 2013.

HMRC director-general for personal tax Ruth Owen said: "We know from our experience of rolling out of RTI that to ensure a smooth transition for our customers it's best to introduce changes in stages. This will allow us to update our systems and enhance our guidance and customer support as needed.”8

As STP builds on SuperStream, RTI is part of a series of reforms being undertaken in the United Kingdom to improve revenue collection and efficiency. The United Kingdom National Audit Office report to parliament in 2015 said of the RTI project:

6.2 Before the start of this parliament, HMRC had significant problems when it introduced a new system to modernise the collection of PAYE – the National Insurance and PAYE Service (NPS). NPS combined individuals’ tax records into a

7 http://www.telegraph.co.uk/finance/yourbusiness/9848467/Small-companies-not-ready-for-huge-

RTI-change.html 8 http://www.telegraph.co.uk/finance/yourbusiness/11086746/Small-firms-win-more-RTI-breathing-

space-from-taxman.html

ACCI – Single Touch Payroll – March 2015

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single taxpayer account. The PAYE service was severely impaired during the implementation of NPS, affecting millions of taxpayers.

6.3 The next phase of HMRC’s modernisation of the PAYE system was real-time information (RTI). RTI aims to improve the timeliness and accuracy of the data HMRC collects about what income tax is due and collected under PAYE. It requires employers to submit a record of the income and the tax deducted each time they make a payment to their employees. … 6.9 In its implementation of RTI, we found that HMRC had learned the lessons from NPS and phased the new system’s introduction, starting with a pilot during 2012-13. This allowed HMRC to test how the system functioned before it went live.

6.10 HMRC has also listened to taxpayers and tried to understand and respond to concerns about the burden of RTI on small businesses. In March 2013, HMRC announced a one-year relaxation of some rules for employers with up to 49 employees. It used this period to work with businesses on areas of specific concern. It extended the temporary relaxation to April 2016 for existing micro-businesses with up to 9 employees.9

As reported at 6.10 above RTI is still not fully operational.

3.1.2 Assessing the costs

Generally, respondents were not persuaded by the benefits of reporting STP. First, and recalling that the survey respondents are comparatively computer literate, only 12% of the 419 respondents who answered (52 respondents skipped the question), said that the STP changes would lead to a decrease in red tape (8% saw a minor decrease and 4% saw STP reporting leading to a major red tape decrease). This is not simple push-back because 34% of the 419 respondents who answered the question “would you adopt this reporting change voluntarily?” said yes. 102 respondents estimated the costs of (reporting) STP, reporting an average $10,750 and median $5,000. Costs were generally attributed to software upgrades, training and additional administrative effort. Not explicitly commented upon, possibly because not recognised by respondents, were implications arising from increased transactional volumes.

3.2 Smoothing cash flow

One measure of the potential impact of STP is that, as pointed out in the discussion paper, reporting and payment are not fundamentally separate. STP could give rise to an IT based system which not only reports a variety of wage related information at the time

9 Pp 26 - 28, Increasing the effectiveness of tax collection: a stocktake of progress since 2010, National Audit

Office, February 2015

ACCI – Single Touch Payroll – March 2015

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that wages are paid but also triggers the associated payment. This was addressed in the survey. The discussion paper makes the argument that including capability to pay withheld PAYG and SG contributions when paying employees and reporting these accruals would increase the red tape savings of STP, and further:

“This would smooth cash flows for businesses and would enable the ATO to identify earlier those employers that are having problems and need support.” 10

And later:

“…the time lag between the payroll event and payment obligations can also create significant cash flow management problems for business, especially small business that may inadvertently overlook the need to set aside cash each pay-cycle to meet sizeable quarterly liabilities.”11

A number of respondents answering the open question about the nature of benefits did identify such outcomes as improved cash flow, automation efficiency, transparency and the removal of double handling, but not many. Many more saw benefits only accruing to government, not employers. Importantly these discussion paper observations about cash flow do not properly comprehend the real cash flow issues facing many businesses. The principle of smoothing payments outflow may appear attractive but coinciding SG contributions and withheld PAYG payments with payroll may not always have that effect. Multiple simultaneous payments can create bigger peaks. The attractiveness of smoothing outgoings presumes relatively aligned smooth income flows. Smooth income flow is not the experience of many small businesses, and many have neither the cash reserves nor access to finance to cover income troughs. Small businesses which are reliant on a relatively small number of contracts (with the possible exception of retainer contracts) experience episodic income and many are forced to operate under a pay when paid regime. There are industry differences, too. In some sectors where there are retentions withheld beyond contract completion, such as building and construction, or sectors with seasonal production and sales, such as areas of agriculture, uneven income flow is endemic. Further, contractual completion or periodic payment time does not guarantee income timing, and indeed not all governments are equally good at contractually prompt payment. 407 respondents answered the question “how would more frequent PAYG/SG payments affect your cash flow?” and only 19% said that it would not have significant impact. 39% said that it would have major or extreme impact. 31% said that more frequent payment would require them to seek additional finance.

10

P 4, Discussion paper 11

P 2, Discussion paper

ACCI – Single Touch Payroll – March 2015 15

Respondents were also asked how they currently set funds aside for their PAYG/SG obligations and 21% (of 407) did so at the time they paid their employees. 48% set the money aside when the obligations fell due and for 31% it depended on their cash flow.

Finally, respondents were asked how constrained their cash-flow was. 14% had very constrained cash flow and they struggled to meet their obligations. The remainder could meet obligations because of their cash reserves or because they also had access to overdrafts.

On the income side, 38% of the 407 respondents did not have a problem with overdue invoices and for another 47% the problem was minor, but 15% had a major problem with overdue invoices.

It is crucial that the implementation of STP and also that any expansion of STP capabilities beyond reporting are undertaken with a proper understanding of business’ income flows. The understanding of cash flow which is expressed in the discussion paper is not the proper starting point.

3.3 Should STP include automatic payment?

Despite the existence of SuperStream, including payment capability in STP seems likely to be biting off more than can readily be chewed. Even if it is not too big a bite, ACCI would strongly oppose any move to mandated payment of either withheld PAYG or SG contributions with STP reporting as part of the implementation of STP or as an early expansion of its capability. Mandated payment when reporting should not be understood as a near term goal.

Survey respondents support this view. Although only 271 respondents answered the question, in contrast with 34% who would adopt STP reporting voluntarily only 9% said that they would voluntarily adopt more frequent payment requirements.

97 of the 407 respondents who answered the series of cash flow questions above reported they were tax advisers or bookkeepers and at least half of these were externals, that is, they had employers as clients. These respondents were asked how they believed simultaneous payment of PAYG/SG would impact their clients. 50 answered of which 78% felt it would have major or extreme impacts on their clients and only 4% felt it would have no significant impact. Advisers/bookkeepers were also not optimistic about the red tape savings from the mandatory use of payroll software to report PAYG/SG. None felt it would give rise to a major decrease in red tape and only 8% felt it would yield a minor decrease.

Whether payment functionality should form part of STP is probably best left for a later time. Any initiation of a linked payment capability must be on an optional basis.

Providing optional pay-when-reporting would provide an empirical test of whether the perceived benefits of more frequent PAYG remissions and SG contributions actually arise for many employers. Voluntary take-up would provide proof of concept and potentially provide communication champions, as well information about the

ACCI – Single Touch Payroll – March 2015

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conversion experience. Examining the areas where there is little take-up over time, or a history of intermittent opt-in would help to better identify and address systemic problems within the proposal. Opt-in payment might be achieved in a wide variety of ways and would need to be subject to a number of conditions.

3.3.1 A robust transactional system

Payment functionality should be subject to tested confidence in the robustness of the system, its security and crucially, appropriate error/confirmation messaging and payment reversal capabilities.

3.3.2 Opt-in and trialling

Initially, at least, those opting into a pay-when-reporting functionality would have to be able to opt-out again (reverse the decision). Depending on the approach adopted it may be appropriate to provide that opt-in is exercised with each report, that part-payment is allowed, or that opt-in reversal is provided some other way. Whatever the approach adopted any proposed change to the capacity to reverse opt-in from that initially provided would have to be subject to further consultation before implementation.

3.3.3 Existing compliance obligations

Opt-in pay-when-reporting may have many of the same implications for opting-in employers’ current statutory reporting and payment obligations as would mandated pay-when-reporting. Current reporting and payment obligations should be reconsidered in the context of STP and prior to introducing an optional pay-when-reporting system. Some we already know about. For example, the current statutory SG compliance structure is inappropriate for a mandated system of electronic data and payment transfers. Current SG contributions obligations are linked to a quarterly accrual cycle with 4 weeks to pay. Under SuperStream a payment which is sent by an employer in time may not be made by the employer by 28th day because of a system malfunction. A contribution is not made until in the hands of the fund. A contribution which is made late for no matter what reason gives rise to a shortfall which is reportable, and must be paid, by the employer. Employer shortfall obligations are triggered whether or not within the control of the employer. Whilst there is discretion about pursuing a suspected unreported shortfall, there is no discretion in the Commissioner to waive the guarantee charge once the shortfall is reported. Shortfalls

ACCI – Single Touch Payroll – March 2015 17

are to be reported within a month of arising, or further (discretionary) penalties can apply, and (non-discretionary) interest is attracted.

Second, electronic transaction records are recorded at the time and in exact time. A payment which is made at 23.59:45 is distinguishable from one which is made 30 seconds later at 00:00:15 (the next day). Electronic payment means that the money transfer is made by the bank, not by the employer. Currently these discrepencies are usually overlooked by the system but under full electronic transactions and reporting they may not be. (Such a “late” payment would not be an error under current SuperStream messaging and there would be no specific message generated identifying the payment as late.)

3.3.4 Avoiding unfair competitive advantage

As already noted STP and SuperStream are disruptive. If introduced, STP would be government determined mandatory data (and possibly payment) transmission obligations, so it is important that their design and design process do not confer unfair competitive advantage to, or act to reduce competition between, different solution providers.

It would also be inappropriate, for example, to extend any automatic payment capability which is included in STP to private sector service providers through STP transactions, or automatic debiting processes which are not separately contracted between supplier and the employer client.

3.3.5 Superannuation and STP

The discussion paper raises the question of whether engaging and terminating employees could be made simpler and more efficient through STP. In principle there are clear benefits if employees are more responsible for their own information, transferred information can be validated in real or near to real time and that all relevant reports which follow a change can be automatically developed and transmitted. The principle of direct on-line entry, responsive pre-population/validation and information transfer is positive and supported. ACCI previuosly supported the development of the proposed TFN Declaration/choice of fund smart form.

The design and implementation issue is the extent to which such changes can be adopted by the huge diversity of employers and the costs, economic and administrative, that their adoption imposes. Transitional arrangements impact this. A related consideration is the extent to which new system capabilities and surrounding legislative framework can co-exist with existing ones – can the system provide for early adopters who have upgraded simultaneously with non-adopters who have not, and are there unacceptable or unfair costs?

ACCI – Single Touch Payroll – March 2015 18

3.3.5.1 Default contributions and choice

STP default fund employee registration and contributions raises the question of whether contribution obligations could be re-phased to allow time for employees to consider and exercise choice, rather than STP creating instances where the employee decides and advises his/her chosen fund after the employer has registered the employee and made one or more contributions into the default fund on his or her behalf (late choice).

Late choice already exists in the system because SG obligations are linked to the calendar rather than an employee’s commencement. However where there is fortnightly or weekly pay, under STP (payment) the incidence of late payment would significantly increase.

Late payment is also brought about by poor employee information about his or her chosen fund. It occurs when an employee does not supply full information or all the documentation required on the Standard Choice Form requiring the employer to contribute into the default until documentation is completed and it occurs when employee supplied information is incorrect and the fund cannot place the contribution (often these unallocated contributions are returned and also incur a SG shortfall for the employer).

SuperStream alters the nature of default registration and chosen fund set-up for employers, and account allocation, which may go some way to addressing returned contributions, although it is a little early to tell whether this has been achieved.

ACCI would welcome a review of this aspect of the current legislation and would wish to participate in it. Amended legislation would need to properly address the situation of inadequate and erroneous chosen fund data, and allow for return and system outages.

3.4 Transition into STP

The discussion paper proposed a draft transitional timetable. ACCI is in no position at this time to comment upon the proposed opening date of 1 July 2016 from the perspective of STP design readiness, but would make two observations.

Final software design, and also business’ IT upgrade programmes and capital commitment, depend on finalised decisions and rules. Where there is legislation or delegated legislation required, “finalised decisions” means that the necessary legislation has been enacted or registered. Conversely, even under a staged enforcement regime which does not quickly nor unreasonably move to penalty stage, legislated compliance times need to be open to change, and preferably without the need to return to parliament.

Second, although both SuperStream and STP are linked to bank transaction requests, conceptually SuperStream is a multiple-to-many business to business data transactional system whereas STP (data reporting) seems to be a business-to-government (with one or few direct receivers and senders) data transactional system. This difference may have implications for readiness.

ACCI – Single Touch Payroll – March 2015

19

The discussion paper transition proposes medium-large business would generally be STP compliant by 1 July 2017 and that the penalty regime would apply subject to “generous exemptions.” It is likely that entry into STP will be slow with a slow early take up. Obviously the extent to which STP system “bugs” are ironed out is a key factor determining the practicability of this outcome. Other key factors are the employer’s current reporting and payment solutions and the extent to which they provide an appropriate starting point for STP and what’s needed to get there, and the level of confidence that can be placed in the compatibility in the available software solutions. By way of analogous example, the legacy of service providers in the superannuation transactional system means that employer compliance is for many dependent on their current service provider’s compliance readiness, rather than the employer’s individual readiness. The defining factors are different in the case of STP and therefore the factors of third party reliance may not be the same but the fact that current solutions tend to provide the springboard to meet new requirements will still apply. For good reasons employers will seek to comply by developing their current solutions (or adopting their current solution developments) rather than by replacing them. Second, the tighter the compliance date after system design the less competitive the solutions market will be, and therefore the higher the service/update costs for employers, and particularly if there is not some type of system certification, the higher the post installation remedial costs.

ACCI – Single Touch Payroll – March 2015 20

4. ABOUT ACCI

4.1 Who We Are

The Australian Chamber of Commerce and Industry (ACCI) speaks on behalf of Australian business at a national and international level.

Australia’s largest and most representative business advocate, ACCI develops and advocates policies that are in the best interests of Australian business, economy and community.

We achieve this through the collaborative action of our national member network which comprises:

All eight state and territory chambers of commerce 30 national industry associations Bilateral and multilateral business organisations.

In this way, ACCI provides leadership for more than 300,000 businesses which:

Operate in all industry sectors Includes small, medium and large businesses Are located throughout metropolitan and regional Australia.

4.2 What We Do

ACCI takes a leading role in advocating the views of Australian business to public policy decision makers and influencers including:

Federal Government Ministers & Shadow Ministers Federal Parliamentarians Policy Advisors Commonwealth Public Servants Regulatory Authorities Federal Government Agencies.

Our objective is to ensure that the voice of Australian businesses is heard, whether they are one of the top 100 Australian companies or a small sole trader.

ACCI – Single Touch Payroll – March 2015 21

Our specific activities include:

Representation and advocacy to Governments, parliaments, tribunals and policymakers both domestically and internationally;

Business representation on a range of statutory and business boards andcommittees;

Representing business in national forums including the Fair Work Commission,Safe Work Australia and many other bodies associated with economics, taxation,sustainability, small business, superannuation, employment, education andtraining, migration, trade, workplace relations and occupational health andsafety;

Representing business in international and global forums including theInternational Labour Organisation, International Organisation of Employers,International Chamber of Commerce, Business and Industry Advisory Committeeto the Organisation for Economic Co-operation and Development, Confederationof Asia-Pacific Chambers of Commerce and Industry and Confederation of Asia-Pacific Employers;

Research and policy development on issues concerning Australian business;

The publication of leading business surveys and other information products; and

Providing forums for collective discussion amongst businesses on matters of lawand policy.

ACCI – Single Touch Payroll – March 2015 22

ACCI MEMBERS

ACCI CHAMBER MEMBERS: ACT AND REGION CHAMBER OF COMMERCE & INDUSTRY

BUSINESS SA CHAMBER OF COMMERCE NORTHERN TERRITORY CHAMBER OF

COMMERCE & INDUSTRY QUEENSLAND CHAMBER OF COMMERCE & INDUSTRY

WESTERN AUSTRALIA NEW SOUTH WALES BUSINESS CHAMBER TASMANIAN CHAMBER OF

COMMERCE & INDUSTRY VICTORIAN EMPLOYERS’ CHAMBER OF COMMERCE &

INDUSTRY

ACCI MEMBER NATIONAL INDUSTRY ASSOCIATIONS: ACCORD – HYGIENE, COSMETIC

AND SPECIALTY PRODUCTS INDUSTRY AGRIBUSINESS EMPLOYERS’ FEDERATION AIR

CONDITIONING & MECHANICAL CONTRACTORS’ ASSOCIATION AUSTRALIAN

BEVERAGES COUNCIL AUSTRALIAN DENTAL INDUSTRY ASSOCIATION AUSTRALIAN

FEDERATION OF EMPLOYERS & INDUSTRIES AUSTRALIAN FOOD & GROCERY COUNCIL

ASSOCIATION AUSTRALIAN HOTELS ASSOCIATION AUSTRALIAN INTERNATIONAL

AIRLINES OPERATIONS GROUP AUSTRALIAN MADE CAMPAIGN LIMITED AUSTRALIAN

MINES & METALS ASSOCIATION AUSTRALIAN PAINT MANUFACTURERS’ FEDERATION

AUSTRALIAN RETAILERS’ ASSOCIATION AUSTRALIAN SELF MEDICATION INDUSTRY BUS

INDUSTRY CONFEDERATION CONSULT AUSTRALIA HOUSING INDUSTRY ASSOCIATION

LIVE PERFORMANCE AUSTRALIA MASTER BUILDERS AUSTRALIA LTD MASTER PLUMBERS’ &

MECHANICAL SERVICES ASSOCIATION OF AUSTRALIA (THE) NATIONAL BAKING

INDUSTRY ASSOCIATION NATIONAL ELECTRICAL & COMMUNICATIONS ASSOCIATION

NATIONAL FIRE INDUSTRY ASSOCIATION NATIONAL RETAIL ASSOCIATION OIL INDUSTRY

INDUSTRIAL ASSOCIATION PHARMACY GUILD OF AUSTRALIA PLASTICS & CHEMICALS

INDUSTRIES ASSOCIATION PRINTING INDUSTRIES ASSOCIATION OF AUSTRALIA

RESTAURANT & CATERING AUSTRALIA VICTORIAN AUTOMOBILE CHAMBER OF

COMMERCE

Chartered Accountants Australia and New Zealand

33 Erskine Street, Sydney NSW 2000,GPO Box 9985, Sydney NSW 2001, AustraliaT +61 2 9290 1344 F +61 2 9262 4841

charteredaccountantsanz.com

12 March 2015

Mr Martin ManeActing Senior Director, Coordination DeliveryService Delivery (Customer Service and Solutions)Australian Taxation Office

By e-mail: SingleTouchPayroll@ato.gov.auMartin.Mane@ato.gov.au

Dear Martin

Single Touch Payroll Discussion Paper

Chartered Accountants Australia and New Zealand welcomes the opportunity to respond to yourinvitation for a submission on the Single Touch Payroll Discussion Paper (the Discussion Paper).

We are made up of over 100,000 diverse, talented and financially astute professionals who utilisetheir skills every day to make a difference for businesses the world over. Our members are known forprofessional integrity, principled judgment and financial discipline, and a forward-looking approach tobusiness. We focus on the education and lifelong learning of members, and engage in advocacy andthought leadership in areas that impact the economy and domestic and international capital markets.

We are represented on the Board of the International Federation of Accountants, and are connectedglobally through the 800,000-strong Global Accounting Alliance, and Chartered AccountantsWorldwide, which brings together leading Institutes in Australia, England and Wales, Ireland, NewZealand, Scotland and South Africa to support and promote over 320,000 Chartered Accountants inmore than 180 countries.

Reducing red tape is important

Chartered Accountants Australia and New Zealand is strongly supportive of initiatives that reduce redtape. Red tape reduction initiatives that utilise the natural reporting systems of business and alignthem to government requirements are particularly powerful.

The single touch payroll initiative has the potential to modernise ATO data collection, reporting andcollections whilst reducing red tape for both employers and employees. This is particularly so if theproject can be eventually expanded to include other workplace obligations such as Fringe BenefitsTax, payroll tax and worker compensation arrangements. We think PAYG instalments could also oneday be dove-tailed into an online system with similar features to single touch payroll.

On-boarding employees is the standout feature of single touch payroll, but we aren’t all tech savvy

The benefits of single touch payroll to the on-boarding (or departure) of employees are generallyregarded within CA circles as particularly beneficial to external stakeholders.

However, further clarity is required about how the new regimes cope with those who do not operatewithin the myGov framework or have difficulty with the technology.

2

Chartered Accountants Australia and New Zealand

The single touch payroll initiative assumes that the employee will provide data viamyGov in a timely manner so that information can be sent through to the employer, aswell as to the ATO and the Department of Human Services.

We would be interested in learning more about how this will be encouraged, given thehigh level of current reliance on tax agents to prepare returns.

It is not clear for example how an employer is meant to deal with an employee who hascommenced work but has not completed the information required in myGov. Thiscould be a particular issue for employees who are seconded to Australia fromoverseas. There will also be categories of employees who are unable or unwilling touse myGov (e.g. those with language difficulties or learning difficulties, olderemployees unfamiliar with technology etc).

There will also be some employers who struggle with the new way of doing things in adigital world.

An implementation strategy should also be developed for employers based overseaswho have workers in Australia.

These issues need to be explored further as part of the design process.

Non-tax aspects

We think single touch payroll could also eventually reduce red tape in other, non-tax areas. Forexample, it could one day be expanded to encompass employment related data relevant tooccupational health and safety agencies, or streamline the reporting of employment data to theAustralian Bureau of Statistics.

The proposed sharing of real time information about a person’s employment status and income levelsbetween the ATO and the Department of Human Services will also enable the government to pushrelevant information to people about employment related life events (e.g. entitlement tounemployment benefits upon termination of employment) and will help prevent government debtsarising from failure to notify the government of a change of circumstances (e.g. turning offentitlements to transfer payments when eligibility conditions are no longer met).

Reducing non-reporting, non-remittance and outright fraud is important

The non-reporting and non-payment of worker PAYG withholding and Superannuation Guarantee (SG)entitlements is a community problem which must be addressed, not just by enforcement action, butalso by initiatives such as Standard Business Reporting (SBR) and single touch payroll which seek toaddress problems which can arise at the source of the entitlements – the business operator.

For example, the ATO has recently estimated that employees of so-called phoenix operators arelosing up to $655 million in unpaid wages and entitlements such as superannuation.

We are aware that the ATO has done some impressive research and modelling which indicates thebeneficial impact that SBR enabled software and the single touch payroll will have on improvingcompliance with the current law. These benefits include:

Providing the ATO with earlier intervention signals enabling struggling business taxpayers to becontacted and helped by the ATO, their appointed tax agent, accountant or business-turn-around specialist.

Reducing the extent of aged tax debt, a substantial problem for the ATO identified in the mostrecent Annual Report of the Commissioner of Taxation1.

1 This extract from the latest Annual Report from the Commissioner of Taxation describes a worryingtrend:

“While our debt management efficiency continued to improve in 2013–14 and total debt collectionincreased, the inflow of new debt increased by 10.6% compared to the previous year, outpacingthose improvements and resulting in an increase in collectable debt holdings of 10.0% comparedto last year. Small businesses continue to account for the majority (around 62.4%) of all collectabledebt and are a specific area of focus. Research suggests that small businesses are giving a lowerpriority to tax debts than to trade debts.”

3

Chartered Accountants Australia and New Zealand

By enabling contemporaneous reporting of PAYG withholding and SG information toemployees, helping employees raise concerns with their employer (or the ATO if necessary) ifthese entitlements are not being paid on time.

The research and modelling behind single touch payroll should be released (in asanitised form if necessary) as part of the communication strategy in the consultation,design and implementation phase.

This mirrors the approach adopted in the United Kingdom2 and would help addresssome of the concerns which could be raised about the project.

Reducing the incidence of over withholding PAYG and the need for annual income tax returns

In the United Kingdom, the equivalent system (real time information) allows HMRC to update the rateat which PAYG is withheld at source – a key feature of a system which removes many UK citizensfrom the obligation to lodge an annual income tax return.

In an Australian context (where most individuals still lodge an annual return), the real-time adjustmentto the amount of PAYG withheld at source provides the opportunity for taxpayers to receiveimmediate cash flow benefits rather than wait for the annual tax return to be assessed and a refundpaid. This is similar to the systems that operate in Scandinavia. For those advocating the new regime,this represents an opportunity to demonstrate the cash flow benefits available to employees and thereduced red tape for those in payroll functions who manage PAYG withholding variations.

Single touch payroll also squarely raises for consideration the issue of over-withholding of PAYG.

Many Australian employees receive a tax refund at tax return time, and some may even perceive thisas an ‘entitlement’ which gives them a welcome bit of spending money. Most fail to realise howeverthat the refunded amount could have been reflected in their pay packets had the rate of withholdingbeen more closely calibrated to their personal circumstances.

We believe over withholding is particularly unfair for the large number of casual or part-time workers,many of whom are students or low income earners.

In this context, we acknowledge that some may see single touch payroll as part of a bigger plan toeventually eliminate the need for tax returns to be lodged by individuals with straightforward taxaffairs. In a political context, this could be sensitive. The Government and ATO should therefore beready to address this issue in their communication strategy. If there is a long-term proposal toeliminate most personal tax returns, then the up-coming tax reform process provides a goodopportunity to socialise and promote the idea.

For our part, Chartered Accountants Australia and New Zealand has for many years advocated theelimination of tax returns for most individual taxpayers and will continue to do so in our tax reformsubmissions.

The mechanism for advising payroll administrators of changes to the rate of PAYGwithholding for a particular taxpayer should be streamlined in accordance with thederegulatory principles on which single touch payroll is based.

The Single Touch Payroll design team should develop the system in a way whichreduces the extent of over-withholding, as part of an overall communication strategywhich highlights the benefits for employees.

2 Summary Research report - HMRC Real Time Information: Employer Research, a research projectto support intelligent decisions on the implementation of RTI, Holden Pearmain, 28 June 2012.Source:https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/344818/report219.pdf

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The need for a streamlined approach to definitions, such as ‘employee’ and ‘salary’

Single touch payroll is only as good as the law on which it is founded. Streamlined reporting andpayment will not be regarded as real progress by some in the business community (especially inindustries such as building and construction, entertainment) until the rickety foundations of the tax andsuperannuation laws dealing with employment are addressed.

Unfortunately, the concept of who is an ‘employee’ is not streamlined for PAYG withholding and SGpurposes. Nor is the salary ‘base’ to which the regimes apply. And if single touch payroll eventuallyextends to payroll tax and workers compensation arrangements, streamlined definitions should alsoapply in this context as well.

Anecdotal evidence suggests that some workers are being pressured into seeking an AustralianBusiness Number by payers keen to avoid obligations such as PAYG withholding and SG.

Whilst currently outside the scope of the single touch payroll initiative, red tape could be dramaticallyreduced if the initiative was accompanied by real red tape reduction in this legislative, definitionalcontext. In the meantime, further development of ATO ‘safe-harbour’ online decision-making tools forhelping differentiate employees from contractors would be most helpful.

As part of the tax reform and Federalism process, we strongly urge the Federal andState governments to establish a working group to harmonise the various definitions of‘employment’ and ‘salary and wages’.

Whilst progress on this front should not stall the design and development of the singletouch payroll initiative, the Government and the ATO need to be aware of theseongoing concerns amongst employers and advisers – concerns which may promptsome to say that the benefits of single touch payroll accrue largely to the ATO ratherthan to employers and employees.

Improved ATO guidance on the employee v’s contractor distinction under the ATO’scurrent ‘safe harbour’ project would be helpful.

Single touch payroll as part of the bigger picture for a Digital ATO

The CA Tax Team is an active participant in ATO consultations on modernisation initiatives such asthe move from ELS to SBR. We participate not only to influence outcomes, but also to keep ourmembers abreast of how the ATO’s plans impact them, their clients or the businesses they helpmanage.

The thinking behind single touch payroll raises questions about how the project will be developed andextended in the future. For example, we see merit in exploring if and how some of the design featuresin the project could be extended to the PAYG instalment regime for taxpayers who are self-employed,investors or in business.

Some of our members in public practice also feel that initiatives such as SBR and single touch payrollare part of a broader, yet to be fully disclosed, digital strategy within the ATO. In the United Kingdomfor example, the introduction of the real time information initiative was accompanied by an extensive,public research and education campaign3.

We note also the recent establishment of the Digital Transformation Office (DTO). Our organisation iskeen to develop a better understanding about whether the DTO provides an opportunity to developand share a whole of government strategy which both explains, and supports, the direction in whichthe ATO is heading.

In the interests of transparency, we feel it would be beneficial for the ATO to share withthe community the longer term digital strategy behind projects such as single touchpayroll. This could form part of a whole of government strategy published by the newlyestablished DTO.

3 Refer to the UK material available at: https://www.gov.uk/search?q=real+time+information

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Privacy and ATO ‘Big Data’

As we move increasingly into the digital economy, more and more Australians are becomingconscious of the amount of data being stored pertaining to their personal affairs. Few appreciate theamount of taxpayer data already collected and stored by the ATO, nor how the ATO uses state of theart data analysis in its ‘behind the scenes’ compliance activities.

Although single touch payroll will not (as far as we know) increase the data available to the ATO, itwill:

Provide data in real time; and Make more efficient the electronic sharing of data within government.

We are also conscious that greater global sharing of tax data is occurring to address tax evasion andavoidance.

Security of data (e.g. to protect from hacking) is obviously of concern in both the public and privatesector. Employees need to have confidence that salary information (for example) is not accessed bypersons or organisations who have no legal right to it.

Although the ATO generally sees data as a tool which helps identify both compliant taxpayers(enabling it to make informed decisions about whether to contact them – the so-called ‘light touch’approach), as well as the relatively small proportion of non-compliant taxpayers, citizens do notnecessarily regard the ATO’s use of big data in the same light, particularly if it is to be shared withother government agencies.

Our members also tell us that many businesses under-invest in privacy protection software and havepoorly developed internal controls for handling sensitive data.

From a business operator’s perspective, the ATO is not the only organisation with an interest in morecontemporaneous information about business cash flow. Practitioners are concerned that financierswill insist on access to SBR and single touch payroll data in determining loan applications, and inmonitoring a business’s on-going ability to meet loan and other financial commitments. At present,financiers seek access to data contained on a business taxpayer’s portal with the ATO: single touchpayroll linked with SBR provides them with an opportunity to request access to much morecontemporaneous data.

The ATO should share with the community the use it will make of data obtained fromSBR and the single touch payroll project, as well as the data protection mechanisms ithas in place.

Explanatory material should be developed for employers to convey to employees theimplications of adopting single touch payroll and the safeguards which apply.

Best practice guidelines for employers on handling sensitive data and privacyprotection principles should be updated with the help of organisations such as theOffice of the Australian Information Commissioner.

There is a need for engagement with the financial services sector to determine whethernew protocols are required around access to the contemporaneous data which SBRand the single touch payroll system will produce.

Although single touch payroll is but part of a bigger ATO data strategy, we feel it istimely for the ATO to embark upon a citizen-focused review of the way that it collates,uses and shares data in accordance with the Australian Privacy Principles and theFreedom of Information Act 1982. In our view, this review should consider whether thetypes of data readily accessible to an individual taxpayer should be expanded (i.e.without the need for recourse to the formal application procedures under the Freedomof Information Act 1982).

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Technological issues and associated costs

The Discussion Paper states that:

Business software would need to be compatible with SBR standards and build onSuperStream solutions used by employers.

Use of SBR to transmit information to the ATO will be compulsory for large withholders from1 July 2017 and all other withholders from 1 July 2018.

Since 1 January 2012 the Australian Securities and Investment Commission (ASIC) has encouragedcompanies to lodge their financial reports using SBR enabled software. It is understood however thatthe take-up of this option is still low. ASIC’s experience of low take up of SBR is no different from theexperience of other countries operating a voluntary lodgement program that is based on XBRL.

The low take-up issue exists for both large and small businesses. CAs working in some largecompanies have told us that they often have to manage with diverse, sometimes incompatible internalsystems which make it difficult and costly for them to implement initiatives such as SBR and singletouch payroll.

Similar concerns were expressed in relation to SuperStream. SuperStream compulsorily introducede-commerce to the back office functions of the superannuation industry, reducing transaction costsand processing times. Several extensions were required to facilitate the implementation process. Oneof those extensions required APRA superannuation funds to submit a detailed implementation plan tothe ATO by 30 September 2014. ASFA stated that it “recognised both the considerable investmentmade in the existing electronic file formats and the significant effort required to implement theStandard and integrate new arrangements into existing processes.”4

The lack of voluntary take up of SBR lodgement for ASIC and the implementation difficultiesencountered with SuperStream is an indication that business perceives that the short term cost ofadopting new technology at the behest of a government agency is greater than the short termbenefits.

The ATO is now the lead government agency promoting SBR, particularly in view of its transition fromElectronic Lodgment Service (ELS) to SBR. Making SBR compulsory for single touch payroll willcertainly increase the take up of SBR but businesses will nonetheless be incurring additional costs inthe implementation phase.

We expect that some business groups will call for more generous, staged implementation timeframeswhich nonetheless allow ‘first movers’ (technologically advanced businesses) to implement initiativessuch as single touch payroll at a faster pace.

Some businesses will incur increased software and hardware costs as part of the implementation andconsideration should be given to providing tax relief for such costs. For example, expenditure ondepreciating assets or in-house software is currently deductible over time, not immediately.

The ATO should share its modelling on the likely impact of single touch payroll onbusinesses of different sizes, and the discussions it has had with a range of typicalbusinesses on the difficulties (if any) likely to be encountered in implementing singletouch payroll and the timeframes required.

To assist businesses adapt to SBR and the single touch payroll system, werecommend that the Government allow a 100% write off for implementation costs whichprincipally relate to complying with the SBR and single touch payroll initiative.

Incentives for small business to embrace new technology

For medium and small businesses, the requirements to modernise or modify reporting systems couldbe particularly burdensome. There are many implementation ideas for this sector to explore in anAustralian context.

4 Source: http://www.superreview.com.au/news/regulation/asfa-welcomes-extension-on-superstream-elements

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In the United Kingdom, when compulsory real time reporting of PAYG was introduced, the revenueauthorities promoted free software for business which employed fewer than 10 employees5. Thissoftware had been tested and approved by HMRC, the UK revenue authority.

Ireland adopted a top-down, staged implementation approach for its version of SBR (i.e. largercompanies first).

Another idea that has been implemented in New Zealand to facilitate compliance and on-timepayment of tax debts is the use of government subsidies to small business to encourage them to usespecialist payroll intermediaries which assist with tax compliance. The New Zealand legislation6

enables Inland Revenue to subsidise the use of payroll agents to meet the PAYE obligations of smallbusinesses.

The diagram below seeks to summarise the arrangement which attracts the subsidy in New Zealand.

This could be a model worthy of consideration in an Australian context and we would be happy todiscuss design issues in association with our colleagues in New Zealand.

It is important to counter perceptions in some quarters that the benefits of SBR andsingle touch payroll accrue mainly to the regulators.

We recommend that the SBR and single touch payroll design and implementationteams develop recommendations for business incentives for consideration by theDigital Transformation Office and government. These incentives should focusparticularly on medium to small companies.

These incentives would encourage more business operators to acquire modernbusiness software which provides SBR and single touch payroll functionality, or usethird party service providers.

Extending the single touch payroll initiative - PAYG payment summary

We note that, at this stage of development, the single touch payroll initiative will reduce the amount ofinformation that is requested on ATO forms rather than eliminating the forms themselves. Forexample, whilst PAYG withholding information will not be required to be included in an employee’semployment summary, the employee’s employment summary will still need to be issued as it requiresinformation such as reportable fringe benefits to be recorded.

5 Source: https://www.gov.uk/payroll-software/overview6 Taxation (Depreciation, Payment Dates Alignment, FBT and Miscellaneous Provisions) Act 2006(NZ).

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Current PAYG payment summary information - such as gross wages, PAYG withheld andsuperannuation contributions made - will be captured by the proposed single touch payroll initiative.

It is unclear at this stage whether the single touch payroll initiative will also require information relatingto reportable employer superannuation contributions, exempt foreign employment income,allowances, union/professional association fees and workplace giving. If it does, then most of theinformation that is requested in the PAYG payment summary will not be needed.

Information that is currently requested on the PAYG payment summary which appears to be outsidethe scope of the proposed single touch payroll initiative includes reportable fringe benefits, thedeductible amount of an undeducted purchase price of an annuity, and income from communitydevelopment employment projects.

If the single touch payroll initiative is implemented as proposed then it seems to us that the red tapereduction is not the elimination of a form but a reduction in the number of items on the form, whichwhilst helpful is not as effective as the elimination of the form altogether.

We recommend that the ATO design team consider whether the employee’semployment summary can be eliminated.

Additional information useful to the Department of Human Services

The number of hours worked is important for a number of purposes for the Department of HumanServices – e.g. the work requirement aspect of the child care rebate.

This information is part of the natural payroll reporting systems of business and could be incorporatedinto the single touch payroll initiative. It is noted that the UK real time information system requires thisinformation.

We recommend that the Government consider whether there are benefits in includingthe number of hours worked in the single touch payroll initiative.

What coercive powers will apply to implement single touch payroll?

If single touch payroll is to be mandated, we need to develop a better understanding of the coercivepowers which will applied to business operators.

We note that the United Kingdom has recently released a consultation paper7 concerning theimposition of penalties under its real time information system8. The UK approach is relevant in anAustralian context.

The UK consultation paper states that:

“5.6. We currently impose a large number of low-value penalties in Income Tax SelfAssessment and expect to do the same in the Real Time Information PAYE regime (known as‘RTI’). We want to consider moving to a different model.

5.7. One option could be a progressive system similar to penalty points for motoring offences,so that initial financial penalties are avoided, but more substantial penalties then apply formore serious failures or for persistent non-compliance with obligations. There may beadvantages in not initially applying penalties, but the downside might be that customers fail to

7 Refer:https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/400211/150130_HMRC_Penalties_a_Discussion_Document_FINAL_FOR_PUBLICATION__2_.pdf8 Refer: http://www.rossmartin.co.uk/penalties-a-compliance/penalties-appeals/1246-tax-penalties-rti

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realise the importance of non-compliant behaviour. The role of our digital communicationswould then be key in ensuring there are no surprises for customers.

5.8. If a customer has a personalised digital tax account showing all the taxes they need topay in one place, we may need to move away from applying penalties on a tax-by-tax basis,and towards a penalty system that is based on the overall position of the customer. This mightmean there are implications for the role of interest.

5.9. Penalties only arise where customers don't meet the obligations that are set. In the lightof our developing approach to compliance and the greater availability of data and digital tools,we'll also need to look closely at some of these obligations.”

We believe the implementation of single touch payroll should be preceded by a review of the taxpenalties which currently apply where, in an employment context, a business operator:

Makes mistakes. Experiences in-house (e.g. technology failure) or external events which make it difficult to

meet single touch payroll obligations. Makes a false or misleading statement. Fails to withhold or remit as required. Is late in complying with tax or superannuation obligations.

Special consideration also needs to be given to the remission of penalties during the implementationphase.

Further consultations should occur on the coercive powers which will support themandated use of single touch payroll and the penalty regime that will apply toemployers.

Insights can be drawn from the United Kingdom approach to penalties under their realtime information project and the current review underway in that country.

Collecting PAYG withholding and ensuring Superannuation Guarantee amounts are paid

The Discussion Paper proposes that PAYG withholding and SG contributions be remitted to the ATOand the nominated (or default) superannuation fund at the same time the employee is remunerated.

(a) Paying Superannuation Guarantee contributions earlier

Currently, employers are only required to remit SG contributions to the nominated (or default)superannuation fund on a quarterly basis. Other types of contributions are not required to be remittedin the same timeframe (e.g. salary sacrificed super contributions timeframes may be paid lessfrequently).

Some employers, particularly larger employers and those with good cash flow do pay theircontributions more regularly at month end or in line with their payroll cycle.

There are important public policy issues at stake here:

Our society has made the decision that employees are required to put part of theiremployment income into superannuation so that it is invested to provide a return during theretirement years. Inadequate superannuation adds to the demand for age pensions and othertypes of government support for the elderly. In this context, the crucial role played byemployers in making SG contributions cannot be understated.

Yet, transparency about whether contributions are actually paid by the employer or receivedby the fund is lacking. Super funds do not report contributions to the ATO until well after theend of the financial year and there is a lack of reconciliation between what should have beenpaid and what has been paid.

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Unlike PAYG withholding deducted from an employee’s pay packet but not remitted to theATO9, an employee whose superannuation fund fails to receive SG contributions from theemployer can lose out entirely unless the ATO is successful in recovering the unpaidcontribution from the employer (who may have become insolvent).

An employer who fails to remit the SG contribution to the superannuation fund obtains anunfair advantage compared to a competing business which meets its obligations.

From a public interest perspective therefore, we believe there is merit in more closely aligningcontributions with the payroll cycle. These amounts have been earned by the employees and shouldbe contributed to employee super funds to start earning investment income as soon as possible.

For small and medium enterprises (SMEs) however, the initial goal should be more frequent paymentarrangements rather than payments which are contemporaneous with the payroll event.

This is because of the impact on SME employers, with some of our members indicating that theproposal to remit SG contributions when an employee is actually paid likely to attract strong criticismfrom their clients. You may be aware that there is already some concern amongst SME employersabout the existing obligations on them to collect and distribute super contributions for their employees.

From a business operator’s perspective, SG contributions are a cost which must be funded, eitherfrom cash flow or by borrowing. For businesses struggling with cash flow, the additional time currentlyavailable to remit the amount to the superannuation fund allows for debts to be collected. It alsoallows time for the necessary payroll calculations to be undertaken and checked (in some cases by anexternal bookkeeper or payroll service provider).

A greater frequency of payment may therefore increase the administrative burden on someemployers, not just financially but also in terms of the time spent on administration.

We therefore believe that generous transitional arrangements and a comprehensive educationcampaign will be essential to assist businesses – particularly SMEs – adjust to single touch payroll.

This also means that single touch payroll raises a number of important questions which extend intothe political sphere (i.e. legislative change is required):

Should small business operators be allowed to use an employee’s SG and other supercontributions in their business for any period of time?

Would the cost of requiring contemporaneous or more regular payment of the SG contributionimpose an onerous compliance cost on business (or some businesses more than others)?

What, if any transitional provisions would be needed to aid such a transition? For example,should existing business operators enjoy a transition whilst newly established business arerequired to pay SG contributions more frequently?

Should the ATO be granted powers which allow the Commissioner to play a greater role indetermining when SG contributions are made (e.g. to provide some extensions to reliablebusiness payers and tighter deadlines for businesses which regularly miss paymentdeadlines). Or should fixed payment deadlines continue to be enshrined in legislation?

Refer Attachment A for data on the likely number of medium and small business taxpayers impacted.

9 The ATO nonetheless gives the employee a tax credit for the PAYG withheld when the employee’stax return is lodged and assessed.

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In principle, Chartered Accountants supports closer alignment between the dateemployee’s receive their pay, and the date on which SG and other superannuationcontributions are made.

We believe that the implementation program should eventually result in full alignmentfor large businesses.

For SMEs, the goal should be closer alignment rather than actual alignment with thepayroll event. Further research should be conducted on what is an appropriate time lagfor this sector.

Generous transitional arrangements and a comprehensive education strategy shouldthen be tailored to the SME sector.

The single touch payroll needs both ‘carrots’ and ‘sticks’ – for example, SMEs with apoor history of meeting their SG obligations should be required to pay futurecontributions more frequently than compliant businesses.

Any businesses that wish to move to contemporaneous payment of superannuationcontributions should of course be allowed to do so and perhaps incentives can bedevised to encourage such behaviour.

All businesses should be required to adopt contemporaneous reporting (as distinctfrom payment) under the single touch payroll regime. A generous implementationtimeframe should also apply here also, with large businesses required to implement ata faster pace than medium sized businesses, followed by small businesses.

(b) Paying PAYG withholding earlier

Large withholders currently remit PAYG withholding amounts twice weekly and medium withholdersremit by the 21st of the month. A quarterly timetable applies to small withholders.

Apart from the need to allow adequate time for payroll and reporting systems to be adjusted, theproposal to remit PAYG withholding amounts contemporaneously with the date remuneration is paidto the employee is not expected to have a significant impact on large withholders. As noted earlierhowever, even large companies may have trouble implementing SBR and single touch payrollcompliant systems and this should be discussed with representative groups such as the CorporateTax Association.

As with SG, our members working with SME clients have contacted us to say that making PAYGwithholding remittance contemporaneous with payroll events under single touch payroll will have asignificant, adverse impact.

These members tell us that:

Medium and small businesses can have difficulty obtaining finance from banks and often relyon the time lag for remitting PAYG withholding in managing their cash flow.

Some medium and small business operators rely on external assistance (e.g. fromaccountants and bookkeepers) to help with various aspects of day to day businessoperations, including payroll. They need time for their records to be checked - not just for taxbut also entitlements under industrial awards - and for the necessary calculations to beperformed and\or confirmed. For some, post pay day adjustments are common with ‘true-up’adjustments made in the follow-up pay period.

There are a diverse range of accounting systems used in this sector, and it will take time tomodernize the accounting function for all their SME clients with SBR enabled software, letalone single touch payroll.

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We also acknowledge however arguments put to us by some members that the current delay inremitting PAYG withheld to the ATO is a curse as much as it is a benefit for SMEs. They point outthat, whilst the current time lag does provide a temporary source of funds to the business, it alsomakes managing and reporting those funds harder and fails to give the business operator a truesense of the costs of running the business.

The following chart taken from ATO material provided to the National Tax Liaison Groupdemonstrates how the ‘lumpiness’ of the PAYG withholding and superannuation payments can makecash flow management harder.

The Discussion Paper proposes that from 1 July 2018 small withholders will be required to operate inthe single touch payroll system.

Whilst this is a generous implementation timeframe, we feel that (as per our comments aboveregarding SG contributions) SMEs will still need some additional time to remit PAYG withheldamounts.

For small businesses, we believe that a time lag for remitting PAYG withholding shouldremain, but that this should be shorter than the quarterly timeframe which currentlyprevails for small businesses. For example, the eventual goal for all SMEs (mediumand small withholders) could be monthly remittances.

Further research should be conducted on what is an appropriate time lag for the SMEsector.

Generous transitional arrangements and a comprehensive education strategy shouldthen be tailored to the SME sector.

The single touch payroll needs both ‘carrots’ and ‘sticks’ – for example, SMEs with apoor history of remitting PAYG withholding should be required to remit more frequentlythan compliant businesses.

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Chartered Accountants Australia and New Zealand

Any businesses that wish to move to contemporaneous remittance of PAYGwithholding should of course be allowed to do so and perhaps incentives can bedevised to encourage such behaviour.

We believe that the implementation program should eventually result in full alignmentfor large businesses.

All businesses should be required to adopt contemporaneous reporting (as distinctfrom payment) under the single touch payroll regime. A generous implementationtimeframe should also apply here also, with large businesses required to implement ata faster pace than medium sized businesses, followed by small businesses.

Improving the timeliness of payments to small business

Underlying our submission on the timeliness of payments by SMEs is the difficulty they encounter ingetting their own debts paid on time and managing other aspects of their business, such as inventorymanagement and cost control.

Many SMEs are in weak debt negotiating positions vis-à-vis their customers and the sectorexperiences high business failure rates, particularly during the start-up phase.

The evidence from recent surveys such as the Sensis® Business Index10 is that there are manySMEs doing it tough, with variances in business confidence levels recorded between metropolitan andregional businesses, and different States and Territories.

The Sensis data also indicates that “SME’s views of support for small business from the FederalGovernment remain negative, and are still below the level recorded after the last election.”

This raises for consideration whether the introduction of single touch payroll should be accompaniedby other whole of government initiatives, such as the promotion of on-time payment of businessdebts.

The Federal government already ensures that small business is paid within 30 days on allgovernment contracts11 and the Minister for Small Business says this initiative is producing goodresults12. As also noted by Minister however:

“In contrast to the Government’s payment performance, Dun & Bradstreet reported for thesecond quarter of 2014 an industry average of 53 days to pay their accounts and 53 per centof invoices were settled beyond the standard 30-day payment term.”

Other assistance that the government could consider providing to the SME sector includes initiativessimilar to those which have been implemented by the United Kingdom government:

A Prompt Payment Code13 which sets out fair and agreed practices for business to followwhen dealing with and paying their suppliers. This code promotes 30-day terms as standard,with a 60-day maximum limit unless signatories can prove exceptional circumstances.

The introduction of tougher reporting laws in the Small Business, Enterprise and EmploymentBill 2014-2015 which will require the UK’s largest companies to publish their payment terms.

Requirements in government procurement tenders that everyone in the supply chain mustcomply with 30 day payment terms, including suppliers and sub-contractors.

10 Refer: https://www.sensis.com.au/about/our-reports/sensis-small-business-index11 Source: http://www.treasury.gov.au/PublicationsAndMedia/Publications/2014/sml-bus-performance-report12 Results from The Australian Government Payments to Small Business survey 2013-14 show theCommonwealth Government paid over 97% of its invoices to small businesses within 30 days. Refer:http://www.brucebillson.com.au/2014/12/27/small-businesses-paid-on-time-abbott-government-sets-12-year-standard/13 Refer: http://www.promptpaymentcode.org.uk/

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The single touch payroll initiative provides an opportunity for the Government(particularly the Federal Minister for Small Business and his State counterparts) toconsider new ways to assist the SME sector with cash flow issues.

We note the valuable input which could be provided in this context by the AustralianSmall Business Commissioner and his State counterparts, and the proposed AustralianSmall Business and Family Enterprise Ombudsman.

***

Chartered Accountants Australia and New Zealand would welcome the opportunity to be involved inon-going consultations relating to single touch payroll.

We feel that the Discussion Paper is an excellent first step, and that much can be achieved throughfurther collaboration with external stakeholders on the design, development and implementation ofthis measure.

Yours faithfully,

Michael CrokerTax Leader Australia

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Attachment A

Background

There are three types of withholders – large, medium and small.

Large withholders, have an annual PAYG withholding liability of over $1 million, and currentlyhave to remit information twice weekly.

Medium withholders, have an annual PAYG withholding liability of less than $1 million butmore than$25,000, and currently have to report by the 21st day of each month.

Small withholders, have a PAYG withholding of less $25,000, and currently report quarterly28 days after each quarter.

The proposed single touch payroll initiative will have the greatest impact on small withholders as it willrequire them to report and remit with the pay cycle rather than 28 days after each quarter.

The tables below show the significance of each type by number and amount of money remitted.

Table 1: Number of PAYGW withholders by size

Year Large Medium Small2010/11 13,970 280,375 534,4802011/12 13,695 276,775 536,8702012/13 13,345 274,200 536,110

Table 2: Amount of PAYG withholding remitted by size in AUD $million

Year Large Medium Small2010/11 93,472 30,990 7,1072011/12 104,188 33,972 7,6262012/13 108,200 35,301 9,164

Reporting information when pay is remitted

Large withholders

Large withholders, those who have an annual PAYG withholding liability of over $1 million, currentlyhave to remit information twice weekly, create employment summaries at year end and report PAYGwithholding in their activity statements. Moving to SBR and single touch payroll system will requiresoftware upgrades where internal systems are outdated or inadequate.

Medium withholders

Medium withholders, those who have an annual PAYG withholding liability of less than $1 million butmore than $25,000, currently have to report by the 21st day of each month. Depending upon the paycycle, single touch payroll could bring forward the reporting requirements. From discussions with ourmembers it is understood that most medium withholders utilise computer programmes thatautomatically generate this information when employees are paid. Moving to SBR and single touchpayroll system will require software upgrades where internal systems are outdated or inadequate.

Small withholders

Small withholders, those whose have a PAYG withholding of less $25,000, currently report quarterly28 days after each quarter. The proposed SBR and single touch payroll initiative will not only bringforward the reporting requirements but it will also increase the number of times that small withholdershave to report. That said, it is expected to reduce the amount of paperwork (e.g. through automatingthe payroll reconciliation process).

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To be a small withholder, you would need to pay less than $100,000 of salary and wages. Given thatthe average weekly earnings of s $1,123 or $58,000 p.a., a small withholder could be paying theequivalent of two/three full time staff (if they were on a lower wage). This could equate to a staff of 10if they were part time. Whilst, some businesses in this category could be using business software, atthis level of the market that is not always the case.

The United Kingdom approach for small businesses

In October 2013 the United Kingdom made ‘Real Time Information’ (RTI) mandatory. This meant thatvirtually all employers reported PAYE in real time for 2014-15. The increase in costs of filing with payperiods rather quarterly was addressed by the HMRC introducing a temporary relaxation to thereporting requirements for micro businesses with nine or less employees. A micro business couldsubmit just one report at the end of each month. This relaxation applies until 5 April 2016, but cannotbe used by any new businesses starting after 6 April 2014. In future years, it might be possible tomove employees to a monthly salary so as to reduce the number of reports.

Another United Kingdom concession is for businesses with a fluctuating, weekly paid, workforce(mainly businesses in the catering and entertainment sectors). HMRC has introduced a seven-daygrace period before having to report pay, but this only applies to certain employees – such as casualemployees and piece workers.

Single Touch payroll

Response to discussion paper released in February 2015.

The concept of a Single Touch Payroll (STP) is excellent and is supported by COSBOA. We support the process of opt-in and do not support mandatory use of STP by small business, at least in the foreseeable future.

We also do not support mandatory payment of PAYG and superannuation payments at the time of a payroll activity.

We doubt if we would ever support payments and sending of information being provided on payday to superannuation funds as most of them have poor administration practices and tend to lose information and payments creating problems for small business people.

The timeframe for roll out of the STP is problematic and depends very much on software suppliers having compatible products.

The discussion paper on STP is more like a marketing document than a discussion paper. It makes assumptions without any proof or justifications for those assumptions and uses emotive language to promote concepts rather than facts and figures.

We will continue to support the concept but have deep reservations about the roll out process.

Peter Strong CEO

13/3/2015

COSBOA Secretariat PO Box 576

Crows Nest NSW 1585 (02) 9431-8646

ceo@cosboa.org.au

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Australian Taxation Office Attention: Mr Martin Mane Service Delivery (Customer Service & Solutions)

Sent via email: SingleTouchPayroll@ato.gov.au, Martin.Mane@ato.gov.su

6 March 2015

Single Touch Payroll discussion paper

Dear Mr Mane

EY is pleased to provide this submission in response to the Single Touch Payroll discussion paper.

We support the idea of reducing red tape for business and we understand the attraction of having a single integrated system to manage all compliance interactions regarding employee and payroll taxation issues.

However our experience shows that major projects create risks, particularly in transitioning functional current systems into the new architecture. They also result in significant costs and transition challenges. These are magnified by the fact that most larger organisations as distinct from small business have significant systems and processes developed to allow their compliance with regulatory and tax requirements. As a result there could be significant software and process development costs for such businesses, and they would in fact see this as a regulatory new cost overlay to create the desired new systems.

Therefore we share with you the following concerns:

1. Based on international experience we do not believe the proposal would provide the desired outcome for business.Rather it could significantly add to red tape and costs of compliance, certainly in the short term.

2. Before considering any changes to existing approaches this proposal would require a detailed review of underlying legislation and a thorough transition and testing period to ensure the Australian Taxation Office (ATO) has the systemscapability to interact with employer systems.

3. This proposal should be done in a staged approach, potentially commencing with a small business first wave of participants. A mandated ‘big bang’ start date of 1 July 2017 for larger businesses is not reasonable if proper attentionis to be given to all issues.

The focus of this submission is to highlight the issues with the proposed changes, including administration and increased costs for both employers and then the ATO. We also provide responses to some of the questions raised in the position paper.

We provide our detailed comments in the appendices.

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Tanya Ross Jones Partner – Human Capital

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Appendix 1

Detailed comments on discussion paper

On 28 December 2014, the Minister for Small Business, Bruce Billson MP, and the Assistant Treasurer, Josh Frydenberg MP, announced that the government will cut red tape for employers by simplifying tax and superannuation reporting obligations through Single Touch Payroll. Although the consultation paper focuses on the impact on small business, in reality the proposals would affect all businesses. We have highlighted our views particularly in relation to large businesses and those with global payrolls. Under the proposed system, employers will be required to electronically remit PAYG taxes to the ATO and superannuation to the employees’ superannuation funds at the point when employees are paid using certain reporting-enabled software. This will replace the current PAYG remittance system through a company’s Business Activity Statements (depending on entity size classification). The new system will also report payroll and superannuation information to the ATO when these amounts are paid. It was also stated that the new system would streamline TFN declarations and Super Choice forms and also simplifying the process to notifying superannuation funds and government agencies when an employee ceases employment. We have discussed below practical issues evident with the proposed changes. Our responses to the specific questions for consultation are at Appendix 2. 1. Changes required to underlying legislative regimes The consultation paper does not address any changes in the PAYG withholding and superannuation guarantee law. However changing the timing of reporting and remittance to align with payroll processing would necessitate a review of the existing legislative requirements and underlying policy. This is more complex than merely reviewing the administrative mechanisms associated with payment and reporting. For example, superannuation guarantee obligations apply on a quarterly basis. An employer can only determine whether the statutory maximum contribution base has been exceeded at the end of a quarter. Requiring superannuation contributions to be paid at the same time the payroll is processed should logically entail a change in the obligation to enable employers to apply the cap on a pro-rata basis to the period in question (i.e. week, fortnight or month) or a change in the capping mechanism altogether. This could in turn affect the quantum of superannuation guarantee payments, which affects the benefit obtained by employees and revenue collection by the government. Furthermore, employees are subject to concessional contribution caps which apply on an annual basis, adding even greater inconsistency. Issues such as this require consideration at a policy and practical level. Recommendation: Detailed consideration should be given to the changes needed to PAYG withholding and superannuation guarantee legislation to support real-time reporting and payment, and the flow-on impact on employees and government revenue 2. Effectiveness of ATO systems In order for businesses to utilise Single Touch Payroll, we understand compatible software with Standard Business Reporting (SBR) standards and built on SuperStream solutions will be necessary resulting in a potential initial upfront cost to the employer. The ATO should consider the significant investment required by software developers and the ATO to test the new software within the 12 months leading up to the official implementation of Single Touch Payroll. Thorough testing will be required by software providers to resolve any issues with the new software. In addition, the new software will require built-in capabilities to deal with the superannuation concessional contribution cap rules and choices. This will lead to further complexities in the establishment and testing of the new software. In the United Kingdom, we understand significant cost of transition and lack of testing of HMRC systems dramatically increased the number of “discrepancies” registered by HMRC, triggering queries and a need for explanations, for example changes in withholding rates for an employee. This significantly added to costs for employers.

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In an Australian context, changes such as the reporting of employee share scheme interests, reportable fringe benefits and reportable superannuation have each required significant investment by employers to collate data at an employee-specific level and report it to the ATO within a very short time-frame. These experiences indicate that the ATO is sometimes two to three years behind employers in developing systems which can readily interface with the software used by employers. For a widespread change affecting all payrolls, an ineffective transition because of shortcomings at the ATO’s end would be unacceptable to business. Recommendation: The ATO must commit to an extended period of testing and transition, and ensure the proposed changes are fully supported at its end before mandating implementation; otherwise the bulk of the cost of transition will be borne by businesses. The start date should be delayed beyond 1 July 2017. 3. Significant implementation costs for the employer Significant investment has already been made by employers into the existing systems and in our view the existing systems are not perceived by business to involve a lot of ‘red tape’. Under the proposed changes, substantial investment will be required to accumulate and correctly use data to this level of detail to ensure data integrity by the employer. Implementation costs would extend well beyond the cost of updating the software, and the question should be raised as to whether employers have the ability to bear these additional implementation costs. Significant time will be required by an employer’s payroll staff to ensure data integrity as the proposed changes do not include scope for employers to reconcile the payments made to the ATO on an annual basis. It must be recognised that the main beneficiary of the proposal is the ATO and while the objective of providing fairer outcomes across employers and protecting employee entitlements is valid, in our experience large employers take their obligations very seriously and have already invested heavily to address them. Should further investment be required, there should be some form of incentive for employers. Recommendation: Employers should be compensated for costs of implementation including via favourable tax treatment for software and other costs such as consulting fees. This could include immediate deductibility and a deduction uplift such as that applicable to research and development expenditure. It should also extend to costs of dealing with ATO enquiries in the transition phase.

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4. Changes to the TFN system are required to support real-time reporting at an individual level

Tax File Numbers (TFNs) are not always obtained and provided to the employer before an employee’s first pay cycle. This is currently an issue for expatriate employees working in Australia. As an example, the ATO’s online TFN application system does not currently allow employees on a 400 short stay business visa to obtain a TFN electronically which may result in significant delays in obtaining a TFN. It could be a number pay cycles until the employee is provided with a TFN.

The fundamental issue is how will the ATO track the individual payments of PAYG for employees without TFNs. The ATO’s software must be sophisticated enough to handle these issues.

Another issue arises in respect of the amount of PAYG withheld on behalf an employee without a TFN. PAYG should be withheld at top marginal tax rates, until the employee provided their TFN when PAYG withheld will revert to the employee’s applicable marginal rate. This will result in a fluctuation of tax rate when a TFN is provided, potentially triggering queries and need for explanations.

Recommendation: The TFN system needs to be comprehensively addressed to support real-time reporting at an employee-specific level. This includes increasing ease of applying for TFNs and mechanisms for employers to execute reporting and payment processes without excessive re-work where TFNs are under application.

5. Reconciliation mechanisms

The proposed system does not readily provide employers the opportunity to reconcile payroll data or resolve incorrect payments. There are many situations in which income levels and hence withholding rates change, including changes in work arrangements such as moving to part-time, the payment of bonuses, work performed overseas where foreign tax comes into play, changes in residence of an employee and the interaction of allowances and advances. Where PAYG is remitted on an aggregate basis, it is simple to process adjustments on an ongoing basis. However where reporting has occurred at an individual level, the process to give effect to reconciling adjustments would necessarily be more difficult and time-consuming. This could add significantly to red tape.

Furthermore, it is not uncommon for overpayments to occur, particularly in industries that may involve overtime and changing entitlements. There should be scope to adjust superannuation payments to reflect the impact of overpayments.

Recommendation: There should be an overriding reconciliation mechanism that does not generate ATO queries to enable employers to execute adjustments required from situations such as those described above. This should flow through to superannuation guarantee contributions. This would require the cooperation of superannuation funds which would have already received the funds in question.

6. Global employers and international workforces

Complexities increase and are compounded for global payrolls and employers with an international workforce. For those with temporary resident workers, it is common for employers to meet Australian tax obligations as part of global tax equalisation arrangements. This is often referred to as a shadow payroll. A potential overpayment of PAYG to the ATO will occur due to the “gross-up” mechanism used by such employers. As the expatriates are paid net salaries, each month the company will gross-up the employee’s monthly net salary to determine the correct gross salary and the PAYG tax to be accounted for.

However where an employee only works part year (or there are changes in net monthly salary) and the monthly gross-up formulas are used, an annual reconciliation is required to ensure the correct gross salary and tax has been calculated on an annual basis. This is because the monthly gross-up formulas assume that the employee will receive the same net monthly income each month over the entire financial year (similar to how the ATO PAYG withholding tax tables operate). In practice, where an annual reconciliation is not performed the grossed-up salary and PAYG amounts will have been overstated throughout the year.

Currently, employers have the opportunity to perform an annual reconciliation to determine the correct annual grossed-up wages to disclose on the employee’s payment summary. They can also request a refund of overpaid PAYG from the ATO.

Under the proposed changes, the PAYG will be reported and paid to the ATO when the employee is paid and there is no scope for the employers to reconcile the gross-up calculations on an annual basis. Further, as the Australian taxes have effectively been paid by

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the employer on the employee’s behalf, it is an overpayment of PAYG by the employer and there is no avenue for the employer to recoup the overstated amounts.

Recommendation: Either temporary resident employees should be excluded from the scope of single touch payroll or significant additional reconciliation measures should be included.

7. Elimination of paper based reporting

The reporting function of the Single Touch Payroll is said to eliminate paper-based payroll reporting by employers to reporting digitally eliminating the requirement to issue payment summaries. However, the discussion paper does not address the requirement to provide employees with payment summaries for other purposes including reportable fringe benefits, reportable superannuation contributions and foreign earnings. As a matter of practice employees will typically still require a statement of earnings so the removal of an annual payment summary in its current format does not entail real savings for an employer.

Recommendation: To provide real compliance savings, consider the other matters for which payment summaries are required and whether these can be eliminated or addressed in other ways.

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Appendix 2

We have provided a brief response to the questions raised by the ATO in the position paper.

No. Consultation Question Our Response

Single Touch Payroll reporting capability

1. Would Single Touch Payroll reporting reduce or increase red tape costs for business in the long run?

We believe it would increase red tape costs.

As discussed above, significant investment has already been made by employers into the existing payroll reporting systems. Aside from the initial set-up costs for employers to update software, the proposed changes will result in significant ongoing costs for employer’s payroll staff to ensure data integrity as the proposed changes to do not include scope for employers to reconcile the payments made to the ATO on an annual basis.

2. What is the estimated size of this red tape cost reduction/increase? We are not able to estimate this.

Single Touch Payroll real-time reporting and payment capability

3. Would Single Touch Payroll real-time reporting and payment reduce or increasered tape costs for business in the long run?

We believe it would increase red tape costs.

The Single Touch Payroll system will result in a significant shift from aggregate to individual reporting and the frequent payment of PAYG and superannuation will result in increased administration costs for companies.

4. What is the estimated size of this red tape cost reduction/increase? We are not able to estimate this.

5. What impact would the more frequent PAYG withholding and super paymentshave on your cash flow position, and how could this be mitigated?

For large businesses we do not anticipate a significant impact on cash flow.

6. Are there any additional reporting and/or payment functions that you would like to see included in the design of the Single Touch Payroll?

The proposed system does not readily provide employers the opportunity to reconcile payroll data or resolve incorrect payments. Where PAYG is remitted on an aggregate basis, it is simple to process adjustments on an ongoing basis. However where reporting has occurred at an individual level, the process to give effect to reconciling adjustments would necessarily be more difficult and time-consuming. This could add significantly to red tape. It would be essential to allow employers to reconcile and adjust employee payroll data on an annual basis. The discussion paper does not address the requirement to provide employees with payment summaries for tax return and record keeping purposes. Employees will still require a statement of earnings.

7. What transitional arrangements would businesses require to adopt Single Touch Payroll reporting and/or payment capability (including mitigation of the initial transition impact on cash flow of moving to paying tax and super at the payroll event)?

The ATO must commit to an extended period of testing and transition, and ensure the proposed changes are fully supported at its end before mandating implementation; otherwise the bulk of the cost of transition will be borne by businesses. Businesses will also need a period of testing and transition to ensure systems are functioning correctly and accurate data is being reported.

Commencing employment

8. Are there any other opportunities to streamline the employment commencement process?

The TFN application process needs to be revised and extended. The ATO should consider how it will track the individual payments of PAYG for employees without TFNs (commencing with an employer). The ATO’s software must be sophisticated enough to handle these issues.

9. Under the Single Touch Payroll real-time reporting and payment capability, how should the payment of SG for new employees be managed to ensure they have sufficient time to make an informed investment decision?

It would be appropriate to allow extensions for this and other situations where additional time is needed (temporary residents are another such category).

Cessation of employment

10. Are there any other opportunities to streamline the notification to the super fund, the ATO and DHS that employees have ceased employment?

No comment

Administration of penalties

11. Under what circumstances should the Commissioner of Taxation use his discretion in the administration of penalties?

Under the proposed approach there is no scope for the employers to reconcile payroll data or resolve incorrect payments. Accordingly, the Commissioner of Taxation should use his full discretion in the administration of penalties for employers rectifying these issues.

Discretion should be used for any software errors, late or incorrect payments or any other implementation issues within the transition period.

Software

12. If you are not currently using software to process payroll, what are the costs and barriers you face when acquiring software?

No comment (not applicable to large businesses).

13. Do you expect the costs of acquisition/subscription will be outweighed by the cost-saving from automated payroll reporting?

As discussed above, we understand there may be a significant cost for employers to acquire or develop compatible software, as well as ongoing costs to the employer’s payroll function to review and monitor to ensure data integrity. Employers should be compensated for costs of implementation including via favorable tax treatment for software and other costs such as consulting fees.

14. If you are currently using software, what are the costs and challenges you foresee in upgrading to compatible software?

No comment

Transition options

15. Is the above transition approach achievable for business? Are there any other support/transition options that should be considered?

The ATO should consider the significant investment required by software developers and the ATO to test the new software within the 12 months leading up to the official implementation. Thorough testing will be required by software providers in a very short time frame to resolve any issues with the new software therefore the ATO should re-consider whether this timeframe is realistic. Further, superannuation concessional contribution cap rules and choices will need to be built into the new software which will be complex. Detailed consideration should be given to the changes needed to PAYG withholding and

superannuation guarantee legislation to support real-time reporting and payment.

The start date should be delayed beyond 1 July 2017 to give employers time to implement and test the new system.

16. Under what exceptional circumstances would employers face a significantbarrier to implement Single Touch Payroll that they should be exempt?

Foreign employers with foreign payrolls as they may have limited administrative functions and capabilities in Australia. In addition, the collation of remuneration and relevant conversion for PAYG withholding purposes may cause a significant barrier for foreign employers.

Due to the annual gross-up reconciliations required for expatriate employees, either temporary resident employees should be excluded from the scope of single touch payroll or significant additional reconciliation measures should be included.

to the

Australian Taxation Office on the

Single Touch Payroll Discussion Paper 6 March 2015

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1 Introduction HIA welcomes the opportunity to respond to the Government’s Single Touch Payroll discussion paper.

HIA notes that the Single Touch Payroll initiatives propose to change the way employers report and pay their ‘Pay As You Go’ (PAYG) withholding and Superannuation Guarantee obligations. These new obligations include:

Making it mandatory for employers to report using payroll software and abolishing paperstatements;

Requiring reporting when employees are paid rather than as part of activity statements; and Potentially requiring payment of PAYG and SG obligations as and when employees are

paid.

The Government indicates that it is implementing these changes so that businesses will benefit from streamlined reporting.

HIA acknowledges that simplifying and streamlining payroll and reporting systems can have some advantages for employers, in particular large businesses.

There will also be commercial benefits for accounting and payroll software firms.

It does however appear that the most significant beneficiary of Single Touch Payroll is the Australian Tax Office (ATO). HIA is aware that the ATO has for some time advocated an increase in the use of digital reporting (Digital by Default) to enable prefilling of data for annual return purposes, to reduce staffing levels and their administrative costs and to enable them to correspond with tax payers digitally rather than in person.

Additionally, HIA notes that the ‘Single Touch Payroll’ is also driven at a political level by the government’s desire to “level the playing field for business by reducing non-lodgment and phoenix opportunities, as the ATO would be alert to non-payers sooner”.1

Of most concern, is the proposal to mandate real time payment and reporting. Such measures, if compulsory could have a significantly negative impact for business in the residential construction industry, all of whom already operate under a negative cashflow model.

This proposal effectively distorts payment arrangements such that the ATO is paid in preference of other creditors such as suppliers, manufacturers and subcontractors.

In some cases a business’s tax withheld and super payments would be brought forward by up to three months. It is neither fair, realistic nor reasonable for the Government to expect businesses to be able to bring forward such significant cash payments. HIA estimates the additional industry wide costs to bring forward PAYG payments would be in the order of $100 million, a cost that would be passed on to new home buyers.

A broader public discussion and debate on the necessity, appropriateness and desirability of such a policy approach is required; rather than a reference in a discussion paper that is premised on ‘red tape reduction’ and deregulatory reform.

Accordingly, whilst HIA welcomes the introduction of the measures outlined as an option for business to take up – it does not support the mandating of ‘one touch payroll’, ‘digital by default’, the acquisition of new software, or prescribing new business systems, notwithstanding the benefits or and convenience it affords the regulator.

The question as to whether a business will benefit from upgrading their software and systems is a matter for each individual business, as is the decision whether to embrace the changes or not. Why do they need to be mandatory?

1 The Honourable Bruce Billson MP, Minister for Small Business “Address to the G20 Agenda for Growth: Opportunities for small and medium enterprises conference, Melbourne” , 20 June 2014 accessed at http://bfb.ministers.treasury.gov.au/speech/015-2014/

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A large number of businesses in the residential construction industry do not currently have accounting or payroll software that is ATO compatible. As an example, HIA understands that in the first year of the implementation of the Building and Construction Industry Contractor Reporting regulations in excess of 80 per cent of payees submitted their report in paper form.

Whilst small business may no longer need to separately complete PAYG withholding information on their Business Activity Statements (BAS), presumably BAS statements will still need to be completed for:

Goods and Services Tax (GST) Fringe Benefits Tax (FBT) instalment Luxury Car Tax (LCT) Wine Equalisation Tax (WET) Fuel Tax Credits

Onerous contractor reporting regulations that require businesses to annually report payments made to subcontractor in the construction industry remain.

Many businesses also currently rely on the services of bookkeepers and accountants to provide the correct financial information to the ATO. There is little detail in the discussion paper on safeguards for such businesses in the event there are errors in data submitted to the ATO.

The paper also lacks detail on refunds of overpayments to the ATO or Superannuation funds and what capacity accountants and tax advisers can play in assisting businesses with their compliance obligations.

2 Response to Discussion Paper Questions Single Touch Payroll 1. Would Single Touch Payroll reporting reduce or increase red tape costs for business in

the long run?2. What is the estimated size of this red tape cost reduction/increase?

Given the limited time allowed for consultation, HIA is only able to give a general view on the likely impact of Single Touch Payroll on businesses in the residential construction industry.

Reducing the number of reports that have to be manually produced will conceivably reduce the time many small business owners will spend completing ATO paper work.

However, small businesses that currently do not use accounting or payroll software will face increased costs in terms of acquiring the accounting software (at $70-$100 per month), making upgrades to existing IT systems and platforms to manage and accommodate the new software (data migration), upgrade internet connections and as well as the costs of training staff to use the new software.

Single Touch Payroll Real-time Reporting and Payment Capability 3. Would Single Touch Payroll real-time reporting and payment reduce or increase red tape

costs for business in the long run?4. What is the estimated size of this red tape cost reduction/increase?5. What impact would the more frequent PAYG withholding and super payments have on

your cash flow position, and how could this be mitigated?

HIA expects that mandatory real time payments and reporting and in turn, more frequent PAYG withholding and super payments, would have a significantly negative and damaging impact on the residential construction industry.

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Under the proposed measures, the ATO essentially becomes a priority creditor at the expense of other creditors and suppliers. These measures will exacerbate and further distort existing cash flow challenges in the residential construction industry.

Initial estimates show that the interest costs arising from real time PAYG payments would be up to $100 million industry wide.

Cashflow management is a day to day reality in most business, but particularly so for the high proportion of small and micro builder businesses in the residential construction industry, as the builder essentially ‘finances’ a job.

Strict state by state industry specific consumer protection laws preclude builders from taking payments in advance, meaning that residential builders carry the risk on projects, trading in an environment dominated by negative cash flow.2

Builders are reliant on milestone progress payments that are made under their contract with the home owner.

Yet the way these progress payments are scheduled does not in any way correlate with the way expenses are incurred.

It is generally the case that progress payments are at least one construction stage behind the expenditure incurred by the builder (for example, the framing stage is well under way by the time the builder receives payment for completion of the internal and external floor slab). Clients are not generally charged interest in the process (although builders have the contractual right to do so). Smaller businesses also operate under a model where progress payments are at least one payment behind – these business are normally 10 to 15 per cent behind on the costs of their projects.

A number of factors affect cash flows on a construction project, such as the duration of the project, deposit restriction, the lag on receiving payments from the client/ the client’s bank, credit arrangement with suppliers of building products and materials, equipment rentals (eg excavating and scaffolding equipment), and timing of payments to subcontractors, etc.

Typical cash flow on a construction project consists of:

Cash out: such as tender costs, preconstruction costs engineering, design, etc., materialsand supplies, equipment and equipment rentals, payments of subcontractors, employeesand business overhead; and

Cash in: such as deposits, progress payments, director’s loans and bank overdrafts andfinance.

For smaller building companies, the negative cash flow environment and reliance on working capital is more onerous again, as there is little scale involved to compensate for considerable start-up costs.

Two examples are set out in the Annexure to these submissions.

In the first example, outlined at Annexure 1, over the life of a 16 month detached house construction job with a contract value of $260,000, the builder is carrying a negative cash flow for 12 out of those 16 months. At a peak, this negative cash flow for a month reaches $26,000, which is over 60 per cent of the net cash flow (excluding GST) of the entire project. Furthermore, the margin erodes as work progresses over a majority of the total period. Large volume builders undertake a significant number of projects at one time – sometimes hundreds of jobs – so the aggregate impact is very significant. Therefore, there is necessarily a heavy reliance and considerable pressure on working capital.

2 See Home Building Act 1989 (NSW), Queensland Building and Construction Commission Act 1991 (Qld), Domestic Buildings Contracts Act 1995 (Victoria), Home Building Contracts Act 1991 (WA), Building Contractors Act 1995 (SA), Building Act (Northern Territory), Building Act (ACT), Housing Indemnity Act (Tas)

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The second example, for a smaller company that focuses on customised new homes and large structural renovation work, demonstrates that projects do not become cash flow positive until the final payment. In other words the builder in this instance is ‘carrying’ the entire job. This example can be found at Annexure 2 and demonstrates that for a seven month $300,000 project, the builder finances the project until the completion stage when a final claim is made (in month eight). In this example the negative cash flow position in a given month is as high as $53,500. The same model applies to a $500,000 or $1,000,000 project.

It is also of note that during the period in which work is being carried out and notwithstanding no further payments are received, payments still need to be made to subcontractors and suppliers. These subcontractors and suppliers will naturally not wait for the builder to receive payments from the client. In fact under Security of Payment legislation there are time limits for payment to subcontractors and a principal contractor/builder cannot require that payment to a subcontractor be withheld or delayed due to payment from the client not yet received.

State Legislation Maximum time period for payment of progress claims

ACT Building and Construction Industry (Security of Payment) Act 2009 (ACT)

10 days after a payment claim

NSW Building and Construction Industry Security of Payment Act 1999 (NSW)

30 days to a subcontractor, 15 days by a principal to a head contractor.

SA Building and Construction Industry Security of Payment Act 2009 (SA)

15 days after a payment claim

NT Construction Contracts (Security of Payments) Act 2004 (NT)

28 days

Qld Building and Construction Industry Payments Act 2004 (Qld)

25 business days after submission of a payment claim for construction management trade contract or subcontracts. For commercial building contracts, 15 business days after submission of a payment claim.

Tas Building and Construction Industry Security of Payment Act 2009 (Tas)

10 days

Vic Building and Construction Industry Security of Payment Act 2002 (Vic

20 days

WA Constructions Contracts Act 2004 50 days

6. Are there any additional reporting and/or payment functions that you would like to seeincluded in the design of the Single Touch Payroll?

7. What transitional arrangements would businesses require to adopt Single Touch Payrollreporting and/or payment capability (including mitigation of the initial transition impact oncash flow of moving to paying tax and super at the payroll event)?

It is unlikely that any transitional arrangements will improve the capabilities of industry or mitigate the adverse impact of the reporting and payment provisions, whilst the existing statutory restrictions and payment cycles in the residential construction industry remain as they are.

Single touch payroll payments should remain optional.

Commencing Employment 8. Are there any other opportunities to streamline the employment commencement

process?9. Under the Single Touch Payroll real-time reporting and payment capability, how should

the payment of SG for new employees be managed to ensure they have sufficient time tomake an informed investment decision?

No comment

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Cessation of Employment 10. Are there any other opportunities to streamline the notification to the super fund, the ATO

and DHS that employees have ceased employment?

No comment

Software 11. If you are not currently using software to process payroll, what are the costs and barriers

you face when acquiring software?12. Do you expect the costs of acquisition/subscription will be outweighed by the cost-saving

from automated payroll reporting?13. If you are currently using software, what are the costs and challenges you foresee in

upgrading to compatible software?

Given the limited time allowed for consultation, HIA is unable to quantify the savings to industry from automated payroll reporting.

As HIA has outlined earlier there are likely to be significant costs for many small businesses in the construction industry in upgrading their software and IT platforms to conform to ATO requirements.

There are also likely to be requirements to ensure that the business has adequate internet connection to ensure connectivity with the ATO. This may not always be possible in regional areas.

Transition Options 14. Is the above transition approach achievable for business? Are there any other

support/transition options that should be considered?15. Under what exceptional circumstances would employers face a significant barrier to

implement Single Touch Payroll that they should be exempt?

See HIA’s earlier comments.

In HIA’s submission, the residential construction industry should be exempt in its entirety.

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Annexure 1

Note: CMA – Cost Movement Analysis ETO – Extra’s to Order.

205,426$

GST 10% 20,543$

CMA 3% 6,163$

ETO 3% 6,163$

Total Cost 238,294$

Total Cost excl GST 217,752$

House Contract (Excl GST) 260,000$ Month

Initial Deposit 3,000$ 1

Contract Deposit 5% 10,000$ 3

Slab 20% 52,000$ 12

Frame 25% 65,000$ 13

Bricks 20% 52,000$ 14

Lockup 20% 52,000$ 15

Final 10% 26,000$ 16

100% 260,000$

Net Cash Flow (excl GST) 42,248$

Net Cash Flow

(excl GST)

Cumulative Net

Cash Flow (excl

GST)

M1 7,086-$ 7,086-$

M2 1,988-$ 9,073-$

M3 8,013$ 1,061-$

M4 1,988-$ 3,048-$

M5 1,988-$ 5,036-$

M6 1,988-$ 7,023-$

M7 1,988-$ 9,011-$

M8 1,988-$ 10,998-$

M9 1,988-$ 12,986-$

M10 1,988-$ 14,973-$

M11 11,114-$ 26,088-$

M12 11,297$ 14,790-$

M13 26,450$ 11,660$

M14 19,351$ 31,011$

M15 9,477$ 40,488$

M16 1,760$ 42,248$

Total House Costs

Table 1: Project House with contract cost (excl. GST) of $260,000

- 1 -

Annexure 2

Estimated Job Cost $300,000 with a profit margin of 10% (Duration - 7 months)

Expenditure Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8

Final Claim

End of Job

Deposit received $15,000 Opening Cash following month -$19,000 -$31,729 -$33,548 -$47,184 -$53,548 -$37,184

Assumed stage of Works

Site set up, insurances, excavation, tipping, labour - all paid for up front (shown in mthly exp)

In ground works Begin structure

Structure and closing in

Roof & Lock Up

Ruff in services Linings Fit off &

Finish

Monthly expenditure claimable -$34,000 -$31,729 -$33,548 -$47,184 -$53,548 -$37,184 -$32,807 -

$270,000 Less Deposit $15,000 Progress Claims based on previous monthly expenditure

$19,000 $31,729 $33,548 $47,184 $53,548 $37,184 $36,898 $274,091

Add Overhead for Claim $1,900 $3,173 $3,355 $4,718 $5,355 $3,718 $3,690 $25,909

Progress Claims Paid PC 1 $20,900 PC 2 $34,902

PC 3 $36,902

PC 4 $51,902

PC 5 $58,902

PC 6 $40,902

PC 7 $40,588 $300,000

Balance for project at end of the month -$19,000 -$31,729 -$33,548 -$47,184 -$53,548 -$37,184 -$32,807

The above graph illustrates how a builder finances the project to completion stage. The above numbers are assumed on a typical S graph scale which is applicable to 90% of residential construction work. It does not take into account any retention amounts which would only add the financial burden of the contractor.

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11th  March  2015  

Submission  to  Discussion  Paper  

Single  Touch  Payroll  

Executive  Summary  ICB  are  a  supporter  of  "a"  Single  Touch  Payroll  concept.  

We  outrightly  support  the  development  of  a  software  integration  with  some  government  services  that  assist  employers  to  manage  their  payroll  more  efficiently.  

The  proposal  in  the  paper  which  causes  every  employer  to  report  and  pay  their  SGC  &  PAYGW  at  the  time  of  every  payrun  is  unnecessary  and  unwarranted.  This  would  impose  a  regulatory  compliance  burden  on  every  employer  to  generate  a  compliance  benefit  from  the  few.    This  is  contrary  to  stated  Government  policy  and  also  stated  ATO  philosophy.    Why  impact  the  95%  to  catch  the  5%.    (Even  if  the  portion  of  employers  with  PAYGW  or  SGC  issues  is  20%  or  30%  then  to  impose  this  burden  as  proposed  on  all  employers  is  unjust).  

We  are  very  concerned  with  many  concepts  provided  in  the  discussion  paper,  which  we  have  detailed  below.    They  appear  unfounded.    

The  development  of  software  to  assist  employers  to  be  more  efficient  including  their  interactions  with  Government  should  be  encouraged  and  we  believe  can  be  implemented  without  the  negative  consequences  of  the  system  as  proposed  in  the  paper.  

The  ATO  STP  proposal  does  not  remove  any  complexity  for  an  employer.    The  proposal  does  not  recognise  the  ongoing  obligations  that  FairWork  places  on  an  employer  that  do  not  appear  to  be  changed  under  this  proposal.    The  ATO  ongoing  reporting  requirement  is  not  consistent  with  the  intergenerational  report:  “To  enhance  productivity,  government  will  need  to  continue  to  focus  on  reforms  that  can  improve  the  competitiveness  of  our  businesses  and  markets,  and  provide  an  environment  that  encourages  entrepreneurship  and  innovation”.  

The  paper  does  not  appear  to  recognise  the  current  state  of  payroll  process  and  software  as  it  already  exists.      

We  propose  full  ATO  STP  to  only  apply  to  those  that  are  proven  to  not  comply  in  the  past.    We  propose  significant  Transitional  Considerations.    We  propose  alternative  methods  of  achieving  similar  results  without  the  increased  regulatory  burden.  

ICB  supports  the  discussion  and  development  of  Single  Touch  Payroll  and  ICB  seeks  to  continue  our  engagement  with  and  to  assist  in  the  implementation  of  a  successful  and  appropriate  STP  program.  

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Outline  of  this  paper  “Payroll  Process  &  development  with  an  STP  program”  In  the  below  we  outline  the  payroll  process  that  an  employer  must  currently  perform.    This  is  provided  to  outline  the  complete  payroll  process  and  is  not  limited  to  the  selected  activity  outlined  as  affected  by  the  ATO  STP  proposal.      

We  outline  this  payroll  process  within  the  context  of  an  STP  development,  which  may  or  may  not  include  elements  of  the  ATO  proposal.    However  we  specifically  note  that  the  ATO  STP  proposal  includes  elements  that  we  would  encourage  and  suggest  should  happen,  there  are  also  elements  that  require  significant  review.      

Included  is  comment  as  to  the  warranted  and  envisaged  (if  not  under  construction)  enhancements  to  commercially  available  payroll  software  that  we  are  aware  of  and  should  be  delivered  with  or  without  the  ATO  STP  proposal.  

“What  is  the  ATO  STP  proposal?  “  Based  on  the  discussion  paper  and  other  material  available  on  the  ATO  STP  proposal  we  have  extracted  and  restated  a  full  outline  of  the  ATO  STP  proposal.    

“Discussion  Paper  comments”    This  section  provides  our  feedback  on  the  paper.    It  responds  to  the  concepts  put  forward  and  the  propositions  made.    We  seek  clarification  on  many  of  the  points  raised.  

“Statements  and  propositions  about  ……”  We  have  provided  considered  comment  about  each  of  the  sections  leading  to  the  consultation  questions.    The  information  herein  provides  context  for  the  answers  to  the  consultation  questions.  

“Alternative  to  STP  as  proposed”  We  believe  that  much  if  not  all  of  the  benefits  to  government  from  STP  can  be  achieved  now  without  the  significant  increased  compliance  burden  to  all  employers.    We  make  comment  in  this  section  on  those  alternatives.  

“Alternative  to  SGC  debt  management”  Similarly  in  relation  to  SGC  debt  we  propose  an  alternate  method  to  making  any  SGC  debt  more  visible  to  all  concerned.  

“Alternative  positioning”  We  note  that  the  term  “Single  Touch  Payroll”  should  be  broadened  to  include  much  of  the  recent  developments.  

“Cashflow”  We  attach  cashflow  scenarios  and  enhancements  to  previous  ATO  information  about  the  cashflow  of  business.  

Page 3 of 39 The Institute of Certified Bookkeepers Making you count

Payroll  Process  &  development  with  an  STP  program  (Includes  comments  on  current  development  and  what  we  understand  is  already  underway).    Please  note  that  this  explanation  is  of  current  processes  ideal  processes  which  may  or  may  not  be  what  is  proposed  by  the  ATO.  

Dashboard  of  status  in  terms  of  achieving  a  “Single  Touch  Payroll”  world  Positive  (not  perfect)     Underway  but  not  there  yet  

Significant  Work  Required   Required  not  yet  observed  

Out  of  Scope   Included  in  STP  developments  

1. Registration  (ABN,  TFN,  PAYGW)>  Recent  changes  to  the  ABR  and  the  registration  process  to  automate  and  simplifyregistration  towards  a  “Single  Touch”  registration  should  be  acknowledged  andcontinued.

2. Registration  (Superfunds,  SuperStream,  Super  clearing  house)>  Current  implementation  of  SuperStream  by  the  software  (and  their  links  with  clearinghouses  and  payment  gateways)  is  heading  towards  an  employer  being  able  to  establish“SuperStream”  compliance  within  the  software  in  a  streamlined  approach.

3. Acquisition  of  Payroll  knowledge  (internal  or  consultant)>  Payroll  is  complex:    FairWork  and  Tax  and  Super.    Employers  must  seek  professionalhelp  to  ensure  they  understand  the  law,  understand  their  obligations  and  implementsystem  to  comply,  as  consequences  are  dire.>  Alternatively  if  the  System  was  to  provide  Certainty  /  Safe  Harbours  to  employers  basedon  engaged  actions  to  establish  correctly  then  the  cost  and  burden  of  acquisition  ofappropriate  knowledge  may  be  reduced.

4. Establishment  of  Software  (Acquisition,  training,  set  up)(Alternative  non-­‐software  system  set  up)>  Software  establishment  and  training  is  established  (varies  brand  to  brand)>  Employers  should  be  supported  in  their  acquisition  of  software  and  then  in  ensuringcorrect  establishment  of  the  system  in  the  software.>  Payroll  in  Australia  DOES  NOT  apply  to  each  employer  the  same  way  hencecustomisation  is  ALWAYS  required.    It  is  false  to  expect  software  will  ensure  compliance.

5. Engage  employeesa. Interview  and  offer  processb. Employment  contract>  Although  we  rank  these  as  out  of  scope,  increasingly  HR  software  that  assists  these  processes  is  coming  to  the  market.    A  truly  “Single  Touch”  payroll  process  would  integrate  this  process  with  the  engagement  of  an  employee  

Page 4 of 39 The Institute of Certified Bookkeepers Making you count

c. Employee  details  to  be  acquired  (“Commencement”)i. Award  details  to  be  determined  and  appliedii. TFN  Dec  informationiii. Super  Information

d. Establish  employees  in  the  Payroll  system>  Different  brands  are  at  different  stages  of  what  we  would  refer  to  as  bestpractice  and  efficient  business  process.    Further  development  is  required.  STPshould  drive  a  digital  interchange  of  information  that  further  facilitates  thisprocess.

6. Receive  payrun  processing  instructions>  Different  brands  are  at  different  stages  of  applying  best  practice  and  efficient  business  process  to  various  different  business  circumstances.  >  In  a  full  STP  world  automation  of  the  information  and  authorisation  processes  will  be  more  “digitally”  facilitated.    Similar  to  current  developments  in  the  Purchase  Invoice  recognition  and  processing  procedures,  we  believe  payrun  information  should  follow  a  similar  process.  

7. Process  payruna. Calculate  gross  amounts  to  be  paidb. Apply  taxes  etcc. Verification  and  Authorisation  to  make  paymentsd. Payslips  to  be  provided  to  the  Employeee. Payment  instructions  for  the  employee’s  net  pay  (preferably  through  payment

gateway  in  the  software)  and  make  payment>  The  payment  instructions  through  a    gateway  functionality  exists  in  differentsoftware  through  a  variety  of  different  methods.    In  a  true  STP  world  we  look  for“a”,  “b”  &  “c”  to  be  one  set  of  procedures  that  generate  a  set  of  reports  provided  tothe  “authorised  person”  in  the  business  to  then  authorise  the  processing  of  thepayroll.>  Following  authorisation  we  look  for  STP  button  to  facilitate  “d”  &  “e”>  Different  brands  are  at  different  stages>  Already  payroll  software  typically  then  has  a  process  of  accumulating  thePAYGW  and  also  calculating  the  SGC  obligations  for  reporting  at  anytime  butdefinitely  for  inclusion  in  the  Monthly  or  Quarterly  Activity  Statement  process.Software  has  typically  already  removed  the  “double  handling”

8. Monthly  or  Quarterly  Activity  Statement:a. Review  process  (varies  on  extent  but  tends  to  be  in  conjunction  with  SGC

verification)b. Declare  accumulated  Gross  Payc. Declare  accumulated  PAYGWd. Verification  and  Authorisation  to  lodge  complete  Activity  Statement

>  The  preparation  of  the  Activity  Statement  exists  in  different  software  through  avariety  of  different  methods.    In  a  true  STP  world  we  look  for  “a”,  “b”  &  “c”  to  be  aset  of  procedures  that  enable  review  and  then  generation  of  a  set  of  reports

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provided  to  the  “authorised  person”  in  the  business  to  then  authorise  the  lodgment  of  the  Activity  Statement.  >  Different  brands  are  at  different  stages.      

e. Lodge  Activity  Statement>  The  SBR  enabled  lodgment  of  Activity  Statements  from  within  the  business’  ownsoftware  as  a  ST  concept  appears  to  be  nearby  but  is  not  implemented  across  theboard  and  we  are  unaware  of  a  truly  integrated  ST  type  activity  statementlodgement>  Some  practice  management  software  exists  to  receive  transmissions  from“payroll”  software  to  then  facilitate  the  lodgement>  Noting  that  many  Activity  Statements  contain  other  compliance  obligationsoutside  of  Payroll

f. Payment  as  part  of  Activity  Statement  debt>  A  ST  concept  would  be  that  as  soon  as  the  Activity  Statement  is  able  to  be  lodgedthat  lodgment  is  facilitated  and  then  at  the  same  time  the  ST  concept  would  havethe  software  scheduling  the  payment  of  the  Activity  Statement  debt  on  the  day  duefor  payment.    Therefore  no  further  engagement  with  the  process  as  it  has  alreadybeen  calculated,  reviewed,  verified,  authorised,  lodged  and  it  is  now  scheduled  forpayment.

9. Quarterly  SGC  obligationsa. Review  process  (tends  to  be  scrutinised  to  ensure  obligations  are  known)b. Utilise  Software  SuperStream  capabilities  to

i. Send  required  messagingii. Send  payment  to  Clearing  house  with  instructions

10. Pre  end  of  yeara. May  or  June  SGC  review  to  enable  employer  to  make  tax  deductible

contributions>  Similar  process  to  item  9.  Implemented  differently  by  different  brands

11. End  of  Yeara. Total  reconciliation  and  payroll  reviewb. Preparation  of  Payment  Summaries  for  employees

i. RESC  amounts  to  be  determinedii. RFBTA  amounts  to  be  determined

>  Different  processes  in  different  software  –  continual  improvement  required  

c. Lodgment  of  Payment  Summaries  with  the  ATO>  Similar  comment  as  for  activity  statements  noting  that  there  are  distinctdifferences  between  brands  “the  SBR  enabled  lodgment  ….  from  within  thebusinesses  own  software  as  a  ST  concept  appears  to  be  nearby  but  is  notimplemented  across  the  board”

d. This  tends  to  be  the  time  to  facilitate  any  corrections  to  SG  as  the  payroll  hasbeen  more  intensely  reviewed

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e. This  tends  to  be  the  time  to  reconcile  PAYGW  amounts  to  final  year’s  payrollfigures  enabling  final  Activity  Statement  adjustment

12. Cessation  of  employmenta. Termination  pay  (often  subject  to  later  correction  due  to  incorrect  application

of  tax).

b. Notice  of  Separation

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What  is  the  ATO  STP  proposal?  Noting  that  the  comments  above  are  in  relation  to  an  overall  adoption  of  enhanced  and  streamlined  business  process  as  related  to  payroll.  

The  ATO  proposal  deals  with  some  aspects  of  the  Payroll  Processes  described  above.    In  this  section  we  outline  what  the  ATO  STP  proposal  actually  is:  

Commencement  The  ATO  STP  proposal  includes  a  system  for  an  employee  to  maintain  their  personal  “profile”  on  the  myGov  facility  (maybe  "ATO  online").    The  STP  enhancement  is  that  with  a  push  of  a  button  the  employee  can  have  transmitted  to  a  new  employer  their  tax  and  super  details.    This  is  implemented  by  the  government  in  myGov/ATO  Online  but  must  then  be  implemented  by  the  respective  payroll  software  companies.  

Payroll  The  ATO  STP  proposal  is  that  on  the  instance  of  each  and  every  payrun  (weekly,  fortnightly,  monthly  etc)  when  the  “button”  is  pushed  to  finalise  the  pays,  send  the  payslips,  authorise  and  arrange  the  payment  to  the  employees;  that  same  button  will  transmit  details  of  that  payrun  to  the  ATO.    This  would  need  to  be  implemented  by  each  software  company  but  the  ATO  system  must  be  able  to  receive  the  data.  

The  ATO  will  use  that  information  to  monitor  the  employer’s  PAYGW  pattern  and  also  payment.    Option  A  is  that  it  will  only  be  “reporting”  each  payrun.    Option  B  is  that  the  PAYGW  will  be  paid  to  the  ATO  at  the  same  time  ie  each  and  every  payrun.    Significant  system  changes  at  the  ATO  end,  but  also  software  companies  will  need  to  rapidly  develop  the  process  within  their  software  to  facilitate  such  STP  processes.  

An  option  being  considered  is  also  that  SGC  will  be  paid  each  and  every  payrun.  

The  ATO  concept  is  that  because  they  are  receiving  payroll  information  at  the  time  of  each  payrun  they  will  not  require  PAYGW  information  on  Activity  Statements  nor  will  they  require  end  of  year  payment  summaries.    We  contest  this  reduction  in  other  reporting  has  any  consequence  due  to  other  obligations  on  the  employer.  

Cessation  of  employment  The  ATO  STP  proposal  is  that  when  a  person’s  employment  ceases  then  at  the  push  of  the  termination  button  information  is  submitted  to  the  relevant  government  agencies.  

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The Institute of Certified Bookkeepers Making you count

DISCUSSION  PAPER  comments    Why?  Where  is  the  purpose  statement?    What  is  it  that  STP  is  aiming  to  achieve?        We  suggest  something  like  “Supporting  employers  using  best  practice”.    Further  explanation  may  be  “The  ATO  are  seeking  to  facilitate  enhanced  but  also  easier  compliance  reporting  and  possibly  payment  systems  for  all  employers.    The  proposed  “Single  Touch  Payroll”  system  would  change  the  way  an  employer  interacts  with  the  ATO  in  relation  to  SGC  and  PAYGW  obligations.    STP  includes  enhanced  reporting  of  employee  payment  activity  enabling  earlier  detection  and  action  to  employers  who  fail  to  meet  their  obligations”    We  remain  very  concerned  that  the  basis  behind  the  ATO  STP  is  that  it  will  help  resolve  PAYGW  liability  (debt)  issues  and  also  SGC  issues.    In  our  opinion  the  basis  for  this  view  is  unfounded.    The  ATO  must  implement  a  stronger  compliance  program  behind  those  taxpayers  who  do  not  comply  with  current  obligations  rather  than  increasing  the  obligations  on  all.    Tone  and  Presentation  of  Discussion  Paper  We  note  with  concern  the  structure,  tone  and  significant  sections  of  content  provided  in  the  Discussion  Paper.        The  ATO  must  recognise  that  most  employers  seek  to  comply,  lodge  and  pay  on  time.    It  is  incorrect  regulatory  behaviour  to  impose  significant  regulatory  burden  on  all  because  of  the  actions  of  some.    Recent  ATO  philosophy  statements  enforce  the  concept  that  the  ATO  should  not  impose  burden  on  those  that  comply.    The  discussion  paper  is  at  odds  with  stated  Policy.    The  communication  and  implementation  has  to  be  planned  very  carefully.  The  messages  need  to  be  clear  and  based  on  today’s  business  process  reality.  Australian  payroll  law  is  complex  and  not  just  tax  based.        The  paper  as  presented  reads  as  though  it  is  based  on  a  worst  case  scenario  of  the  most  inefficient  employer.    It  also  is  written  as  though  the  proposed  STP  will  solve  many  issues  that  are  well  beyond  the  scope  of  STP  to  alter.    Under  most  headings  you  have  described  the  burden  of  complying  with  the  payroll  requirements  and  then  alluded  to  one  facet  that  single  touch  payroll  may  assist  WITHOUT  mentioning  that  all  other  obligations  remain.    The  “Overview”  section  of  the  paper  should  perhaps  be  an  appendix  headed  “One  perspective  to  help  justify  STP  (not  necessarily  based  on  fact)”.    Once  professional  bookkeepers,  BAS  Agents  or  Business  people  have  managed  to  determine  the  actual  impact  of  STP,  they  will  then  also  determine  that  many  of  the  propositions  in  the  “Overview”  are  overstated  or  in  fact  wrong.    These  overstatements  do  not  help  a  positive  embrace  of  the  proposal  as  it  sets  the  tone  of  trying  to  persuade  people  to  adopt  a  system  that  is  NOT  good  for  them.    You  should  be  clear  that  STP  is  about  reporting  more  often  to  the  ATO.    The  STP  system  needs  to  be  described  clearly  upfront  so  that  people  can  then  apply  the  new  system  to  their  circumstances.    

Page 9 of 39 The Institute of Certified Bookkeepers Making you count

SPECIFICS  We  are  surprised  at  the  emotive  words  described  in  relation  to  the  system  eg  “onerous”  and  then  terms  such  as  “paper  based”  implying  that  STP  is  the  initiative  that  changes  this.    Both  of  which  are  wrong.      We  would  value  evidence  of  how  STP  is  proposed  to  remove  any  reporting  obligation!  For  a  significant  number  of  employers  the  proposed  STP  does  not  remove  “paper”  as  they  have  already  adopted  better  procedures  and  software  tools.      

We  refer  to    “Businesses that employ staff are currently burdened with a number of tax and super reporting and payment obligations. ”

STP  does  not  change  any  of  the  above  statement  so  why  make  it  in  this  context.    Following  the  adoption  of  the  full  STP  program,  businesses  that  employ  staff  will  be  burdened  with  an  increased  number  of  tax  and  super  reporting  and  payment  obligations.  

Please  advise  which  items  of  tax  and  super  reporting  and  payment  obligations  are  to  be  removed.  

If  STP  is  proposing  that  the  benefit  to  business  is  that  the  PAYGW  won’t  have  to  be  declared  and  paid  monthly  or  quarterly  then  you  need  to  state  in  clear  comparison  that  it  is  replaced  by  reporting  PAYGW  every  payrun.    This  is  NOT  reducing  the  “burden”.    We  note  that  business  seeks  certainty  and  accuracy  before  submitting  information  to  government,  accordingly  they  will  now  seek  that  certainty  more  often.  

If  STP  is  proposing  that  a  benefit  to  business  is  that  they  will  not  be  required  to  prepare  and  issue  end  of  year  Payment  Summaries  then  you  need  to  state  in  clear  comparison  that  it  has  been  made  redundant  by  the  information  that  is  required  to  be  sent  to  the  ATO  every  payrun.  You  will  also  need  to  state  that  all  other  annual  reporting  obligations  remain  such  that  the  Payment  summary  will  in  fact  only  be  different,  not  removed.  

Please  advise  if  STP  is  removing  any  reporting  obligations  on  employee  payslips.    You  need  to  clearly  state  how  an  employee  is  expected  to  KNOW  how  much  income  they  have  earned  over  the  year  and  all  other  details  currently  declared  on  their  Payment  Summary.    Has  the  ATO  consulted  with  and  arranged  for  alteration  to  the  FairWork  obligations  on  an  employer?  

Australian  payroll  is  complex.    Many  employers  spend  significant  time  ensuring  they  comply  with  all  their  calculation  and  compliance  burdens  that  the  system  requires.    If  you  are  proposing  STP  is  going  to  remove  a  burden  you  should  specifically  state  what  is  removed.    We  are  unable  to  determine  a  significant  reduction.  

Software  by  itself  can  not  solve  the  compliance  burden  of  being  an  employer  in  Australia.    Our  laws  are  too  complex  and  each  business  operates  differently.    Accordingly  no  “standard”  software  will  suit  any  two  businesses  the  same  way.    Payroll  law  and  application  would  have  to  be  dramatically  simplified  to  achieve  a  concept  that  “software  solves  payroll”.  

STP  in  fact  increases  the  burden    STP  requires  more  data  to  be  sent  to  government  more  often.    It  appears  the  proposal  is  that  the  information  is  in  the  software  already  so  therefore  sending  the  information  to  the  ATO  each  payrun  is  not  an  increased  obligation.      

Page 10 of 39 The Institute of Certified Bookkeepers Making you count

We  then  ponder  the  response  of  business  to  this  proposal.    As  has  recently  been  commented  by  others  “business  do  not  trust  the  ATO”.    Experiences,  stories,  attitude  of  debt  collectors  (agents  of  the  ATO)  lead  businesses  to  seek  professional  assistance  from  those  that  have  the  business  perspective  at  the  forefront  of  their  actions.    They  seek  experts  to  interpret  the  obligations  and  provide  certainty  or  at  a  minimum  assistance  in  complying.    In  an  STP  world  those  same  businesses  will  have  a  perspective  that  they  must  be  certain  more  often.    This  will  increase  the  compliance  burden.  

“Cloud”  The  discussion  paper  also  confuses  the  issue  by  making  various  comments  about  the  development  of  what  is  referred  to  as  “Cloud”  which  is  irrelevant  to  the  payroll  reporting  and  payment  obligations  allegedly  effected  by  STP.  “Payroll software providers are increasingly moving their software to cloud-based subscription offerings. Similar to internet banking,this allows an employer to access their payroll software from any device, anywhere, anytime through a web browser. In these models, there is no need to update software or back up your data because this is done automatically. Additionally, this has seen a drop in the cost of software to employers. ”

What  is  meant  by  the  term  “cloud”?    Does  it  mean  internet  enabled?  Internet  connected?  Browser  based?  

Cloud  may  mean  a  delivery  mechanism  for  software.    The  delivery  mechanism  for  payroll  software  is  unrelated  to  the  payroll  function  and  unrelated  to  whether  Single  Touch  Payroll  will  be  a  good  system  or  not.  

Your  discussion  around  cloud  seems  to  be  indicating  that  “Cloud”,  “Subscription  based”,  “anytime  /  anywhere”,  “no  need  to  update”,  “backup  your  data”  is  a  consequence  or  somehow  related  to  STP.    They  are  not.  These  comments  should  not  be  made  as  they  are  unrelated  to  a  discussion  on  STP.  

"no  need  to  ....  backup  your  data"    is  concept  that  causes  us  concern.    Is  there  a  part  of  the  proposal  that  removes  all  record  keeping  and  retention  requirements  of  an  employer.    Is  the  STP  proposal  now  going  to  state  that  if  an  employer  is  using  STP  that  the  ATO  will  not  require  any  records  to  be  kept?    Will  the  ATO  obtain  agreement  with  FairWork  etc  that  the  records  are  not  required.  

You  state “For those employers who use cloud software, the updates will be done automatically by the provider. ”

Why  is  the  ATO  getting  involved  in  this  facet  of  software  discussion?    STP  implementation  is  unrelated  to  how  software  gets  updated  or  whether  it  gets  updated.    It  does  draw  attention  to  the  fact  that  government  is  then  overtly  supporting  that  every  employer  must  be  bearing  the  cost  of  a  subscription  based  software.    There  are  other  facets  of  this  "cloud"  discussion  unrelated  to  STP  that  we  will  not  elaborate  on  in  this  paper.  

You  state “Additionally, this has seen a drop in the cost of software to employers” We  would  value  seeing  the  basis  for  this  comment.    What  costings  and  comparisons  have  the  ATO  performed  to  justify  this  comment?    We  are  unaware  of  “drop  in  cost  of  software  to  employers”.    The  software  market  is  constantly  changing  and  there  are  newer  players  providing  payroll  software  that  may  or  may  not  provide  as  much  ease  of  compliance  as  other  software.  We  believe  the  ATO    MUST  release  the  basis  for  making  this  comment.

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Why  would  this  discussion  paper  state  “This is in addition to completing onerous paperwork when employees commence and cease employment (for example, TFNdeclarations) or paperwork associated with annual reporting cycles (such as payment summaries). “

STP  does  not  remove  one  single  obligation  or  process  in  “commencing”  an  employee  or  “annual  reporting  obligation”.    We  would  value  information  that  we  may  have  missed  in  the  proposal  if  this  is  in  fact  the  case.  

a. CommencementYou  are  proposing  that  because  an  employee  may  have  the  tax  information  in  mytax/ATO  Online  and  therefore  be  able  to  send  a  new  employer  their  tax  details  at  the  push  of  a  button  that  in  some  way  this  drastically  reduces  the  employer’s  obligations.  The  employer  must  still  have  a  system  that  

-­‐ knows  they  have  a  new  employee  to  set  up  -­‐ advises  the  employee  how  to  and  where  to  send  their  TFN  data  (this  is  a  

replacement  to  providing  them  with  a  TFN  Dec  form  today)  -­‐ the  software  then  needs  to  know  to  expect  the  data  to  be  received  and  presumably  

report  or  flag  it  has  been  received  or  hasn’t  been  received  (same)  -­‐ the  system  (or  software)  then  needs  to  determine  whether  that  information  

received  is  valid  (same  process  as  today)  -­‐ the  system  then  needs  to  establish  the  payroll  parameters  in  the  software  to  pay  

and  tax  the  person  appropriately  (same)  -­‐ must  still  comply  with  record  keeping  obligations  

So  where  is  the  difference?  Where  is  the  reduction  in  burden?    If  the  software  has  an  automated  system  to  track  that  it  is  expecting  a  transmission  of  “TFN  dec”  data  and  then  reports  those  still  outstanding  etc  then  maybe  we  have  improved  on  one  current  inefficiency  in  the  obligations.    Arguably  this  tracking  system  is  already  in  place  but  we  agree  an  electronic  interaction  would  be  an  improvement.  

At  the  commencement  of  employment  the  employee  still  needs  to  be  set  up  in  the  system  with  specifications  to  meet  a  number  of  calculation  purposes:    what  wage,  what  allowances,  what  leave  entitlements,  what  additional  super  if  any  etc  etc.      An  employer  must  still  establish  the  employee,  the  proposed  transmission  of  TFN  Dec  data  is  only  one  very  small  aspect  of  the  commencement  data.  

Electrifying/automating  the  Standard  Choice  form  is  a  good  idea.    It  is  not  unique  to  the  proposed  STP  nor  does  STP  alter  any  obligation  an  employer  has  to  ensure  they  receive  this  data  and  apply  the  choice  made.  

It  has  become  clear  in  our  current  conference  series  that  although  part  of  the  STP  proposal  is  removal  of  the  concept  of  the  TFN  Dec  and  SuperChoice  form,  it  is  our  communities  view  that  they  will  not  be  removed,  simply  replaced  by  alternative  instructions  on  how  to  use  myGov  and  provision  of  the  employers  ABN.    The  follow  up  requirement  does  not  change.    It  is  also  the  view  of  the  bookkeeping  community  that  while  the  myGov  commencement  development  is  positive  that  employers  will  still  be  preparing  TFN  Dec  and  SuperChoice  form  for  the  majority  of  employees  for  a  significant  period  of  time.  

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b. Annual  reporting  cycleThe  paper  seems  to  be  proposing  that  because  an  employer  has  provided  every  pay  run  detail  throughout  the  year  that  they  will  not  provide  the  ATO  with  an  annual  payment  summary.    How  is  this  possible?  

Is  the  proposal  to  remove  the  total  declaration  of  RESC?    Is  the  proposal  to  remove  the  declaration  of  RFBTA?    If  the  concept  is  that  these  amounts  will  now  be  reported  every  payrun  then  the  compliance  burden  has  drastically  increased.  

Is  government  removing  the  obligations  to  declare  information  to  an  employee?    How  are  the  FairWork  laws  around  payslip  requirements  going  to  be  changed  and  also  how  do  you  propose  to  change  the  typical  employee  expectations  to  receive  this  information?    

A  payslip  obligation  includes  declaration  of  YTD  amounts.    Is  the  proposal  to  remove  this  obligation?  

The  concepts  presented  in  the  paper  do  not  appear  to  give  any  recognition  to  the  amount  of  work  that  employers  will  still  need  to  undertake  on  a  regular  basis  to  ensure  that  their  payroll  is  being  calculated,  taxed  and  advised  correctly.    Business  endeavours  to  comply  with  each  and  every  payment  to  an  employee.    However  they  spend  time  and/or  money  in  verifying  for  themselves  or  in  engaging  professionals  to  review  their  payroll  and  ensure  every  circumstance  in  every  payrun  (noting  that  it  seems  in  the  main  that  payruns  vary  from  cycle  to  cycle,  there  is  very  little  adoption  of  a  truly  standard  pay).    Businesses  then  engage  a  review  process  at  BAS  preparation  time  and  again  at  end  of  year  payment  summary  time.  

The  payrun  process  under  STP  must  allow  for  adjustments.  The  ATO  response  to  information  reported  via  STP  cannot  be  a  “bigstick”  compliance  action.    If  extra  reporting  is  to  be  instigated  it  must  also  be  required  with  provision  of  certainty  as  to  the    

The  STP  proposal  appears  to  say  this  review  would  not  be  required.    The  experience  of  our  members  is  that  you  will  then  be  receiving  a  significant  amount  of  errors  in  pay  and  reporting  that  would  now  go  undetected  and  unreported  until  someone  else  picked  it  up.    Probably  an  employee;  maybe  you  are  proposing  that  the  analytics  (people  or  machine)  of  the  ATO  will  pick  up  anomalies  and  raise  queries  with  the  employee.    This  now  means  we  are  back  to  a  system  whereby  questions  are  raised,  research  and  adjustment  will  be  required.    Where  is  the  reduction  in  obligations  on  the  employer?    If  the  ATO  picks  up  the  anomaly  we  are  assuming  that  under  STP  there  will  be  NO  consequence  for  the  employer.    If  there  is  consequence  then  the  business  will  continue  to  spend  time  and  money  verifying  the  payroll  before  any  transmission  to  the  ATO.  

Due  to  the  reported  lack  of  belief  that  the  ATO  will  act  with  consideration  towards  the  business  we  see  that  this  proposal  will  increase  the  amount  of  review  and  verification  work  as  there  will  be  a  drastic  increase  in  the  amount  and  frequency  of  reporting  to  the  ATO.  

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Why  does  the  paper  state….  “In addition, the time lag between the payroll event and payment of obligations can also create significant cash flow managementproblems for business, especially small businesses that may inadvertently overlook the need to set aside cash each pay-cycle to meet sizeable quarterly liabilities ’

More  Frequent  Payments  

We  understand  that  some  businesses  do  not  manage  their  cash  well  and  some  businesses  do  incur  a  tax  or  SGC  debt  that  increases  in  amount  therefore  requiring  remedial  action.  

This  statements  shows  a  fundamental  lack  of  understanding  of  how  a  business  operates  (refer  attached  cashflow  diagrams  and  spreadsheets  to  better  explain  the  cashflow  management  of  most  businesses.    Business  operates  on  the  basis  of  their  operational  cash  availability,  being  allocated  to  meet  their  multiple  obligations.    These  obligations  include  the  employees  pay,  the  supplier  payments,  GST  as  well  as  the  SGC  and  PAYGW  amounts.    Business  considers  all  operational  costs.  

We  see  that  for  a  small  number  of  businesses  the  more  frequent  payment  to  ATO  or  the  superfunds  will  assist  them  to  comply.        For  many  compliant  businesses  that  do  manage  their  cash  and  meet  payment  cycles  for  PAYG  W  and  SGC  we  see  that  STP  imposes  a  huge  economic  impost  on  their  existing  business.  

If  the  business  is  paying  the  SGC  earlier  and  the  PAYGW  earlier  then  they  do  not  have  the  cash  for  a  significant  part  of  their  trading  cycle  and  hence  will  NOT  be  able  to  continue  as  much  economic  activity.    If  they  have  paid  the  PAYGW  and  SGC  then  they  are  not  able  to  pay  their  suppliers  and  hence  their  ability  to  conduct  business  will  be  hindered.  

This  economic  impact  should  not  be  understated.  

We  see  that  the  paper  is  proposing  that  the  timeline  does  not  vary  much  and  also  arguing  maybe  a  transition  period  to  allow  business  to  adjust.    The  fact  remains  that  money  will  be  taken  out  of  the  business  economy  earlier  in  a  trading  cycle  than  is  currently  the  case  and  that  this  will  have  an  impact.    Be  that  now  or  in  the  full  implementation  post  transition,  cash  will  have  been  removed  from  the  business  cycle  and  provided  to  the  government  or  into  superannuation  earlier.  

Finally  the  actual  reason  is  stated  “Currently, the ATO does not receive reporting information to identify that employers have paid the correct amount of employeesuper by the due date. Instances where businesses have decided not to do the right thing, and not pay employee super payments, may often go undetected for some time where the employee does not complain. These businesses create an unfair commercial advantage for themselves at the expense of other businesses that do the right thing. This is especially unfair on employees where recovery of unpaid super amounts is delayed or, in extreme cases, no amounts are recovered due to the insolvency of the business. “

This  statement  is,  what  many  will  perceive  as,  the  reason  the  ATO  likes  STP.    We  note  that  we  believe  many  compliant  businesses  will  support  an  aspect  of  this  concept.    A  mechanism  where  SGC  payments  are  tracked  closer  to  when  the  obligation  is  incurred  and  the  non-­‐payers  are  followed  up  actively  will  be  supported.    (Please  note  comments  as  to  an  alternative  method  of  achieving  this  without  the  compliance  burden  increase  proposed  by  STP.)  

STP  is  not  the  sole  silver  bullet  that  will  solve  this  issue.    In  terms  of  SGC  the  more  regular  reporting  and  greater  visibility  should  be  of  benefit.  

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Greater  visibility  of  compliance  will  be  good.  Rapid  follow-­‐up  of  non-­‐payment  would  be  required.    What  are  the  details  behind  the  compliance  actions  (follow  up  activity)  by  ATO  or  others  in  terms  of  now  seeing  the  late  or  lack  of  SG  payment?  

What  trade-­‐off  is  to  be  provided  to  all  those  compliant  employers  who  do  and  have  been  meeting  their  obligations?    They  will  now  have  further  reporting  obligations  to  endure  so  that  the  system  will  endeavour  to  enforce  compliance  on  the  others.      

The  STP  program  alone  is  not  sufficient;  there  must  also  be  a  program  of  compliance  activity  as  well  as  promotion  of  that  planned  activity.    That  compliance  activity  needs  to  be  directly  related  to  the  extra  data  and  information  you  are  now  receiving.    Without  associated  activity  the  increase  in  obligations  is,  in  our  opinion,  NOT  justified.  

Heading  “Single  Touch  Reporting  capability”  In  what  way  will  STP  eliminate  paper  based  payroll  reporting?    What  is  it  that  is  currently  being  prepared  or  reported  on  paper  that  is  being  removed?  Payslips  are  still  required  and  in  some  cases  must  be  provided  on  paper.  

What  double  handling  of  data  is  being  referred  to?  Presumably  the  concept  is  that  because  people  are  paid  throughout  a  quarter  and  then  the  tax  is  paid  at  quarter  end  and  then  payment  summaries  are  at  year  end  is  “double  handling”.    This  does  not  recognise  how  most  payroll  systems  currently  work.  

The  process  which  may  be  labelled  “double  handling”  is  in  most  businesses  a  verification  and  reconciliation  process  that  will  still  need  to  happen  at  some  point.    If  it  is  not  happening  at  the  quarterly  or  annual  cycle  then  the  assumption  would  be  that  this  verification,  reconciliation  and  checking  is  happening  every  payrun  which  is  an  obvious  increase  in  compliance  cost.  

It  appears  that  there  is  an  underlying  assumption  that  because  the  law  says  you  have  to  get  your  pay  correct  at  every  payrun  and  you  have  to  tax  correctly  on  every  payrun  and  that  the  SGC  must  be  constantly  calculated  and  obligations  met  correctly  all  the  time,  that  the  inefficiencies  in  payroll  are  due  to  a  lag  in  reporting  and  paying  time.    This  is  not  correct.    Payroll  is  complex.    Businesses  perform  periodic  reviews  of  payroll  to  align  with  the  current  reporting  and  paying  cycles.    These  reviews  are  regularly  correcting  the  day  to  day  payroll  records  before  any  errors  are  reported.    All  business  must  constantly  manage  the  allocation  of  time  and  resources.    Time,  Resource  and  Cash  is  managed  to  meet  the  required  demands  of  business.    It  is  not  a  simple  concept  to  significantly  change  the  priority  of  the  cash  allocation  to  PAYGW  &  SGC  nor  to  change  the  management  of  time  and  resources  to  supply  the  additional  reporting  proposed  under  STP.  

We  remain  concerned  that  either  STP  increases  the  review  requirement  or  will  result  in  a  significant  increase  in  unreported  errors  as  no  periodic  review  will  be  performed.  

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Statements/understanding  of  the  Payroll  world  as  presented  in  the  paper  and  comments  on  the  impact  of  STP  In  the  below  we  have  taken  extracts  from  the  discussion  paper  and  provided  comment  as  to  the  impact  of  STP  to  that  extract:  

Pay as you go withholding and superannuation administration

PAYG withholding requirements

Businesses are currently required to satisfy various PAYG withholding obligations. These can include:

collecting, completing and submitting TFN declaration forms to the ATO ���reporting employee earnings and taxes to government via business activity statements (BAS) providing payment summaries to employees ���providing an annual payment summary report to government covering each employee maintaining PAYG withholding registrations.

! There  will  still  be  a  process  for  obtaining  TFN  Dec  information  and  verifying  employment  through  STP  

! Business  will  be  reporting  PAYG  W  and  wage  information  more  often  than  the  Monthly  or  Quarterly  BAS.    Therefore  unless  you  are  removing  the  other  reporting  obligations  on  the  BAS  and  employer  now  continues  with  once  a  month  or  once  a  quarter  reporting  to  also  having  every  payrun  reporting.      The  removal  of  PAYGW  and  Wage  reporting  from  the  BAS  is  insignificant  when  replaced  with  payrun  reporting.  

! Annual  payment  summary  may  not  go  to  government  but  we  think  the  system  is  a  long  way  from  employers  or  employees  or  unions  or  FairWork  from  removing  the  same  reporting  obligation  to  employees.  

! THEREFORE  STP  may  change  the  way  these  are  done  but  there  is  no  reduction  in  obligation  

The frequency of reporting and paying the PAYG withheld depends on the amount the business expects to withhold from its employees.

Businesses pay their employees by various methods, including:

cash or cheque, ���individual electronic payments, through online banking, ���payments generated in a batch file from payroll software and distributed via financial institutions for electronic payment to employees.

! Unless  government  has  some  way  to  mandate  that  all  banks  will  accept  payroll  information  in  a  certain  way  and  that  all  software  will  provide  that  gateway  there  will  be  no  change  in  this  facet  of  payroll  

Superannuation requirements

Employers are currently required to pay super guarantee (SG) contributions on behalf of their eligible employees or be subject to the superannuation guarantee charge (SGC). These contributions are in addition to the employees’ salaries and wages. SG contributions must be made to complying super funds on a quarterly basis at a minimum (28th day after the end of the quarter).

Employer SG obligations also involve a range of administrative actions for new employees, including:

determining employee eligibility for SG, and if they can choose their own super fund ���providing a 'choice of fund 'form to eligible employees ���establishing a super account with the business’s default fund for those employees who do not provide their employer with details of a choice fund providing an employee’s TFN to the super fund if the employee notifies their employer of the number for super purposes ���retaining records to show that choice was offered to eligible employees.

Employers are now transitioning towards the use of the SuperStream data and payment standard to make their super contributions. Under SuperStream, employers will make super contributions electronically. The contribution data will be sent electronically in a standard message format to the super fund, and the contribution payment is sent electronically through the banking system to the super fund.

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Currently, the ATO does not receive reporting information to identify that employers have paid the correct amount of employee super by the due date. Instances where businesses have decided not to do the right thing, and not pay employee super payments, may often go undetected for some time where the employee does not complain. These businesses create an unfair commercial advantage for themselves at the expense of other businesses that do the right thing. This is especially unfair on employees where recovery of unpaid super amounts is delayed or, in extreme cases, no amounts are recovered due to the insolvency of the business.

! As  mentioned  above  we  see  the  increased  reporting  of  SG  payments,  or  lack  thereof  as  potentially  a  positive  outcome  of  STP  however  it  is  at  a  cost  to  currently  compliant  employers  

! THEREFORE  STP  does  increase  the  compliance  burden  

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Statements  and  propositions  about  the  impact  of  STP  In  the  below  we  have  taken  extracts  from  the  discussion  paper  and  provided  comment  as  to  the  impact  of  STP  to  that  extract:  

Single  Touch  Payroll  

Single Touch Payroll will simplify the way employers fulfil their reporting obligations. With the use of compatible software, employers or their payroll providers would process their payroll and automatically fulfil the functions and obligations detailed below ‘at the touch of a single button’.

! The  “button”  transmits  information  to  the  ATO  that  still  needs  to  be  created  in  the  payroll  systems.    All  the  preparation  work  to  calculate  and  verify  the  pay  still  needs  to  be  performed  

! STP  proposes  to  add  button  to  submit  reports  under  a  reporting  obligation  that  currently  doesn’t  exist.  

! How  does  this  simplify  anything?  ! However  the  concept  of  a  having  a  “payroll  finalized”  button  is  consistent  with  the  next  

advancement  of  software.    A  button  that  o Finalises  the  calculation  of  the  Payrollo Finalises  the  calculation  and  recognition  of  the  SGC  amountso Finalises  the  calculation  and  recognition  of  PAYGW  amounto Obtains  the  “authorised  persons”  sign  off  to  complete  and  process  the  payrollo Makes  payment  to  all  employeeso Sends  payslips  to  all  employeeso Schedules  the  payment  of  the  PAYGW  amount  for  the  (future)  date  required

" The  reporting  and  the  payment  can  be  scheduled  for  different  times  o Schedules  the  payment  of  the  SG  amounts  and  sending  of  the  data  through  the

selected  clearing  and  messaging  house  for  the  (future)  date  required  " The  reporting  and  the  payment  can  be  scheduled  for  different  times  

! We  note  even  an  STP  system  can  be  implemented  with  the  payments  scheduled  for  the  current  payment  cycle  which  can  easily  be  a  separate  time  to  the  reporting  for  either  SGC  or  PAYGW.  

Employers will need to upgrade their existing payroll software or acquire compatible software to fulfil their obligations under Single Touch Payroll. For those employers who use cloud software, the updates will be done automatically by the provider.

! Therefore  compulsory  increase  in  costs  and  compulsory  ongoing  software  cost.  

Single Touch Payroll will be able to achieve more significant red tape reductions if it is extended to include payment functionality, so that employers can remit PAYG withholding and the SG using their software at the same time that employees are paid. This would smooth cash flows for businesses and would enable ATO to identify earlier those employers that are having problems and need support.

! If  STP  includes  instant  payment  then  the  business  has  had  to  consider  NOW  rather  than  later  how  it  is  going  to  manage  its  cash.    This  is  not  a  reduction  of  red  tape  

! The  assumption  appears  to  be  that  because  they  pay  their  staff  now  and  the  SGC  and  PAYGW  later  that  this  is  “red  tape”.    Businesses  can  in  fact  pay  their  PAYGW  early  and  can  in  fact  pay  their  SGC  all  the  time  already,  this  option  is  not  new.    STP  does  not  offer  any  benefit  to  the  employer  that  does  not  already  exist.  

Single Touch Payroll reporting capability

The reporting function in Single Touch Payroll will eliminate paper-based payroll reporting by requiring businesses to report

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digitally instead. This will reduce the double handling of data.

! We  are  wondering  what  reporting  to  the  ATO  is  currently  paper  based?      ! The  ATO  did  declare  in  2014  that  all  payment  summaries  had  to  be  provided  to  the  

ATO  in  electronic  form.    While  we  understand  this  was  not  enforced  in  2014  (due  to  the  inability  of  the  ATO  systems),  we  understand  that  you  anticipate  lodgment  platforms  being  made  more  readily  available  and  enhance  this  digital  lodgment  anyway.    This  journey  is  not  new.  

! PAYGW  and  Pay  reporting  on  activity  statements  is  already  on  the  journey  to  be  totally  digital.  

! SG  reporting  through  SuperStream  is  already  on  a  journey  to  being  totally  digital.  ! Computer  literate  employers  welcome  the  opening  of  gateways  to  further  facilitate  

efficient  mechanisms  to  lodge  and  interact  with  the  ATO  etc  via  digital  gateways.    We  note  this  is  not  new.  

! We  are  wondering  what  double  handling  of  data  you  are  referring  to  and  challenge  this  proposition  as  described  elsewhere.  

! We  would  propose  that  the  description  and  promotion  of  the  STP  program  should  incorporate  the  above  recent  developments.  

By itself, the reporting functionality would not affect the payment cycle or the timing of employee withholding tax and super obligations. It would not address the issues associated with accruing large PAYG withholding and super obligations that some employers have difficulty meeting.

! To  understand  the  strength  of  this  argument  it  would  be  of  value  to  understand  the  extent  of  this  problem.    We  acknowledge  that  some  employers  do  not  meet  their  obligations  and  that  some  manage  these  obligations  outside  of  the  stipulated  cycles,  however  to  impose  increased  obligations  on  all  employers  for  the  behaviour  of  a  few  is  not  a  valid  deregulatory  response.    

It would require employers to report, through their payroll software, employee income, tax and SG obligations to the ATO via SBR (at the time of the payroll event). This would eliminate the requirement for employers to report employees’ PAYG withholding through activity statements and payment summaries.

! So  this  adds  a  reporting  requirement  as  all  other  steps  are  being  performed  now.  ! For  the  sake  of  completeness  we  note  (at  worst)  that  STP  replaces:  

1:      a  12  monthly  activity  statement  reports  of  two  numbers  (total  PAYGW  &  total  Pay),    the  activity  statements  will  still  be  required  for  other  reasons  2:    the  end  of  year  payment  summaries  (one  per  employee)  and  copy  to  ATO,  as  noted  elsewhere  we  cannot  see  anywhere  that  you  have  removed  the  payment  summary  reporting  obligations  3:    SGC  reporting  quarterly  and  in  some  cases  monthly  due  to  awards.  

Under  STP  this  scenario  will  now  be  required  to  submit:  A:    26  pay  details  for  each  employee  (assuming  fortnightly)  to  the  ATO  B:    26  SGC  details  for  each  employee  to  SuperStream  

It  does  not  effect  i. payslips  to  the  employees  (including  annual  reporting)ii. you  mention  “eliminate…payment  summaries”    we  fail  to  see  how

employees  will  not  expect  some  report  at  the  end  of  each  year  to  verifytheir  final  position.    It  may  be  a  digital  report!  Alternatively  YTD  figuresare  provided  on  every  payslip  accordingly.

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The ATO would also be notified of the super contribution amounts that the employer will pay to the super fund. As a result of the ATO’s improved visibility of employee super entitlements and payment amounts, the ATO will be in a better position to ensure that businesses are meeting their employee super obligations.

! Yes  it  is  a  reporting  obligation  to  ATO  that  doesn’t  exist  at  the  moment  however  we  believe  this  should  feed  off  the  SuperStream  system  that  is  already  in  place.  

This will level the playing field for honest businesses that are impacted when other competing businesses deliberately avoid their employee super obligations to gain an unfair advantage. Employees will also welcome the increased certainty surrounding their super funds.

! We  note  the  argument  and  in  general  support  the  proposition  ! We  recommend  the  ATO  look  to  leverage  off  the  existing  SuperStream  obligations  

already  imposed  on  the  employer.  

Consultation  Questions  1. Would Single Touch Payroll reporting reduce or increase red tape costs for business in the long run?

Much  of  the  journey  described  in  the  discussion  paper  is  either  in  place  or  underway  without  the  extra  imposition  of  the  reporting  to  the  ATO.  

STP  will  definitely  increase  the  red  tape  costs  both  in  the  short  term  and  long  term.    Business  will  be  reporting  data  more  often  to  the  ATO  therefore  business  will  spend  more  time  ensuring  that  data  is  correct  on  more  occasions.  

Depending  on  what  the  ATO  do  with  the  data  received  the  burden  of  responding  to  queries  raised  will  further  create  a  red  tape  burden.  

We  are  concerned  that  there  will  be  a  shortfall  in  the  availability  of  suitably  qualified  and  experienced  Accountants  and  Bookkeepers  as  the  ATO  will  be  required  to  hire  many  professionals  to  assist  in  the  interpretation  of  the  data  received.  

We  support  the  concept  of  automating  payroll  process  and  digital  interaction,  however  we  do  not  accept  that  all  business  should  be  subject  to  such  an  enforced  reporting  regime  to  catch  those  who  do  not  comply.  

There  must  be  certainty  provided  to  the  business  who  complies:  i. as  to  the  style  of  queries  that  will  be  raised,ii. the  ease  of  being  able  to  respond  to  any  queries,iii. that  there  will  be  no  automatic  adjustments  by  the  ATOiv. avoidance  of  a  system  that  will  require  more  formal  objection  routinesv. easy  and  accepted  adjustments  to  prior  reports  without  needing  to  explain  to  the

ATO

2. What is the estimated size of this red tape cost reduction/increase?

Business  will  go  from  reporting  payroll  to  government  on  as  little  as  5  occasions  (4  BASs  and  SGC  reports  (typically  completed  in  the  same  business  process  and  then  the  End  of  Year  Payment  Summaries).    Under  STP  they  will  now  prepare  a  detailed  report  for  each  employee  each  payrun  to  be  submitted  to  government.    Business  will  be  nervous  and  will  spend  more  time  verifying  and  reconciling.    For  a  3  employee  firm  paid  fornightly  this  would  now  be  3*26  

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=  78  detailed  reports  to  be  checked.    Arguably  much  of  this  work  is  already  being  done  to  prepare  the  payment  to  the  employee,  however  the  difference  being  that  correction  work  is  currently  done  before  finalisation  and  reporting  to  government.  

Increase  in  red  tape  of  a  factor  of  78/5  =  15x  

We  note  that  all  the  preparation  work  remains.  

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Statements  and  propositions  about  the  real-­‐time  reporting  and  payment  capability  In  the  below  we  have  taken  extracts  from  the  discussion  paper  and  provided  comment  as  to  the  impact  of  STP  to  that  extract:  

Single Touch Payroll real-time reporting and payment capability

Despite the Single Touch Payroll reporting function offering significant benefits, it is unable to solve the potential problem of businesses accruing large quarterly PAYG withholding, and superannuation bills being due for payment at around the same time.

! We  do  not  accept  without  further  discussion  that  “STP  reporting  function  offering  significant  benefits”  

! We  do  accept  the  benefit  of  the  increased  visibility  to  SGC  (however  note  our  comments  below  into  a  less  intrusive  reporting  regime  as  an  option)  

! “accruing  large  quarterly  …bills”:    We  note  that  a  “quarterly”  PAYGW  has  a  total  of  less  than  $25000  tax  per  year.    The  ATO  already  has  visibility  of  whether  this  debt  is  accruing  and  being  paid,  through  activity  statements.    We  would  propose  that  a  more  efficient  analysis  and  action  plan  based  on  information  already  available  to  the  ATO  would  alleviate  this  issue.  

o Activity  statement  lodgements  monitored  and  followed  up  more  closelyo Payments  of  Activity  statement  debt  monitored  and  followed  up  more  closelyo Unusual  variations  in  pay  and  PAYGW  reporting  from  quarter  to  quarter  to  be

analysed  and  queried.! In  general  we  support  the  closer  monitoring  and  follow  up  of  PAYGW  debts  but  do  not  

believe  increasing  the  reporting  burden  for  all  employers  is  warranted  nor  the  best  option.  

! Maybe  the  reporting  obligations  outlined  should  be  applied  to  previously  non  compliant  employers  only.  

! In  respect  to  the  SGC  amounts  we  endorse  greater  visibility  o We  propose  that  this  reporting  should  be  leveraged  off  the  SuperStream  system

now  in  place  and  should  not  necessitate  an  additional  reporting  burden.  o An  enhanced  SuperStream  clearing  house  reporting  mechanism  so  that  the

employers  compliance  or  otherwise  is  informed  to  the  ATO  each  quarter.  o We  do  note  that  a  “large  quarterly…bill”  for  SGC  based  on  the  above  part  of  the

discussion  paper  would  be  considering  SGC  of  9.5%  of  maybe  $100,000  gross  wage  or  $9,500  SGC  payments  over  a  year.  

o The  ATO  should  leverage  off  the  existing  system  and  not  impose  greater  burdenon  the  already  compliant  sector  

! We  note  for  monthly  remitters  of  PAYGW  the  greater  visibility  and  monitoring  capacity  already  exists.  Monthly  activity  statements  should  be  monitored  as  we  have  proposed  for  the  quarterly  payers  above.  Obviously  these  employers  have  a  greater  ability  to  be  regularly  followed  up  when  necessary.  

By reporting and paying the PAYG withholding and SG for employees at the payroll cycle, businesses would be able to smooth out the cash flow spikes that previously existed. The increased transparency and frequency with which tax and super obligations are met would improve the risk credentials of business, and could be reflected in lower lending rates to business.

However, the increased frequency of payments will result in cash flow impacts, particularly on transition. Businesses typically would fall into one of the following categories when it comes to cash flow impact:

For businesses that already set aside their PAYG withholding and super obligations each pay cycle, the impacts should be relatively minor – however, this ‘cash reserve’ will be reduced because, for most businesses, payment will be required more frequently. ���For businesses that actively use the current delay between the payroll cycle and their tax and super obligation event to manage the cash flow of their business, this new process may create cash flow issues.

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There is a small percentage of businesses in a net GST refund position, or entitled to fuel tax credits, that are also likely to see an impact on cash flow. Previously, these GST or fuel tax credits were used to offset the payment due for PAYG withholding – however, under Single Touch Payroll, businesses would be required to find the cash to pay the PAYG withholding to the ATO at the time of payroll and then receive a refund when they lodge their activity statement.

! We  note  that  “smooth  out  of  the  cashflow  cycle”  is  only  achieved  by  bringing  forward  payments  to  the  government  or  to  the  superfunds.  

! Your  smooth  diagrams  do  not  take  into  account  that  a  business  is  actually  paying  other  obligations  in  each  of  the  other  periods.    It  is  NOT  a  fact  that  each  quarter  the  cashflow  is  lumpy,  the  paper  has  ignored  that  the  “cash  out”  for  a  business  is  probably  at  a  constant  level.  It  is  just  that  in  1  month  out  of  every  quarter  that  the  ATO  and  Super  are  the  recipients.        

We  refer  to  the  attached  “modified”  copies  of  ATO  prepared  graphs  previously  used  to  indicate  the  cashflow  “smoothing”  of  STP.    While  we  note  the  actual  science  behind  the  original  graphs  might  need  some  refinement  for  better  accuracy,  we  have  continued  with  the  model  to  indicate  the  real  cashflow  of  a  business.  We  have  ignored  cyclical  businesses  for  the  purpose  of  discussion.    (Based  on  many  assumptions)  

Item  1  is  the  original  Current  Scenario  

We  have  added  a  blue  column  for  the  GST  Cash  and  the  Super&  PAYGW  cash  replaced  with  the  purpled  columns  

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Item  2  –  added  in  the  supplier  payments  

Item  3  -­‐    adds  the  STP  payments  each  month  

We  note  that  each  of  the  Red  indicates  now  “unfunded”  previous  payments  to  the  suppliers.  

We  also  note  that  the  week  5  PAYG/SGC  payment  remains  as  it  relates  to  the  prior  year.  

Item  4  –  delaying  supplier  payments  When  we  then  allocate  those  “unfunded”  suppliers  into  the  new  business  cashflow,  based  on  total  outgoing  as  it  was  previously,  we  delay  the  “unfunded”  suppliers  until  the  timing  that  the  PAYG/SGC  was  previously  paid.  This  has  been  presented  as  the  unfunded  supplier  would  have  to  wait  until  the  cash  was  available.    In  reality  for  business  they  will  now  constantly  juggle  suppliers  to  be  late:  The  simple  (delay  payment)  method  results  in:  -­‐  some  suppliers  delayed  from  week  1  to  15    and  wont  be  paid  until  week  18  -­‐  some  suppliers  from  weeks  16  to  19  until  week  31  

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-­‐  some  suppliers  from  weeks  20  to  26  until  week  36    -­‐  some  suppliers  from  weeks  27  to  44  until  week  45  -­‐  some  suppliers  from  weeks  46  to  52  until  week  6  of  the  following  year  

The  juggling  method  (closer  to  the  real  world)  would  mean  

-­‐ 1  unit  of  suppliers  in  payments  from  week  2  would  be  delayed  until  payments  in  week  6  

-­‐ 2  units  of  payments  from  week  6  now  paid  in  week  8  -­‐ 3  units  of  week  8  payments  now  paid  in  week  10  -­‐ 4  units  of  week  10  now  paid  in  week  12  -­‐ 5  units  of  week  12  now  paid  in  14  -­‐ 6  from  week  14  now  paid  in  16  -­‐ 8  from  week  16  now  paid  in  18  

The  intention  of  this  is  to  indicate  the  amount  of  extra  administration  and  “red-­‐tape”  that  a  business  must  now  manage  if  the  fundamental  framework  of  payments  is  altered  on  the  basis  of  paying  government  and  superfunds  earlier.    

! Under  STP  the  money  is  taken  out  of  the  business  economy  to  pay  super  and  tax  earlier  ! This  is  a  direct  shift  of  operational  business  cashflow  away  from  the  business  ! We  note  that  it  is  “only”  a  timing  shift  however  the  impact  must  be  considered.  ! Businesses  manage  their  SGC  obligations  and  the  PAYGW  obligations  in  the  cashflow  

business  cycle  that  exists.    They  plan  to  pay  their  debts  as  and  when  due.    Earlier  payment  of  ATO  or  Super  means  later  payments  to  suppliers.  

! We  propose  that  this  is  not  a  justified  adjustment  due  to  the  actions  of  the  non-­‐compliant.  

! We  propose  that  a  better  compliance  program  applicable  to  all  based  on  existing  frameworks  will  result  in  better  action  towards  the  non  compliant.  

! STP  increasing  the  obligations  and  cost  on  all  compliant  businesses  is  NOT  justified.  

Further to the above, changes to the frequency of payments may have consequences for other business practices, such as payment of invoices. A change of this nature for all employers is likely to increase market pressure within particular industries to reduce the number of days before invoices are paid.

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! This  economic  impact  should  not  be  understated.  

In addition to the more frequent cash outflows associated with regular payments, employers would face the initial transition impact of paying the PAYG withholding and super bill for the last reporting period at the same time as moving to paying their tax and super at the payroll event.

There will be no change to a taxpayer’s ability to enter into a payment arrangement with the ATO for those who struggle to meet their obligations.

! There  is  a  stigma  and  fear  of  having  past  payment  arrangements  on  record.  Perpetuated  by  the  ATO  who  make  reference  to  it  in  future  conversations.  

! This  concept  of  “payment  arrangements”  should  not  be  considered  as  a  readily  acceptable  solution  to  the  cashflow  issues  that  are  being  raised  

The increase in payment frequency for SG will have an impact on the volume of payments and contribution messages going through SuperStream gateways and clearing houses. There is often a small fee associated with each payment and any increase in volume is likely to increase the administrative cost associated with making super contributions. There may be opportunities for the marketplace to change these fee structures to minimise any rises in these fees.

! So  again  the  ATO  proposition  is  that  business  will  not  only  need  to  pay  more  transaction  costs  to  meet  the  STP  compliance  obligation  but  also  the  ATO  are  proposing  that  the  commercially  required  clearing  houses  will  have  to  wear  some  of  this  cost  so  that  the  ATO  can  receive  more  data  more  often.    We  do  not  believe  this  is  justified.  

Issues relating to cash flow will be considered during the design of transitional arrangements, and options will be considered to reduce the impact on employers.

Consultation questions

3. Would Single Touch Payroll real-time reporting and payment reduce or increase red tape costs for business in the long run?

! The  STP  system  is  a  fundamental  structure  change  to  increase  reporting  obligations  and  therefore  is  a  structural  increase  to  red  tape.  

! Although  much  of  the  preparation  of  payroll  will  not  change  the  requirement  to  provide  that  data  more  regularly  to  the  ATO  increases  the  burden.    Business  will  want  to  be  certain  that  what  they  submit  is  correct.    While  in  an  ideal  world  this  may  be  appropriate,  business  has  been  and  should  be  in  a  world  of  “cost  benefit  decision  making”  where  the  cost  of  perfect  compliance  is  weighed  against  spending  time  and  effort  in  running  their  business.  

! The  structural  change  to  payments  places  a  greater  supplier  juggling  administration  on  the  business  (as  demonstrated  in  the  above)  

4. What impact would the more frequent PAYG withholding and super payments have on your cash flow position, and how could thisbe mitigated?

! Cashflow  impact  described  above  ! STP  as  proposed  is  a  fundamental  structural  shift  of  cashflow  out  of  business  into  

Government  and  Superfunds.    It  will  remove  economic  activity  from  the  business  sector  

! For  current  Quarterly  payers  of  PAYGW;  an  extra  ¼  of  their  annual  PAYGW  will  be  paid  in  the  first  12  months  to  Government  and  an  extra  ¼  of  SGC  to  the  funds.      This  cash  will  have  to  come  from  somewhere  and  the  funding  will  be  suppliers.    The  flow  on  effects  must  be  considered.  

! For  current  Monthly  payers  of  PAYGW;  an  extra  ½  of  their  annual  PAYGW  and  ¼  of  

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their  annual  SGC  will  be  paid  in  the  first  12  months.  ! A  deferral  of  the  “extra”  amounts  is  only  a  deferral  and  while  it  will  allow  business  time  

the  fundamental  structural  shift  at  some  point  will  exist  ! The  deferral  also  does  NOT  solve  the  first  4  weeks  of  the  new  regime  for  SGC  nor  the  

first  8  weeks  (at  least)  in  relation  to  PAYGW  payments  required  under  the  STP  as  proposed  

Options  

! Deferral  for  12  months  then  payment  over  the  next  12  months  –  still  a  fundamental  extraction  from  business  however  time  to  plan  and  then  adjust  –  We  do  not  see  the  justification  to  place  this  burden  on  existing  compliant  taxpayers  

! Defer  GST  payment  as  well  –  government  revenue  issue,  still  only  a  deferment  ! Make  STP  a  reporting  regime  only  and  impose  the  payment  requirement  only  on  

previously  non-­‐compliant  businesses  ! Use  existing  information  to  identify  the  non-­‐payers  of  PAYGW  and  have  an  immediate  

compliance  program  ! Enhance  the  SuperStream  reporting  system  (that  already  receives  information  as  to  

the  amounts  of  SGC  and  will  be  able  to  determine  whether  employers  have  paid)  

5. Are there any additional reporting and/or payment functions that you would like to see included in the design of the Single TouchPayroll?

! The  ATO  must  consider  proactive  monitoring  of  the  compliance  of  employers  and  making  that  monitoring  and  both  exception  and  compliant  behaviour  reports  visible  

o When  debt  plans  are  commenced  and  then  in  place  they  are  not  easily  or  readilyvisible  to  the  business  or  Tax  Practitioners.      Provide  the  schedule  and  adherence  to  the  schedule  as  an  easily  obtained  “live”  report  through  Portals  and  SBR  

o Allow  scheduled  Credit  Card  payments  of  Debt  plans  –  currently  not  available! The  ATO  should  be  monitoring  and  following  up  registered  Businesses  and  employers  

immediately  there  is  non-­‐compliance  with  existing  obligations.    We  do  not  believe  increasing  the  reporting  obligations  on  all  business  NOR  imposing  a  penalty  payment  regime  on  all  business  is  justified  in  order  to  catch  the  non  compliant.  

6. What transitional arrangements would businesses require to adopt Single Touch Payroll reporting and/or payment capability(including mitigation of the initial transition impact on cash flow of moving to paying tax and super at the payroll event)?

! Despite  the  paper’s  comments  that  the  cost  of  software  has  reduced,  this  is  not  the  case.    If  government  is  insisting  that  employers  embrace  what  will  be  enhanced  software  then  a  valid  action  would  be  for  government  to  “fund”  that  cost  of  software.    A  monthly  credit  against  PAYGW  liability  of  $100  would  cover  the  cost  of  effective  commercial  accounting  software  that  should  include  payroll  software.  

!  Consider  a  once-­‐off  income  tax  credit  to  assist  with  the  cashflow  impact  of  bringing  forward  the  PAYGW/SGC  amounts.    Maybe  a  transition  program  allows  a  once-­‐off  income  tax  credit  of  50%  of  the  amount  carried  over  from  the  commencement  of  STP,  to  be  offset  against  the  next  ITR.    So  as  of  30  June  2016  my  quarterly  payer  has  $9000  of  SGC  and  PAYGW  for  that  year  due  to  be  paid  over  the  next  few  months.      

o Allow  that  business  to  commit  to  deferral  for  a  year  and  then  monthly  payments(July  17  to  June  18).    Allow  that  business  an  Income  Tax  Credit  of  50%  =  $4,500  on  the  June  ’17  ITR  (reduces  their  tax  payment  in  October  ’17  or  March  ’18)  

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o If  the  deferral  was  6  months,  then  monthly  payments  (January  ‘17  to  Dec  ‘17).Allow  Income  Tax  Credit  of  50%  on  June  ’17  ITR

o No  Deferral  and  credit  on  June  16  tax  return.

Commencing employment

When an employee starts a new job, they are required to complete numerous forms, including a Tax File Number (TFN) Declaration and, potentially, a Super Choice form so that the business can pay their wages, taxes and super correctly. Employers are required to record details of the employee's TFN and submit each declaration to the ATO. In addition, employers are required to record details of the employee’s super fund and set up payment processes for each fund. Due to the onerous nature of this paperwork, there is the risk of incomplete or incorrect information being supplied.

! STP  does  not  change  the  requirement  to  receive  information  and  establish  it  in  the  payroll  system.    Your  emotive  terms  “onerous  nature  of  this  paperwork”  does  not  help.  “risk  of  incomplete  or  incorrect  information”  is  NOT  removed.  

! It  is  incorrect  to  assume  that  because  something  is  computerised  that  it  makes  it  more  accurate  or  complete.  

Businesses not receiving information regarding their employees’ choice of super fund on time is a common problem. In such cases, employers generally set up super accounts with their default super fund, which may result in an employee having multiple super funds as they change jobs over a period of time.

Using Single Touch Payroll, employees would be offered the option to supply their details electronically through an online government portal directly to their employer’s payroll software. Alternatively, employees or employers could enter the employee’s details directly into the employer’s payroll software and have the ATO validate the details.

! Concepts  of  the  Employee  portal  enabling  better  commencement  processes  are  being  talked  about  by  the  software  companies  and  should  be  supported  

! A  concept  of  the  individual’s  “mygov”  allowing  a  “pushbutton”  transmission  of  information  about  that  employee  to  the  employer  for  completion  of  SuperFund  information  and  TFN  information  should  be  encouraged  and  developed.  

o Government  would  have  to  provide  an  easy  mygov  experience  that  allows  theemployees  to  enter  and  then  transmit  this  information.    Evidence  is  that  employees  will  not  do  this  until  required  and  then  will  provide  mygov  with  incorrect  information  

o The  mygov  system  would  need  to  validate  the  information  provided  an  dhencethis  would  provide  the  employer  with  verified  information  –  this  would  be  a  win  

! Alternatively  the  government  system  should  allow  the  employee  information  to  be  fed  into  it  from  existing  employee  records  with  “relevant”  employers  software.  Commercial  software  is  developing  the  idea  of  the  employee  portals  but  typically  already  has  this  information  within  it  therefore  to  allow  that  software  to  submit  the  information  to  the  government  “mygov”  profile  would  be  effective.  

! The  alternate  system  proposed  where  the  government  would  establish  the  ability  for  the  payroll  software  to  interact  with  SuperFund  validation  routines  and  also  Employee  TFN  validation  routines  which  would  validate  the  information  in  the  Payroll  software,  WITHOUT  submitting  that  to  the  government  “mygov”  profile  for  the  individual  etc.,  should  be  developed.        We  are  concerned  that  some  individuals  will  not  seek  to  have  such  information  on  the  centralised  government  system.    We  would  not  want  such  concerns  to  remove  the  efficiency  that  could  be  provided  to  employers.  

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The vast majority of employees with an existing super fund will find it easier to let employers know the details of their existing super fund.

For first-time employees, the choice of super fund can be an unfamiliar process and they may choose the easiest option for themselves or their employer by selecting the employer’s default fund. The choice of super fund is a crucial investment decision that has to be made by an employee, and it is important to allow sufficient time for the employee to seek professional financial advice. The payment of SG aligned to the payroll event has the potential to force employees into a default fund before they have had sufficient time to make an informed decision, unless exemptions or mitigations are taken into consideration.

8. Are there any other opportunities to streamline the employment commencement process?

! As  discussed  above  the  myGov  commencement  process  would  need  to  incorporate  process  to  correct  the  submitted  information.  

9. Under the Single Touch Payroll real-time reporting and payment capability, how should the payment of SG for new employees bemanaged to ensure they have sufficient time to make an informed investment decision?

! The  system  should  defer  payment  of  SG  to  the  employers  default  fund  for  30  days.    If  no  alternate  fund  details  are  provided  by  the  3rd  payrun  then  all  SG  goes  to  the  employers  default  

Cessation of employment

When employees cease working, the business may need to provide the employee with a separation certificate, if requested. This separation certificate is relied upon by other government agencies, such as the Department of Human Services (DHS), to administer welfare payments based on an eligibility assessment.

The introduction of Single Touch Payroll could allow businesses to easily notify super funds, the ATO and the DHS of employees that have ceased employment. This could be completed with limited business administration, through payroll software allowing for an ‘employee ceased’ indicator to be entered.

! We  are  concerned  that  the  “easily  notify”  concept  will  be  perceived  by  some  software  developers  to  allow  easily  submitted,  unverified,  possibly  unauthorised  transmission  of  data.    Every  part  of  the  business  process  that  the  software  facilitates  should  ensure  that  the  data  about  to  be  transmitted  is  made  available  in  a  readable  form  to  a  person  able  to  validate  and  authorise  that  data  for  lodgment.  

! The  concept  of  an  acceptable  “ceased  employment””  function  that  provides  such  notification  to  the  employee,  alters  the  employers  records  and  advises  relevant  government  departments  should  be  developed.  

Alternatively  

Super funds will be able to receive information on employees who are no longer employed. Super funds could also use the information to communicate with members about choosing the fund for future employment.

! There  would  need  to  be  strong  consideration  and  regulation  around  who  receives  such  information  and  what  follow  up  a  fund  (or  their  advisors)  is  allowed  to  do  with  that  information.    A  system  that  was  notified  of  “cessation  of  employment”  that  then  allowed/generated  actions  by  entities  towards  the  individual  may  lead  to  unintended  unwanted  consequences.  

Consultation questions

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10. Are there any other opportunities to streamline the notification to the super fund, the ATO and DHS that employees have ceasedemployment?

! We  would  propose  that  the  employee  must  consciously  consent  to  the  notification.  While  the  employer  could  indicate  in  the  system  and  it  could  prepare  the  notifications,  we  believe  the  employee  must  release  that  information  to  the  respective  bodies.  

Administration of penalties

As with other areas of tax and super, administration penalties may apply for failures to meet certain obligations under Single Touch Payroll.

The Commissioner of Taxation will provide support to employers making a genuine attempt to comply with their obligations under Single Touch Payroll. As a result, discretion in the administration of penalties under Single Touch Payroll will be necessary during the transition period and ongoing.

Consultation questions

11. Under what circumstances should the Commissioner of Taxation use his discretion in the administration of penalties?

! STP  is  premised  on  the  availability  of  constant  and  available  internet  connectivity.    This  is  NOT  available  to  all  employers.    The  government  must  NOT  impose  this  system  without  implementation  of  the  effective  internet  and  in  addition  MUST  NOT  impose  any  consequence  as  a  result  of  internet  related  issues.  

! STP  as  proposed  drastically  increases  the  amount  and  frequency  of  data  submitted  to  government.    The  ATO  and  others  MUST  NOT  take  any  action  in  relation  to  anomalies  or  omissions  without  first  an  acceptable,  co-­‐operative  and  efficient  approach  to  queries.      

! It  is  a  fact  that  significant  payroll  adjustment  occurs  following  payruns  at  the  preparation  of  Activity  Statements  and  also  end  of  year  payment  summary  preparation.    Accordingly  ATO  MUST  NOT  act  in  relation  to  penalties  or  any  other  consequence  without  a  system  of  enquiry  and  allowing  amendment  again  without  consequence.  

! If  STP  is  implemented  with  the  regular  payment  requirement  then  significant  considerations  and  allowances  must  be  made  during  the  first  years  of  the  new  system  to  allow  the  fundamental  structure  of  business  to  adapt.        

Software

In order for businesses to utilise Single Touch Payroll, compatible software will be necessary. The software would need to be compatible with Standard Business Reporting (SBR) standards and build on SuperStream solutions used by employers.

Businesses or their payroll providers may be required to either purchase or upgrade existing software, potentially at an additional cost. However, it is expected that initial costs for businesses will be recouped in the longer term because the software will save them time in paperwork required for payroll transactions and other business processing.

! Much  of  the  proposed  “save  time”  features  are  either  already  in  some  software  or  being  proposed.      

! For  the  non-­‐computerised  employers  there  will  be  significant  system  change  and  business  process  change.    

! The  business  process  efficiency  that  the  ATO  is  seeking  to  be  a  part  of  should  be  encouraged  

! We  note  that  for  many  of  the  efficiencies  to  be  brought  into  existence  the  ATO  systems  are  the  first  to  require  development.  

! We  also  note  that  STP  as  proposed:    

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o Appears  to  be  designing  a  system  for  the  collation  of  an  employee’s  informationin  a  form  for  ease  of  delivery  to  an  employer

o Appears  to  be  designing  a  system  for  transmission  of  that  information  to  theemployers  software  combined  with  a  system  for  the  information  to  be  verified(TFN  and  Super)

o Appears  to  be  designing  a  system  for  the  transmission  of  detailed  payroll  detailseach  and  every  payrun  to  the  ATO  in  relation  to  PAYGW  and  employee  payamounts,  as  well  as  an  enhancement  to  the  SuperStream  transmissions

o We  observe  that  improvements  in  these  business  processes  will  by  and  large  bepositive  for  business,  eventually  (subject  to  other  concerns  raised  herein)

! We  note  that  STP  does  NOT  appear  to  effect  any  change  to  the  bulk  of  the  payroll  process  (together  with  known  problems  that  may  be  effected  but  not  solved)  

o Employee  providing  the  informationo Follow-­‐up  of  invalid  or  missing  information  (although  this  may  be  assisted)o Correct  establishment  of  payroll  software  for  the  employeeo Including  correct  determination  of  which  award  and  then  application  of  all

requirementso Correct  processing  of  each  payrun  (application  of  correct  classifications,  taxes,

allowances,  RESC,  RFBTA)o Validation  of  the  payrun  and  authorisation  of  reporting  and  paymentso Review  and  correction  of  incorrect  payrun  detailso Verification  and  reporting  of  YTD  amounts  (We  do  not  see  that  the  requirement

or  the  desire  for  an  employee  to  receive  constant  YTD  amounts  nor  a  year  endsummary  will  be  removed)

! Accordingly  we  see  that  a  STP  system  can  be  part  of  the  ongoing  journey  of  removing  the  inefficiencies  in  information  exchange  and  therefore  an  improvement  to  business  process.    (We  also  see  the  compliance  advantages  and  cashflow  advantages  for  Government  and  the  funds)  

In the past, it was recognised that all businesses may not be able to buy, continually upgrade and operate the latest computer systems. Based on the experience with Real Time Information in the United Kingdom, it is expected that some basic, entry-level software packages will be available free of charge; this will help businesses that do not currently use software transition into an electronic business model without software costs.

! Low  cost  or  free  payroll  software  will  NOT  solve  any  part  of  non-­‐compliant  businesses  staying  non-­‐compliant.    The  ATO  and  Super  obligations  on  Payroll  in  Australia  is  very  complex  and  yes  burdensome.    STP  is  not  solving  any  part  of  that  burden.      We  recommend  extreme  caution  in  promotion  of  “cheap”  software  to  comply  with  STP.  

Consultation questions

12. If you are not currently using software to process payroll, what are the costs and barriers you face when acquiring software?

! Cost  of  software:    while  the  actual  cost  of  the  program  itself  is  of  concern,  cost  of  the  internet  service  must  now  be  considered,  cost  of  training  on  how  to  use  the  software  and  meet  the  compliance  burdens  properly,  cost  of  establishing  the  security  protocols,  cost  of  computer  security  system  (virus  protection  etc),    

! Many  businesses  are  still  hesitant  to  place  any  personal,  business  information  in  an  environment  that  is  on  the  internet  or  out  of  their  control.    We  expect  significant  

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restraint  from  a  sector  of  the  market  to  this  “compulsory”  use  of  the  internet.  

13. Do you expect the costs of acquisition/subscription will be outweighed by the cost-saving from automated payroll reporting?

! Your  question  was  “….from  automated  payroll  reporting”;      then  the  improved  processes  to  exchange  and  verify  information  with  the  government  through  computerised  system  will  provide  business  efficiencies  and  we  would  support  that  this  is  good  for  business.

14. If you are currently using software, what are the costs and challenges you foresee in upgrading to compatible software?

! Further  increase  cost  to  subscriptions! Learning  a  new  compliance  system! Possible  hardware  implications! Internet  service  review  and  enhancement

Transition options

Any employer will be able to transition to Single Touch Payroll from July 2016. The Commissioner of Taxation will be able to delay the start date by when an employer must transition to Single Touch Payroll to allow for situations where employers find it difficult to meet the required timetable.

Consultation questions

15. Is the above transition approach achievable for business? Are there any other support/transition options that should beconsidered?

! It  depends  on  what  part  of  STP  you  are  intending  to  impose.  o Increased  reporting  under  STP  –  yes  this  implementation  would  appear  oko Increased  payment  regime  –  NO

! Further  transition  options  should  be  canvassed

16. Under what exceptional circumstances would employers face a significant barrier to implement Single Touch Payroll that theyshould be exempt?

! STP  payment  system  should  only  be  imposed  on  those  that  have  shown  an  inability  to  comply.    There  is  no  justification  for  imposing  this  early  payment  regime  on  currently  and  proven  compliant  business  –  do  not  fix  something  that  isn’t  broken

! STP  reporting  regime  if  implemented  properly  without  the  ATO  adversely  reacting  to  data  that  may  or  may  not  be  correct  should  ultimately  lead  to  enhanced  business  efficiency  and  also  enhanced  compliance.

! Some  businesses  will  simply  NOT  be  able  to  provide  STP  reporting  and  payments  as  and  when  required  due  to  failure  of  the  internet  –  they  must  either  be  exempted  or  significant  concessions.

! What  is  the  ATO  fall  back  if  the  internet  does  fail?

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ALTERNATIVE  to  STP  as  proposed  We  note  that  much  of  the  information  that  the  ATO  is  seeking  to  have  reported  is  already  available  to  you:  

i. Employers  must  have  an  ABN  and  be  registered  to  be  an  employer  (We  will  not  inthis  paper  consider  the  issues  of  non-­‐registration  of  employers  nor  whether  theemployee/contractor  debate  is  valid  or  needs  to  happen).

ii. Immediately  following  registration  the  employer  should  be  monitored  forcompliance:

a. Immediate  induction  packb. Immediate  expectation  of  lodgment  of  activity  statement  by  reminding  the

employer  before  it  is  duec. First  activity  statement  either  received  or  followed  up  within  3  business

daysd. First  due  payment  either  received  or  followed  up  within  3  business  days

iii. Activity  Statements  already  have  the  PAY  W1  to  W4  fields,  specifically  includingGross  wages  and  Tax  withheld.    An  effective  enhanced  compliance  regime  aroundthe  activity  statements  would  achieve  much  of  the  “visibility”  and  “early  detection”that  the  ATO  is  seeking.

a. Ongoing  monitoring  of  Activity  statements  and  payments  can  be  automated.iv. SuperStream  already  has  all  the  data  required  to  monitor  SGC  compliance.    The

ATO  should  establish  the  link  from  the  clearing  houses  to  the  ATO  monitoringsystem  to  then  instantly  follow-­‐up  non-­‐lodgment  or  non-­‐payment

v. End  of  Year  Payment  Summary  information  is  still  required  despite  the  STPproposal  that  continual  reporting  will  replace  the  need  to  formally  provide  thisinformation  to  the  ATO.    Employees  will  expect  it,  FairWork  requires  it.Accordingly  there  is  no  reduction  to  requirements  in  this  regard.

Non  compliance  with  debt  repayment  programs  is  not  a  justification  for  STP.  Debt  repayment  plans  are  hindered  by  a  number  of  existing  factors  that  can  be  resolved  by  the  ATO  without  implementing  extra  red  tape  on  compliance  employers.  

-­‐ lack  of  visibility  of  a  debt  plan  once  it  is  instigated  (make  the  schedule  and  adherence  to  the  schedule  available  for  review  on  the  business  and  agent  portals)  

-­‐ allow  a  system  of  scheduling  payments  by  internet  banking  etc  via  credit  card  -­‐ lack  of  follow  up  or  effective  follow  up  

o Business  does  not  react  well  to  ATO  debt  chased  by  debt  collector  agencieso As  soon  as  a  debt  payment  is  not  made  it  should  be  chasedo As  soon  as  a  debt  is  outstanding  it  should  be  chasedo Too  many  stories  (not  necessarily  factual)  that  taxpayers  with  big  debts  are

not  chased  for  significant  periods  of  time,  accumulate  significant  debt  andare  then  forgiven  –  so  why  should  I  stress  or  comply.

o Consider  SMS  reminders  for  each  scheduled  debt  repayment

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Alternative  to  SGC  debt  management  The  ATO  should  consider  the  inclusion  of  SGC  reporting  on  the  Activity  Statements.  Each  PAYGW  reporting  period  the  employer  should  also  have  to  complete  a  reconciliation  statement  in  relation  to  SGC  liability:  

Balance  of  outstanding  SGC  as  at  start  of  Quarter    $W  Amount  of  SGC  paid  during  the  quarter   ($X)  

-­‐-­‐-­‐-­‐-­‐  SGC  from  previous  quarter  now  late    $  Y  =  W-­‐X  Amount  of  SGC  accrued  this  quarter    $  Z  

-­‐-­‐-­‐-­‐-­‐  Balance  of  SGC  to  be  paid  by  28th  next  month   $Y  +  Z  

This  increased  visibility  to  the  employer  will  achieve  subjective  advantage.  This  increased  ability  to  monitor  SGC  debt  levels  by  the  ATO,  and  aloow  the  ATO  to  react  immediately  with  reminders  and  follow-­‐up.  Can  be  reconciled  to  SuperStream  data.  

Alternative  positioning  Maybe  the  branding  of  “Single  Touch  Payroll”  should  be  allowed  to  encompass  existing  developments  as  well  as  a  program  of  future  developments.    There  is  already  significant  work  towards  the  implementation  of  a  “Single  Touch  Payroll”.  

Please  consider  concessions  to  employers  

1. SGC  obligations  are  more  onerous  than  required(Consistent  with  Board  of  Taxation  review  into  Tax  Impediments  for  Small  Business)  Either  with  the  STP  proposal  or  instigated  anyway,  we  would  recommend  that  the  rules  and  administration  concerning  SGC  require  review.  

-­‐  Employers  should  receive  the  tax  deductibility  for  SG  based  on  the  accrual  of  the  liability  and  not  based  on  payment.    It  is  inconsistent  with  the  accrual  based  reporting  tax  system.  

-­‐  SuperStream  places  much  of  the  SGC  compliance  out  of  the  employer’s  control.    Once  instructions  are  provided  to  the  software  or  clearing  house,  the  messaging  and  the  payment  into  the  funds  is  no  longer  subject  to  any  action  of  the  employer.    Therefore  the  late  actions  by  any  one  of:  the  software  company,  the  clearing  house,  the  messaging  service,  the  payment  gateway  or  the  funds  themselves  could  cause  the  employees  specific  amount  to  not  be  received  and  acknowledged  by  the  fund  by  the  28th  as  required.    Accordingly  employers  should  receive  certainty  from  the  system:    if  they  have  hit  the  “submit”  button  to  the  SuperStream  system  by  the  28th,  then  they  should  be  considered  to  have  complied  with  their  obligations  therefore  receive  tax  deductibility  and  NOT  be  subject  to  the  SG  Charge  provisions.  

-­‐  Employers  should  not  lose  their  tax  deduction  for  late  payments  or  amendments  or  incorrect  amounts  throughout  the  financial  year.    Payroll  and  the  application  of  SGC  is  complex,  often  requiring  amendment  when  reviewed  by  an  appropriate  person.    The  dire  consequences  of  loss  of  tax  deductibility  and  SG  Charge  mean  many  of  the  required  amendments  are  covered  up  rather  than  admitted  or  corrected.  

-­‐Certainty  /  Safe  Harbours  Should  be  provided  

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Page 35 of 39 The Institute of Certified Bookkeepers Making you count

Payroll  Process  for  an  employer    (not  comprehensive  for  the  purpose  of  this  discussion)  1. Registration  (ABN,  TFN,  PAYGW)2. Registration  (Superfunds,  SuperStream,  Super  clearing  house)3. Acquisition  of  Payroll  knowledge  (internal  or  consultant)4. Establishment  of  Software  (Acquisition,  training,  Set  up)  alternative  non-­‐software

system  set  up5. Engage  employees

a. Interview  and  offer  processb. Employment  contractc. Employee  details  to  be  acquired  (“Commencement”)

i. Award  details  to  be  determined  and  appliedii. TFN  Dec  informationiii. Super  Information

d. Establish  employees  in  the  Payroll  system6. Receive  payrun  processing  instructions7. Process  payrun

a. Calculate  gross  amounts  to  be  paidb. Apply  taxes  etcc. Verification  and  Authorisation  to  make  paymentsd. Payslips  to  be  provided  to  the  Employeee. Payment  instructions  for  the  employees  net  pay  (preferably  through  payment

gateway  in  the  software)  &  make  payment8. Monthly  or  Quarterly  Activity  Statement:

a. Review  process  (varies  on  extent  but  tends  to  be  in  conjunction  with  SGCverification)

b. Declare  accumulated  Gross  Payc. Declare  accumulated  PAYGWd. Verification  and  Authorisation  to  lodge  complete  Activity  Statemente. Lodge  Activity  Statementf. Payment  as  part  of  Activity  Statement  debt

9. Quarterly  SGC  obligationsa. Review  process  (tends  to  be  scrutinised  to  ensure  obligations  are  known)b. Utilise  Software  SuperStream  capabilities  to

i. Send  required  messagingii. Send  payment  to  Clearing  house  with  instructions

10. Pre  end  of  yeara. May  or  June  SGC  review  to  enable  employer  to  make  tax  deductible

contributions11. End  of  Year

a. Total  reconciliation  and  payroll  reviewb. Preparation  of  Payment  Summaries  for  employees

i. RESC  amounts  to  be  determinedii. RFBTA  amounts  to  be  determined

c. Lodgment  of  Payment  Summaries  with  the  ATOd. Tends  to  be  the  time  to  facilitate  any  corrections  to  SG  as  the  payroll  has  been

more  intensely  reviewede. Tends  to  be  the  time  to  reconcile  PAYGW  amounts  to  final  years  payroll  figures

enabling  final  Activity  Statement  adjustment

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12. Cessation  of  employmenta. Termination  pay  (often  subject  to  later  correction  due  to  incorrect  application

of  tax.b. Notice  of  Separation

Page 37 of 39 The Institute of Certified Bookkeepers Making you count

APPENDIX  

COMMENCEMENT  via  myGov  

System  allows  for  submission  of  the  employee  data  to  the  employer.  System  must  then  allow  the  employer  to  amend  the  information.  Seems  appropriate  that  the  information  would  then  be  sent  back  to  the  employee  to  agree  to  the  corrections  Then  when  both  parties  agree  it  would  be  submitted  to  the  ATO,  DHS  etc  and  also  accepted  into  the  employers  payroll  system.  

Employers  obligations  Although  the  mygov  or  STP  proposal  suggests  the  TFN  dec  and  SuperChoioce  forms  would  be  replaced  by  STP,  the  employer  still  has  obligations  to  provide  FairWorks  National  Employment  Standards  information  sheet  aswell  as  information  about  terms  of  employment  (awards  etc).  

Also  the  TFN  dec  is  now  simply  replaced  with  instructions  and  information  on  how  an  employer  should  use  myGov  

We  also  note  that  the  majority  of  bookkeepers  we  have  presented  the  commencement  process  to  believe  that  employees  will  not  comply  and  that  they  will  need  to  sit  beside  employees  to  facilitate  the  mygov  completion.  

There  is  also  a  substantial  view  that  it  will  simply  not  happen  and  the  entry  of  the  information  will  still  be  performed  by  the  employer.    Accordingly  a  system  must  remain  for  the  employer  provision  of  TFN  dec  and  Superchoice  information.  

Other  considerations  

When  an  employee  goes  to  electronically  lodge  their  TFN  Declaration,  would  be  good  if  the  system  initially  checked  whether  there  was  a  Visa  involved,  and  whether  the  employee  was  even  allowed  to  work.  

The  system  should  also  check  whether  the  employee  is  an  Australian  Resident  for  tax  purposes,  if  not,  system  should  notify  employer  that  this  employee  cannot  claim  the  tax  free  threshold.  

Also  the  system  should  be  able  to  identify  if  the  employee  has  a  HELP  of  SFSS  debt  and  advise  employer.  

If  these  things  happened  automatically  behind  the  scenes  and  the  employer  was  notified  of  the  correct  TFN  Dec  details,  we  would  already  be  getting  a  better  payroll  system,  as  currently  the  TFN  Dec  is  as  only  as  good  as  the  employee  correctly  fills  it  out.  

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APPENDIX  

Amendments  

I  have  entered  quite  a  few  30/6  adjusting  journals  recently  for  Tax  Agents  to  bring  clients’  data  files  into  line  with  the  Financial  Statements  produced.  

Have  two  extreme  cases,  which  STP  needs  to  consider:  1. Director  posted  set  monthly  wage  (less  PAYG  W  tax)  to  Director’s  Loan  account  to  offsetadhoc  withdrawals.  Wages  reported  on  BAS,  Super  paid.    Accountant  decides  it  is  better  to  pay  Dividends,  reverses  all  wages,  Super  declared  as  RESC.  

2. Director  draws  down  Director’s  loan  account  as  required  throughout  the  year,  no  payrollreported  on  BAS.    Accountant  decides  to  pay  wages  at  EOY,  revises  June  BAS.  

Often  it  is  not  as  extreme,  wages  all  in  or  all  out,  but  most  times  there  is  a  change  to  amount  of  wages  previously  declared.  

These  changes  have  only  been  made  in  the  last  couple  of  months  for  last  financial  year  books.  

Page 39 of 39 The Institute of Certified Bookkeepers Making you count

[Type text]

The Institute of Public Accountants

Single Touch Payroll discussion paper

DATE: 06 March 2015

Submission on Single Touch Payroll

06 March 2015

Martin Mane Service Delivery (Customer Service & Solutions)

By email: singletouchpayroll@ato.gov.au

Submission on Reforms to the Taxation of Employee Share Schemes exposure draft legislation

The IPA is a professional organisation for accountants who are recognised for their

practical, hands-on skills and a broad understanding of the total business

environment. Representing more than 26,000 members nationally and in over 51

countries, the IPA represents members and students working in industry, commerce,

government, academia and private practice. Over two-thirds of our members work in,

or with small business and SMEs and are recognised as the trusted advisers to these

sectors.

The IPA welcomes the opportunity to make a submission to the Single Touch Payroll

discussion paper. Australian businesses are being moved to a digital-by-default

approach, as part of a digital transformation process that the Government has

initiated to drive more services across the digital platform. Single Touch Payroll is

seen as an example of how the ATO is gradually going to move businesses to a

digital approach.

Our comments are somewhat limited, given the short time frame in which to provide

a response. However, despite the short time frame we received significant responses

from our small practitioner member base who primarily service small business. This

indicated that the proposal is a sensitive issue for our members. Our submission

encompasses the feedback received on the single touch payroll proposal.

The IPA is broadly supportive of changes which reduce compliance costs and

burdens particularly on small businesses. This initiative has the potential to reduce

3 Submission on Single Touch Payroll

the compliance burdens associated with payroll and super reporting for some

employers but not all employers, particularly those in the small business sector.

Regulatory burdens tend to affect small businesses disproportionately and this

initiative will have a negative impact on compliance costs for the SME sector.

We acknowledge that the benefits of reducing the time lag between the payroll event

and reporting can lead to administrative improvement in processes. Reducing this lag

will result in the employer not having to handle and supply identical information on

multiple occasions, thereby reducing administrative processes. The use of Standard

Business Reporting (SBR) enabled software as the digital channel to report payroll

information to various government agencies can lead to further enhancements in

super reporting and payment obligations. We also acknowledge that this initiative will

lead to improvements in the identification of employers who do not pay employee

super payments which can go undetected for some time. A lot of administrative effort

is wasted chasing unpaid super that is delayed or in extreme cases never paid due to

the insolvency of the business, which is unfair on employees. Improved visibility of

employee super entitlements and payments will enable the ATO to better manage

businesses to ensure they meet their employee super obligations.

This initiative can also streamline TFN declarations and Super Choice forms by

providing digital services to simplify the process of bringing on new employees. Often

employees provide the employer with incorrect information, so there are efficiencies

to be gained if information provided can be verified.

The automatic reporting of payroll information will eliminate the need for employees

to report PAYG withholding amounts in their activity statements throughout the year

and employee payment summaries at year end.

Whilst this initiative has the potential to reduce the compliance burdens associated

with payroll and super reporting for some employers, it will do the opposite for mainly

smaller employers.

4 Submission on Single Touch Payroll

Whilst we are broadly supportive of the proposed changes on businesses with the

means to comply, we are concerned about the significant impacts the changes will

impose on other employers, particularly small businesses that employ less than 10

employees which this submission will refer to as micro businesses. In the short term

it has the capacity to increase red tape and business costs. There are already

enough compliance burdens related to employing staff, which we will not elaborate

on. According to the ABS data, around 61% of actively trading small businesses are

non-employing, while around 28 per cent have between one and four employees and

10 per cent between 5 and 19 employees. Without addressing the transitional

impacts of forcing these micro businesses into a digital by default environment, we

could be adding to the significant impediments that this sector are already facing. Our

members have discussed this initiative with their small business clients and the

overwhelming majority have expressed mostly negative feedback with some

suggesting that they would sack their staff and return to becoming sole proprietors of

their business.

As a significant contributor to employment, the impacts of imposing more red tape on

this sector should not be ignored as there is likely to be adverse consequences

unless proper compensatory measures are undertaken to mitigate some of the

impacts. The small business sector will not take kindly to the digital by default

approach which is being sold to them as a red tape reduction.

In response to the discussion paper we provide the following comments below:

Increase compliance costs to micro business

Many small businesses with less than 10 employees are not using computer

software to perform payroll functions. This initiative will increase the cost of

doing business and imposes more administrative burdens on micro

businesses in the short term for the following reasons:

o Firstly there is the cost of the initial outlay to purchase both hardware

and software. Many small businesses rely on simple manual cash

books to run their business and use a wage book or excel spreadsheet

5 Submission on Single Touch Payroll

for payroll purposes. This has proven to be a more cost effective

alternative as the outlay to maintain these records is considered

negligible. In the case of payroll software, some businesses find that

the cost to purchase such software in order to pay a small number of

employees is unwarranted when they can manage this process quite

easily manually. The cost of purchasing, maintaining and employing

someone to input data into a software package is considered

prohibitive. Also some business owners are not computer literate.

Some rely on intermediaries such as bookkeepers to attend to this duty

to consolidate the data into software packages after the event. It would

not be common for these intermediaries to attend to this duty for each

and every pay date, instead performing this task perhaps once a

month. The use of bookkeepers to perform this function each and every

pay cycle will add to business costs. Some feedback we received

suggested that some employers will revert to the cash economy and

pay their employees cash in hand.

o Additionally there is the constant upgrading of software and training in

the use of the software.

o The cost of procuring a reliable 24/7 internet service, assuming this

service is available. Many locations do not have a reliable internet

service which makes the use of cloud software not an option. Outside

the major urban areas internet and mobile coverage is limited,

unreliable and problematic.

Increased time commitment

The one thing many small businesses complain about most is the lack of

spare time to undertake administrative duties. We are constantly reminded

that many micro small business owners already sacrifice personal and family

time to meet reporting requirements.

Increased frequency of reporting

Increase frequency of reporting compared to current system. Businesses will

be required to report after each payroll cycle which will increase the frequency

6 Submission on Single Touch Payroll

of reporting exponentially. For example a business which reports PAYG

withholding quarterly, will go from four reporting cycles to 52 contacts of

information. If the business already reports monthly, it will go from 12 BAS and

one lot of payroll summaries to 52 returns if it pays its employees weekly. If

the business relies on intermediaries to perform these administrative tasks,

then this would drive up business costs. Will banks and superfunds charge

additional amounts due to increase in frequency of payments?

Availability of cloud based systems

The discussion paper makes onerous assumptions about the availability and

affordability of cloud base payroll application software. Many business owners

particularly in regional areas do not have access to a reliable internet service

provider to access cloud based applications. Some business owners are

against the use of cloud based software applications for a multitude of reasons

and will only use a desktop application.

Impact on cash flow

If the remitting of PAYG withholding and SG for employees needs to happen

at the same time employees are paid their salary and wages, then this will

have adverse cash flow consequences. Most small businesses use the current

delay between the payroll cycle and their tax and super obligations to manage

the cash flow of their business. If the PAYG withholding and SGC must be

made at the same time that payroll is processed it will bring the payment

forward to weekly, fortnightly or monthly, from in most cases quarterly. This

moves the pecking order of payments and may have consequences for other

creditors of the business and/or the viability of the business. It is already well

documented that access to finance for small business is a signifcant issue.

Also what happens if there is only enough money to pay wages and salaries?

Will businesses pay staff their net pay but not actually process the payroll until

they have the funds to pay the tax and SGC. How do errors get corrected if

already reported electronically?

7 Submission on Single Touch Payroll

Some businesses receive a GST credit when they lodge their BAS which

effectively offsets some of their PAYG withholding liability. The proposed

changes will see the payment of PAYG amounts ahead of the receipt of the

GST credit, placing extra pressure on cash flow.

In addition to the more frequent cash outflows associated with each payroll

cycle, there will also be the initial transitional impact of paying the PAYG

withholding and super for the last reporting period at the same time as moving

their tax and super cycle.

Some businesses need flexibility in the amount they pay. For example a

medical practitioner operating through a company needs to adjust the salary

paid to ensure that most of the profit is paid out by year end, which could

entail retrospective adjustments. How can such businesses retrospectively

adjust pays after the end of the year?

There is already a growing level of unpaid tax debt owed to the ATO from the

small business sector. If remittances are aligned to the time when employees

are paid, what will this do to the level of debt already owed?

This initiative over time has great potential to significantly improve current

administrative processes around payroll. Imagine if employers were linked

seamlessly to TFN, choice of superannuation fund and bank account information

stored on an employees my tax account. Most of the immediate benefits

unfortunately will accrue to larger employers that have established systems and

dedicated staff to handle such changes.

Whilst we acknowledge that implementation of single touch payroll will be staggered

for different size businesses, a one-size-fits-all approach will create significant

problems for the small micro business sector that would need to be addressed to

curtail the regressive impact on compliance costs.

8 Submission on Single Touch Payroll

Tony Greco FIPA

Senior Tax Adviser

Institute of Public Accountants

COPYRIGHT © Institute of Public Accountants (ABN 81 004 130 643) 2008. All rights reserved. Save and except for third party content, all content in these materials is owned or licensed by the Institute of Public Accountants (ABN 81 004 130 643).

9 Submission on Single Touch Payroll

Contact

IPA Head Office

Level 6, 555 Lonsdale Street Melbourne Victoria 3000 Australia

Tel : 61 3 8665 3100 Fax: 61 3 8665 3130 Email : natoffice@publicaccountants.org.au Website: www.publicaccountants.org.au/

IPA Divisional Offices are located in the following cities:

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The IPA has secretariats in:

Kuala Lumpur Beijing

For enquiries within Australia call 1800 625 625 for your nearest Divisional Office. International enquiries can be directed in the first instance to IPA Head Office.

Submission on the Single Touch Payroll discussion paper

Master Electricians Australia

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Introduction Master Electricians Australia Ltd (MEA) is a not-for-profit industry association representing electrical contractors. Originating as the Electrical Contractors Association in 1937, MEA has been representing electrical contractors for more than 76 years, making it one of the longest-standing industry associations of its kind. MEA is recognised by industry, government and the community as the electrical industry’s leading business partner, knowledge source and advocate.

MEA currently has a membership base of over 2500 electrical contractors Australia-wide, the vast majority of which are small businesses with fewer than 20 employees.

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Response

Single Touch Payroll reporting capability

1. Would Single Touch Payroll reporting reduce or increase red tape costs for business

in the long run?

In the long run it is expected that Single Touch Payroll reporting would reduce red tape costs for businesses as it will electronically streamline and simplify a number of current processes.

2. What is the estimated size of this red tape cost reduction/increase?

This will depend on the size of the business. The red tape reduction would be greater for larger businesses. However, in the short term large business may incur the greatest cost to comply with the system.

Small businesses may incur cost by developing the skill and expertise to comply with the system.

Single Touch Payroll real-time reporting and payment capability

3. Would Single Touch Payroll real-time reporting and payment reduce or increase red

tape costs for business in the long run?

In the long run it is expected that Single Touch Payroll real-time reporting and payment would reduce red tape costs for businesses whose cash flow allows them to make payments at the payroll event.

However, for other businesses who may not be able to make payments at the payroll event, whilst it will help for the reporting to be done that point in time, if payments cannot be made this will place further pressure and stress on businesses.

4. What is the estimated size of this red tape cost reduction/increase?

Again this will depend on the size of the business, with larger businesses seeing a greater reduction in red tape.

5. What impact would the more frequent PAYG withholding and super payments have

on your cash flow position, and how could this be mitigated?

Many employers in the electrical contracting industry are subject variable payment terms on their invoices; however it’s also common for progress payments to be received later than the terms specified. If the employer is required to report and make payments at the payroll event (which is generally weekly in this industry) then they may face financial trouble if invoices have not been paid on time.

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There should be options for businesses to: 1) Report and make payments at the time of the payroll event; or2) Report at the time of the payroll event, and make payments monthly; or3) Report at the time of the payroll event, but continue to make payments quarterly

as is currently required.

By having these options for business, it will allow different businesses with different cash flow availability to determine which payment option is best for their individual business.

6. Are there any additional reporting and/or payment functions that you would like to

see included in the design of the Single Touch Payroll?

Employers are required to report and pay payroll tax, which is a separate process to PAYG tax and superannuation.

In Queensland for example, employers are required to lodge periodic returns – usually each month, along with an annual return. If Single Touch Payroll could include the provision to report and pay payroll tax electronically each month (or at the payroll event if the business elects to) this would streamline the payroll process even further.

The software would need to take into account the legislative requirements of each state/territory.

Employers also need to report on employees “Reportable Employer Superannuation Contributions.”

7. What transitional arrangements would businesses require to adopt Single Touch

Payroll reporting and/or payment capability (including mitigation of the initial transition

impact on cash flow of moving to paying tax and super at the payroll event)?

We have a situation where businesses may have just made a lump sum quarterly tax and super payment for employees, and then have to start making payments at the time of the payroll event, which as mentioned above is generally weekly in the electrical and other construction contracting industry.

Depending on the business’s cash flow, this is likely to put financial pressure on businesses who would usually build up the funds over the quarter to make those payments.

There should be a transition period of at least 12 months for the implementation of the payments, as this would be the time of the next tax/super payments if the employer continued quarterly payments, and would give businesses time to adjust and manage their cash flows so as to meet the demands of a more frequent payment method.

This period would also allow the business to test the impact of the software and reporting requirements.

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Commencing employment

8. Are there any other opportunities to streamline the employment commencement

process?

The online lodgement of tax file declaration by an employee or the ability of an employer to register through the MyGov website in order to receive an employee’s TFN.

This would reduce delay and streamline the payment of wages and appropriate PAYG.

9. Under the Single Touch Payroll real-time reporting and payment capability, how

should the payment of SG for new employees be managed to ensure they have

sufficient time to make an informed investment decision?

There will need to be a transition period for new employees, because if super payments need to be made at the time of the payroll event (generally weekly in the industry) it is unlikely that a new employee will have chosen and or provided their super fund details within the first few days of their employment.

MEA suggest that an employer not be required to make a super contribution payment for a new employee until the first quarterly payment would be due. However if they do receive the fund details from the employee, or advice that they wish to use the employer’s default fund prior to the quarterly date, the employer could start making payments earlier.

If the employee does not nominate a fund, or provide fund details to the employer prior to the first quarterly payment being due for that employee, the contribution should be made to the employer’s default fund. The employee would still have the option to provide fund details after that point, and at that time the employer would adjust the fund details in the payroll software.

In these circumstances the onus would be on the employee to consolidate multiple funds if this occurs. This will be an incentive for employees to nominate a fund, or provide fund details quickly.

Cessation of employment

10. Are there any other opportunities to streamline the notification to the super fund, the

ATO and DHS that employees have ceased employment?

If an employer is able to enter an “employee ceased” indicator, it would be ideal if the system could then automatically generate a payment summary for that employee.

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Administration of penalties

11. Under what circumstances should the Commissioner of Taxation use his discretion in

the administration of penalties?

If a business has been making genuine attempts to comply then they should not be penalised. In considering whether the business has made genuine attempts to comply the following should be taken into account: - Whether the business has sought advice from their payroll provider, tax agent or

ATO and followed that advice - Whether it is the first time they have used payroll software and therefore

unfamiliar with the application (e.g. if they’ve transitioned from manually calculating payroll on paper to software)

- Whether there have been any system errors for example the software application did not update correctly.

Software

12. If you are not currently using software to process payroll, what are the costs and

barriers you face when acquiring software?

There are many small electrical contractors who do not currently use software to process to payroll, instead manually processing their payroll. For these businesses, whose profit intake is already small, the additional cost of payroll software will be a burden.

In extreme circumstances there may still be employers who do not use computers and are not using the internet. As such for these businesses, in addition to purchasing payroll software they will also need to purchase a computer of some sort and connect to the internet, which will have an impact on their overhead costs for running their business. Further, they will need to source or develop computing skills to be able to meet the requirements of the scheme.

Software implementation and subscription costs should be monitored and it should be considered whether government incentives/grants can be made available for small businesses to alleviate some of the cost pressures.

MEA support entry-level software packages being available free of charge to help businesses, that do not currently use software, allowing them to transition into an electronic business model without the software costs.

13. Do you expect the costs of acquisition/subscription will be outweighed by the cost-

saving from automated payroll reporting?

In cases where employers are already using software to process payroll and have a number of employees, any additional costs to upgrade their software should be

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minimal and as such the benefits of streamlining the processing are likely to outweigh the costs.

For employers who have more than a few employees, even if they are not using software to process their payroll currently, whilst the initial implementation may be costly, over time the benefits of a simplified process should outweigh the costs; provided that the ongoing costs to maintain a software subscription are not exorbitant.

However, in circumstances where a business only has a few employees and is currently not using software to process payroll, then the cost of implementing the system and ongoing costs of the software subscription may outweigh the benefits. This would be the case if the business could process their payroll for their few employees cheaper on a manual basis than by using software.

14. If you are currently using software, what are the costs and challenges you foresee in

upgrading to compatible software?

It would be expected that the additional costs to upgrade to compatible software would be minimal for businesses that are already currently using software.

The discussions paper states that if employers are using a cloud based software program that any updates will occur automatically. Ideally this would be at no extra cost to the businesses already subscribed.

Transition options

15. Is the above transition approach achievable for business? Are there any other

support/transition options that should be considered?

Yes, the timeframes for transition do seem achievable for businesses, provided all software updates are available well in advance. However, feedback from users should be sought throughout the implementation process with the capacity to amend timeframes based on progress.

It would be beneficial for the software to have a trail run for businesses to use and do a mock pay run, before actually having to use a live system and submit live data.

16. Under what exceptional circumstances would employers face a significant barrier to

implement Single Touch Payroll that they should be exempt?

There may be circumstances where new businesses starting up just prior to the implementation date does not have the funds available, or the time, to implement Single Touch Payroll prior to their first payroll event. A transition period should be considered for new businesses.

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11 March 2015

Australian Tax Office GPO Box 9990 Canberra ACT 2601

Via email

Dear Sir / Madam,

Submission on ‘Single Touch Payroll’

The NSW Business Chamber welcomes the opportunity to provide a submission to the Single Touch Payroll (STP) discussion paper.

As you may be aware, the NSW Business Chamber is one of Australia’s largest business support groups, with a direct membership of more than 18,000 businesses, providing services to over 30,000 businesses each year.

Tracing its heritage back to the Sydney Chamber of Commerce established in 1825, and the Chamber of Manufactures of NSW established in 1885, the NSW Business Chamber works with thousands of businesses ranging in size from owner operators to large corporations, and spanning all industry sectors from product-based manufacturers to service provider enterprises.

The NSW Business Chamber is NSW’s leading business solutions provider and advocacy group with strengths in workplace management, workplace health and safety, industrial relations, human resources, international trade and business performance consulting. Operating throughout a network of offices in metropolitan and regional NSW, the Chamber represents the needs of business at a local, regional, State and Federal level, advocating on behalf of their members to create a better environment for industry.

STP has three components:

moving all businesses to reporting Pay as You Go (PAYG) and Superannuation

Guarantee (SG) obligations electronically through a Standard Business Reporting

(SBR) enabled channel;

changing the frequency of PAYG and SG reporting obligations so that they

coincide with payments made to employees or their superannuation funds; and

potentially increasing the frequency of PAYG and SG payment obligations to

match the more frequent reporting obligations.

Employee related reporting obligations are a significant cost for Australian businesses. On the face of it, the opportunity to lodge this information

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automatically as part of normal business operations has the potential to deliver major administrative savings for many businesses.

However, changing existing processes can involve significant costs, including purchasing or upgrading software and retraining employees. In some respects, larger businesses may be able to bear these costs more easily than small businesses, but they also face their own challenges because processes in larger organisations can be more difficult to change and because bespoke software solutions are more costly to upgrade.

Clearly electronic reporting will result in significant administrative savings for the ATO, but the benefits of STP to businesses are unclear. The discussion paper is vague about the specific changes to lodgement obligations that would flow from the implementation of STP. The discussion paper is also silent on whether STP will also deal with other employee related obligations such as payroll tax, workers compensation and family payments.

To the extent that there are administrative savings for business, it is not clear why these savings are more significant if information is reported in real-time. If no additional information is required beyond what would already be recorded in the ordinary course of business then the software can simply compute totals for the existing PAYG and SG payment schedule. If additional information is required, then reporting more frequently would actually be more burdensome.

Disturbingly, the most obvious reason for requiring real time reporting of information is that it would mean that the software would be available to allow real time payment. Increasing the frequency of payment obligations would make enforcement easier and create significant cash flow benefits for government, but this would come at the expense of major reductions in cash flow for businesses.

To assess the impact of STP on business operations, the Chamber conducted a survey with its membership between 23 and 28 February 2015 and 419 businesses responded. Timing did not permit survey testing nor extensive publicity of it, and the survey was only open for 8 days.

The results indicate that most businesses oppose the introduction of STP, particularly any change to payment frequency.

For the changes to reporting obligations, 65 per cent of businesses said that they would not change voluntarily and would require average compensation of around $10,000 equating to a total of $5 billion across all entities with PAYG withholding obligations.1

For the changes to payment frequency, 91 per cent of businesses said they would not change voluntarily and would require average compensation of around $11,000

1 Based on 65 per cent 823,655 entities with PAYG withholding obligations in 2012-13

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equating to $8 billion across all entities with PAYG withholding obligations.2 Around 4 per cent of businesses reported that more frequent payment of PAYG and SG obligations would force them to shut down.

Together these figures suggest a net negative for STP of $13 billion. This figure almost certainly significantly over estimates the costs of STP – in part because businesses have received very little information about what it involves. However, even at a 50 per cent discount this figure is still more than the entire red tape reduction commitment for the Government’s current term – this is a clear wake-up call.

At minimum, the overwhelming opposition to STP from business is an indictment of the process so far. Each component of STP would significantly affect business operations, but the only opportunity for public comment has been a three week consultation period on implementation. The official announcement of the policy actually occurred between Christmas and New Year’s Eve.3 The process for the development of STP does not seem consistent with the Government’s own Guide to Regulation, which states among its 10 principles that: “every substantive regulatory policy change must be the subject of a Regulation Impact Statement” and “the information upon which policy makers base their decisions must be published at the earliest opportunity”.4

The Chamber has five recommendations for dealing with the concerns raised by business.

1. The Government should make a public commitment that it will not require an

increase in the frequency of PAYG and SG payments

2. The costs and benefits of changes to PAYG and SG reporting obligations for

business should be explored more closely and transparently through better

consultation and communication with business and the accounting profession

3. Whether changes to PAYG and SG reporting obligations become mandatory

should be based on the experiences of businesses during an initial voluntary

period or pilot study

4. The benefits of STP to the government should be publicly disclosed.

5. If STP is made mandatory because of the benefits to government, businesses

should be compensated appropriately.

Additional results from the survey are provided in Attachment A.

2 Based on 91 per cent 823,655 entities with PAYG withholding obligations in 2012-13 3 See http://jaf.ministers.treasury.gov.au/media-release/001-2014/ 4 See http://cuttingredtape.gov.au/handbook/ten-principles-australian-government-policy-makers

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Yours Sincerely

Paul Orton Director, Policy & Advocacy NSW Business Chamber

Attachment A – Additional Results from NSW Business Chamber Single Touch Payroll Survey

Changes to reporting

Regarding the changes to reporting obligations, 69 per cent of businesses believed STP reporting changes would increase red tape and 35 per cent reported that the increase would be major. Only 12 per cent of businesses believed that STP reporting changes would reduce red tape and 19 per cent saw no difference.

Around 35 per cent of businesses said that they would adopt STP reporting changes voluntarily. Based on open responses, the reason that a number of businesses would adopt STP reporting changes voluntarily despite seeing no administrative savings may be due to the belief that it will result in greater tax compliance from competitors, more certainty about the financial circumstances of debtors, and increased protection of superannuation entitlements for employees.

The remaining 65 per cent estimated that on average they would need $10,000 compensation (based on 87 responses) suggesting a total net negative for these businesses of $5 billion.5 The typical compensation required drops to about $2,000 if the median is used rather than the average, but this still represents a total cost of $1 billion. We believe these figures probably overestimate the costs of change – partly due to limited information provided to businesses so far. The quantification question in the survey also failed to specify a specific time-period so weekly and quarterly amounts were converted into one off annual figures. All figure annual figures or figures without time periods were assumed to be one off. Regardless of these shortcomings, the results show that businesses currently believe that the cost of implementing STP would be equivalent to rolling back a significant proportion of the Government’s progress on red-tape reduction.

Qualitative responses suggest that the perceived costs include software purchases and upgrades, training on new systems and software, time taken to understand the changes, and additional bookkeeping and accounting costs. Perceived benefits included better cash flow management, reduced paperwork and better transparency, but many businesses could not see any benefits and believed that the benefits would largely accrue to the government.

Changes to payment frequency

Regarding changes to payment obligations, 4 per cent of businesses reported that the cash flow implications of the proposed changes to PAYG payment frequency would be so extreme that they would be forced to close their business. A further 35 per cent of businesses reported a major cash flow impact, 42 per cent reported a minor impact and only 19 per cent of businesses reported no significant impact. Around 31 per cent of businesses said they would need to seek additional finance to meet more frequent payment obligations.

5 Based on 65 per cent 823,655 entities with PAYG withholding obligations in 2012-13

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Many businesses already struggle with cash flow issues. Over 14 per cent of businesses surveyed reported that their cash flow was very constrained and they struggled to meet their obligations. A further 38 per cent reported they had limited cash reserves but were able to pay their obligations in the ordinary course of business. Relatedly, 15 per cent of businesses said that overdue invoices were a major problem and a further 47 per cent reported that they were a minor issue.

Only 9 per cent of businesses were willing to adopt more frequent payments voluntarily. The average compensation required by the remaining 91 per cent was $11,000 (based on 70 responses) suggesting a net negative of more than $8 billion.6 The typical compensation required drops to about $2,600 if the median is used rather than the average, but this still represents a total cost of about $2 billion. The question requesting quantification of the compensation required for moving to more frequent payments suffers the same shortcomings as the question requesting quantification of the compensation required to adopt the reporting changes. Nevertheless, businesses are more likely to be able to accurately estimate the cash flow implications because they are less uncertain than the administrative changes.

Demographic information

Respondents were predominantly small businesses:

2 per cent were sole proprietors

21 per cent had 1 to 4 employees

43 per cent had 5 to 19 employees

17 per cent had 20 to 49 employees

17 per cent had 50 or more employees

Respondents were evenly split between PAYG obligations above and below

$100,000:

18 per cent had obligations less than $25,000

32 per cent had obligations from $25,001 to $100,00

16 per cent had obligations above $200,000

3 per cent were unsure

Less than 2 per cent reported being bad with computers, though this likely reflects

the online nature of the survey and around 84 per cent already use payroll software.

A variety of approaches (sometimes more than one) were used by respondents to

report PAYG and SG obligations:

28 per cent use paper forms

66 per cent lodged online

24 per cent lodge via their tax agent

2 per cent lodged in other ways

6 Based on 91 per cent 823,655 entities with PAYG withholding obligations in 2012-13

PricewaterhouseCoopers, ABN 52 780 433 757Riverside Centre, 123 Eagle Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001T: +61 7 3257 5000, F: +61 7 3257 5999, www.pwc.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

Deputy Commissioner of Taxationsingletouchpayroll@ato.gov.au

6 March 2015

Dear Sir or Madam

Single Touch Payroll: PwC submission on the discussion paper published by the Australian Taxation Office(ATO) on 16 February 2015

PricewaterhouseCoopers (PwC) welcomes the opportunity to provide feedback and comments for consideration on the design and implementation of theSingle Touch Payroll (STP).

We welcome the Government’s proposal to reduce red tape surrounding business reporting. Careful design and consideration is required to ensure theproposed system does not create fractured and increased reporting requirements. Further detail is needed to understand the impact on businesses ofimplementing STP and how businesses will benefit from potential cost savings. Our comments and questions in this letter are aimed at understanding both theshort and long term intended scope of the STP solution as well as outlining questions to be considered in the design of the solution.

Our response is set out in the following categories, which broadly follow the hire-to-retire payroll reporting lifecycle and is intended to raise questions forconsideration based on the practical implications for business:

Commencement of Employment.

On-going reporting.

Year-end reporting.

Cessation of employment.

Treatment of expatriate employees.

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Commencement of employment

The commencement of employment of a new employee can be a time consuming process and it is a welcome improvement that the STP solution will simplify andstreamline the commencement process. We have detailed in the following table items and questions for consideration when designing the solution.

Item Description Questions for consideration

TFN declaration – uponcommencement

A TFN declaration is currently completed bythe employee and provided to the employer. Itis required to be lodged with the ATO within 14days after the form is signed by the payee orcompleted by the employer.

The TFN declaration provides information toenable the employer to process the regularpayroll for the employee.

We understand that the ATO are proposingthat new employees will complete and lodgetheir TFN declaration though MyGov.

Will an employer be able to pay an employee and transmit the pay data to the ATOwithout having a completed TFN declaration?

Will there be a "grace" period for the employee to provide the declaration where theemployer can withhold at the appropriate rates rather than the top marginal rate? Forexample, an employee who has to apply for a TFN may not get the TFN for up to 28 days.

What will the timeframe be for completion and lodgement of the TFN declaration inMyGov?

Will there be a standard data format for transmission of information from MyGov toenable an automatic upload to an employer’s payroll software?

How will changes to the information be provided by the employee to the employer? Forexample, withholding variations to update changes to HELP debts.

TFN declaration – relatedentities

The mobility of employees within the samegroup is common and occurs for example whenan employee works on specific projects, ormoves internally between business divisions.Currently a new TFN declaration is required tobe completed by the employee and employer inthese situations.

When an employee moves between related employers will they be required to complete anew TFN declaration for the related employer?

Superannuation choice offund

An employee may give the employer a writtennotice or standard choice form detailing theirchoice of fund, which becomes the employee’schosen fund no later than two months afterproviding the notice.

Alternatively, an employer may initiate thechoice of fund process by providing a standard

Will there be a facility to lodge a standard choice form upon commencement ofemployment and on occasions when the employee wishes to adjust their choice of fund?

How will the information included on the form be provided to the employer to updatetheir payroll system and satisfy their superannuation guarantee obligations?

What will be the timeframe for an employer to remit superannuation contributions to thedefault fund where no standard choice form has been received?

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Item Description Questions for consideration

choice form within 28 days of the employee’scommencement. Where an employee doesnot provide the form an employer is requiredto remit the contributions to their default fundto avoid the Superannuation GuaranteeCharge.

We understand that the ATO are proposingthat a new employee will complete and lodgetheir standard choice form though MyGov.

Will an employer’s default fund details be included on MyGov automatically for theemployee?

What will be the data fields completed by the employee in MyGov and will all data fieldsbe transmitted to the employer? For example, some superannuation funds haveadditional employee identification details which need to be provided to allocate thesuperannuation contributions.

Australian BusinessNumber or WithholdingPayer Number

We understand that the employee’s ability tocomplete and lodge the commencement ofemployment forms in MyGov will be linked toan employer’s Australian Business Number(ABN).

There are also a number of employers who maynot be entitled to an ABN but have aWithholding Payer Number (WPN).

How will employers who have a WPN be able to utilise the MyGov commencement ofemployment process?

How will employers who are currently setting up business in Australia and applying fortheir ABN be able to commence employing and paying employees while waiting for theirABN application to be processed?

PAYG withholdingvariations

It is currently possible for an employee toapply to the ATO for a PAYG withholdingvariation.

This process is currently either a manual formor an electronic form completed by theemployee.

Once assessed, the revised withholdingpercentage is advised separately to theemployee and the employer. The informationcontained in these notices contains the type ofearnings the variation applies to. For examplesalary and wages, bonuses and/orcommissions.

How will PAYG withholding variations be included in the STP solution?

How and what information will be transmitted to the employer?

What will the timeframe be for transmission of the information and will there be atimeframe within which the employer must update the payroll records?

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On-going reporting

The benefits of real time STP reporting will be dependent on the size of the business and the reporting required. For example, many small businesses report wages andwithholding monthly, whereas large businesses are not required to report withholding. The proposed STP reporting of wage and withholding amounts appear to onlyremove simple regular reporting requirements while other reporting requirements such as GST reporting will remain. We have detailed in the following table items andquestions for consideration when designing the STP solution.

Item Description Questions for consideration

Activity StatementReporting

The frequency and information that is reportedto the ATO through the activity statementprocess is broadly dependent on the size of thereporting employer and their registrations.For example, an employer may be registeredfor PAYG withholding, pay FBT and PAYGinstalments and report GST amounts on theiractivity statements.

How will items currently reported on activity statements under the heading of “PAYG taxwithheld” be reported? For example, amounts withheld where no ABN is quoted which iscurrently reported at item W4 on an activity statement.

How will other amounts on activity statements continue to be reported?

PAYG withholdingadjustments

Under the current PAYG withholding systeman employer does not allocate PAYGwithholding to a particular employee or reportthe gross wages until the end of the year.

This allows employers to easily adjust orcorrect genuine errors in amounts withheld orgross wages without specifically amending theemployee’s information reported orundertaking formal amendments.

An example of an adjustment is thewithholding treatment of cents per kilometrecar expense payments. The rate of withholdingis dependent on whether the kms travelled hasexceeded 5000km. Most employers often see adelay in receiving information to ensurecorrect treatment and adjust the withholdingin a subsequent period.

How will adjustments in PAYG withholding be reported to the ATO?

Where a class PAYG variation is obtained by an employer, how will this be reflected inthe STP solution?

If the ATO performs reconciliations of the PAYG withholdings will these checks beperformed on year to date data rather than individual pay periods?

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Item Description Questions for consideration

Personal Services Entities Generally an entity in receipt of PersonalServices Income (PSI) is required to promptlypay the salary and wages, withholding andreport amounts through their normal reportingcycle on the entity’s activity statement.

Due to the complexity of PSI withholding andattribution rules and practical difficulties inapplying the provisions, administrativearrangements are in place to achieve practicalcompliance with the requirements.

Additionally the current PSI regime providesguidance on the timing of when salary andwages is received and when it is reported. Forexample salary and wages paid relating to aprior financial year but paid between 1 Julyand 14 July of the following financial year isreported: On the business activity statement for

July. On the individual’s payment summary for

the previous income year. On the annual PAYG report for the

previous year.

Will the current administrative arrangements continue under STP, including final PAYGpayment period adjustments?

How will the current reporting requirements for salary and wages paid between 1 Julyand 14 July (ie after the end of the income year) be incorporated and reported in STP?

Superannuation reporting There are currently a number of formats forthe provision of data to superannuation funds.Also, some organisations that have multipleemploying entities with different ABNs maytransmit consolidated data as well as make oneconsolidated payment to ease theadministrative burden.

An employer is also required to report anemployee’s reportable employer

What superannuation data fields will be reported to the ATO at the close of each payrollcycle?

Will the superannuation data fields reported include RESC at the close of each payrollcycle?

Will the superannuation reporting to the ATO be the same information and format asrequired by the superannuation fund?

Will the STP solution report the contributions to the superannuation funds on behalf of

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Item Description Questions for consideration

superannuation contributions (RESC) on thePAYG payment summary.

employers (similar to the superannuation clearing house)?

Payslips Each pay period an employee receives a payslipfrom their employer.

Will the employee be notified of each pay through MyGov and be able to log on toretrieve their payslip or will the employer still need to provide a payslip?

Year-end reporting

The year-end reporting for an employer includes the gross wages, taxes withheld, reportable fringe benefits (RFB) and RESC. The provision of real time information to theATO would remove the year-end reporting requirements. We have detailed in the following table items and questions for consideration when designing the STP solution.

Item Description Questions for consideration

PAYG payment summary– individual non-business

Currently employees are provided informationon an annual basis through a PAYG paymentsummary issued by 14 July after the end of thefinancial year.

Will an employee have access to the details reported to the ATO by an employer on aregular basis? For example, through MyGov.

How will the employee gain access to the information to complete their income taxreturn where they choose not to or are unable to use the pre-fill income tax return fromATO held data? Will this be through either MyGov or their registered tax agent?

Reportable fringe benefitsand reportable employersuperannuationcontributions

Currently other items are recorded on anemployee’s PAYG Payment Summary such asRFB and RESC.

RFB are determined following the completionof the Fringe Benefits Tax Return which can belodged as late as June.

Similarly RESC are currently reported throughthe PAYG payment summary. Most largeemployers would determine what portion ofemployer superannuation contributions areRESC and code this in their payroll software toautomatically calculate and report. Somesmall and medium businesses, however, maydetermine the RESC amounts during the year-

What will be the process and timeframes for reporting RFB and RESC?

Will the STP solution automatically calculate RESC?

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Item Description Questions for consideration

end process.

Amendments to year-endreporting

Businesses currently have a mechanism toamend an employee’s PAYG payment summaryand the Annual Statement.

For example, an adjustment in a currentperiod’s reporting may require an amendmentto a previous financial year’s reporting. Forexample, the repayment of a previous year’soverpayment of salary. Where repayment isrequired and occurs in the current period, theemployee is required to repay the gross salaryand the employer is currently required to issuean amended PAYG payment summary.

How will amendments to prior year reporting be achieved under STP?

Amendments can sometimes relate to more than one prior financial year. Theamendment period for individual tax returns are up to four years from when they lodgetheir return (which can be up to 11.5 months after the end of the financial year). Will theability to amend be kept open for 5 years?

Employee share schemereporting

Businesses are currently required to issue anannual Employee Share Scheme (ESS)Statement to those employees participating inemployee share schemes. Many schemes issuerights or shares at different times throughoutthe year. The ESS rules require complexcalculations of discount amounts.

Also, some ESS schemes provideindeterminate rights which later result in aright to shares. Under the current legislationthe taxing point can occur in a prior financialyear, requiring an employer to issue anamended ESS statement.

Will the provision of ESS statements be managed by the STP solution?

If so, what will be the timing of the ESS reporting? For example, at year-end or point oftaxation.

How will amendments be made to ESS reporting?

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Cessation of employment

The cessation of an employee’s employment often requires complex calculations under the taxation legislation and can sometimes occur during a time strained relationsbetween the employer and employee. We have detailed in the following table items and questions for consideration when designing the STP solution.

Item Description Questions for consideration

Termination ofemployment - reporting

Employers are required to provide terminatedemployees with their PAYG Payment Summaryand if required, an Employment TerminationPayment (ETP) statement within 14 days oftermination.

What data fields and reporting requirements will be required to be reported upontermination of an employee? For example, redundancy, employment terminationpayments and annual leave and long service leave payments.

Will an employee be required to complete any cessation of employment details onMyGov?

Will the employer need to report the termination of the employee's employment?

Termination ofemployment - withholding

Withholding calculations on terminationpayments can be very complex especially forvery long serving employees. Oftenamendments need to be made to the originalreporting.

Will the STP solution have a detailed ETP calculator?

Similar to prior points, will the employer be able to amend the data andinformation reported?

Expatriate employees

As the internationally mobile workforce continues to grow, Australian employers often have in-bound expatriate employees from a related foreign entity and/or outboundexpatriate employees who are seconded to a foreign entity. It is often difficult to manage the payroll obligations for expatriate employees. We have detailed in thefollowing table items and questions for consideration when designing the STP solution.

Item Description Questions for consideration

TFN applications When an inbound expatriate employee arrivesin Australia on a temporary work visa theemployee can apply for a TFN.

Often for short term inbound expatriates it canbe difficult to arrange for the employee to

Will inbound expatriate employees be able to apply for a TFN using MyGov? That is, willthe on-line TFN application be moved to MyGov.

Will an employer be able to pay an employee and transmit the pay data to the ATOwithout having TFN for the employee? If so, when the employee is issued with a TFNhow will this be reported to the ATO and how will the ATO move the previously reported

9

Item Description Questions for consideration

apply for a TFN. For example, the employeemay be on site and not able to access theinternet.

Occasionally this means that an employee doesnot get a TFN.

data to the employees TFN?

Once the TFN is issued will it be provided to an employer if the employee has completedthe commencement of employment details in myGov?

Where an employee never applies for a TFN, what will happen with the information andPAYG reported? How will this be dealt with in any year end reconciliation process withinthe STP solution?

TFN declarations When an inbound expatriate employee isworking in Australia they should complete aTFN declaration. In some cases, however, anemployer will not withhold PAYG withholdingswhere there is a PAYG withholding variationapproved by the ATO.

Will inbound expatiate employees be able to lodge a TFN declaration using MyGov?

Can an employee lodge a TFN declaration without having the TFN issued?

Are inbound expatriate employees able to set up a MyGov account?

How will an employee whose employer is utilising an approved PAYG withholdingvariation complete the commencement of employment process?

Are there / will there be any restrictions on accessing the relevant data through MyGovfrom overseas? (For example, the online TFN application system for subclass 457 visaholders cannot be accessed from overseas.).

Medicare levy exemptions Where an inbound expatriate employee is notfrom a country with which Australia has areciprocal health care agreement they will beentitled to a Medicare levy exemption.

A Medicare levy exemption can only beobtained at year end and requires a paperapplication form to be submitted to Medicarewith a certified copy of the employee’spassport. The employee cannot lodge theirincome tax return until they have a validMedicare levy exemption certificate.

The process of obtaining a Medicare levyexemption certificate can be cumbersome.

Will an employee be able to lodge a Medicare levy exemption in MyGov?

Can the Medicare levy exemption be linked to the commencement of employmentprocess and be completed each year in MyGov? If so, can an employer cease to withholdthe Medicare levy?

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Item Description Questions for consideration

As an employee can only obtain a Medicarelevy exemption at year end an employer mustwithhold income tax and Medicare levy. TheMedicare levy is then refunded when theemployee completes the income tax return.

PAYG withholdingvariation to nil

An employer with inbound employees willoften continue to pay the employee on theirhome country payroll.

The ATO has approved PAYG withholdingvariations to nil where the employee remainsemployed by a foreign employer and theemployee includes the income on their incometax return and the employer pays the resultingFBT.

Will the ATO require reporting in relation to inbound expatriate employees who are thesubject of a valid variation?

Will an employer be able to report superannuation contribution details for an employeefor whom no PAYG withholding is being made/reported?

PAYG withholdingpayment date variation

An employer with inbound employees maychoose to operate a shadow payroll to satisfytheir employer PAYG withholdings andsuperannuation guarantee contributions.

In general, the steps involved in operating theshadow payroll are as follows:

1. The home county payroll calculatesand delivers the net pay to theemployee.

2. The home country payroll data isprovided to the Australian entity on amonthly basis (at the end of eachmonth or at the beginning of thefollowing month).

3. The Australian entity determineswhich items are taxable in Australia

Under STP will an employer be able to include the compensation relating to expatriatespaid on a foreign payroll in an arrears basis rather than a real time basis?

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Item Description Questions for consideration

and calculates the appropriateremuneration to be reported inAustralia. The remuneration is alsoconverted to Australian dollars at theprevailing rates.

4. Where the employee is tax equalisedthis will include a gross up calculationfor the PAYG withholdings being paidby the company on the employee’sbehalf.

5. The PAYG withholdings are paid to theATO.

The process of running a shadow payroll issignificantly more complicated than a domesticpayroll.

Generally, the shadow payroll details areincluded in the next payroll run for the localAustralian entity. For example, the Marchforeign payroll would be included in the AprilAustralian payroll. The PAYG withholding isremitted at the same time as the localAustralian payroll for the relevant month (inthe example given, the PAYG would beremitted in April). The PAYG withholdingamounts in relation to the Australian payrollare also remitted in accordance with thepayment obligations.

Superannuationobligations – inboundemployee

An inbound expatriate employee may not besubject to superannuation guaranteecontributions where the following areapplicable:

1. The expatriate is a senior foreign

How will an employer be able to notify the ATO that superannuation guaranteecontributions are not required for a particular employee?

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Item Description Questions for consideration

executive.2. The expatriate has a valid certificate of

coverage issued under a BilateralSocial Security Agreement.

Superannuationobligations – outboundemployee

An employer of an employee who is on anoutbound assignment may continue to makesuperannuation contributions.

The contributions may be required under acertificate of coverage (issued under aReciprocal Social Security Agreement) or itmay be the employer’s policy to continue thecontributions.

Will an employer be able to make superannuation guarantee contributions for anemployee who is not subject to PAYG withholding?

Amendments to grosswages and taxes withheld

An employer of expatriate employees oftenmakes amendments to gross wages and taxeswithheld at year end. The amendments may bethe result of additional information beingprovided by the home/host country payroll orthe employee providing updated details of theirworkdays.

How will amendments or adjustments to gross wages and taxes withheld be reported tothe ATO?

PAYG payment summary– foreign employment

An employee may also receive a PAYGpayment summary – foreign employment forpayment of work performed overseas. Theforeign employment payment summary detailsforeign compensation and foreign tax paid. Thenature of real time reporting requires that theinformation be readily available. There arenormally significant delays receivinginformation from foreign jurisdictions,including details of foreign tax paid.Additionally the exact movement of employees,and therefore the amount of foreign income to

How will the details of foreign employment be reported to the ATO?

How will amendments or adjustments to gross wages, taxes withheld or foreign taxespaid be reported to the ATO?

Will any PAYG withholding checks in the STP solution allow for the situation where anemployer has to remit foreign withholding tax from salary and wages and a lesseramount as PAYG withholding?

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Item Description Questions for consideration

be declared is not normally known in real time.Practically many businesses reconcile travelmovements to ensure the correct split ofreporting between the PAYG paymentsummary and PAYG payment summary –foreign employment at the end of each year.

Where an employee is in a foreign countrywhich requires regular withholding from salaryand wages, many Australian employerswithhold the Australian tax amount fromemployees, pay the foreign taxes from thisamount and then remit the balance as PAYGwithholding,

Further information

If you have any queries regarding the considerations detailed above please contact Alana Haiduk on 07 3257 8703 or George Johnson on 03 8603 0651.

Yours sincerely

Alana Haiduk Rohan GeddesPrincipal PartnerPeople payroll team People employment taxes

1

Submission to the Australian Tax Office Response to Single Touch Payroll Discussion Paper

Submission of The Recruitment and Consulting Services Association (RCSA)

March 2015

Recruitment & Consulting Services Association Ltd RCSA Head Office

PO Box 18028 Collins Street East Victoria 8003

T: 03 9663 0555 E: info@rcsa.com.au W: www.rcsa.com.au

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Introduction

The Recruitment and Consulting Services Association (RCSA) is the peak body for talent management

and workforce solutions in Australia and New Zealand. Formed in 1996 the RCSA boasts a national

membership of over 3,000, all of which are drawn from a diverse range of organisations and

individuals including small owner-operator businesses, listed and non-listed Australian companies

and Australia’s large multinational corporations.

Members of the RCSA provide an extensive range of employment services including:

On-hired employee services;

Contracting services (including on-hired independent contractors and direct contracting);

Recruitment services (including Job Network services); and

Employment consulting services (including workplace relations and OHS consulting services).

RCSA membership is focused on promoting positive outcomes for business, workers and

workplace relationships across Australia. The RCSA sets the benchmark for recruitment and on-hire

industry standards through representation, education, research and business advisory support. All

RCSA member organisations and Individual members agree to abide by the ACCC authorised RCSA

Code for Professional Conduct.

RCSA members work first hand with the Fair Work Act and Modern Awards on a day to day basis.

Their knowledge, understanding, interpretation and support of the aims of the Act are evident in

dealings that they have with their clients and employees on a day to day basis.

RCSA strongly supports the notion that a progressive and pragmatic approach to on-hire worker

service provision in Australia is, and will continue to be, a key element in the achievement of the

right balance for the Australian economy and community.

RCSA Code for Professional Conduct

RCSA has a Code for Professional Conduct (the Code) which is authorised by the ACCC. In

conjunction with the RCSA Constitution and By Laws, the Code sets the standards for relationships

between members, best practice with clients and candidates, and general good order with respect

to business management, including compliance. Acceptance of, and adherence to, the Code is a

prerequisite of membership. The Code is supported by a comprehensive resource and education

program and the process is overseen by the Professional Practice Council, appointed by the RCSA

Board.

The Ethics Registrar manages the complaint process and procedures with the support of a volunteer

Ethics panel mentored by RCSA's Professional Practice barrister. RCSA’s objective is to promote the

utilisation of the Code to achieve self-regulation of the on-hire worker services sector, wherever

possible and effective, rather than see the introduction of additional legislative regulation.

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RCSA Member Service Categories and Terminology

RCSA believes that the absence of precise terminology is contributing to the confusion and lack of

accountability among any non-compliant element of the industry. RCSA has been instrumental in

developing and promoting the following categories of services and terminology, with a view to

identifying the various forms of third party employment and contracting services.

Put simply, the term ‘labour hire’ is now used to describe most a-typical forms of employment and is

no longer descriptive of genuine on-hire employee services, which results in misinformation,

misrepresentation and ultimately harbours both intended and unintended non-compliance. See the

following diagram for RCSA definitions and service categories along with additional information

which provides some context around on-hire worker services.

Please refer to the following RCSA Categories of Service attached as appendix 1.

On-Hire Work in Context

The following information is provided for the purpose of outlining the characteristics and size of the onhire industry to the Australian economy:

1. The on-hire employment industry is a significant contributor to the Australian economy

Research completed by the Australian Bureau of Statistics and IBIS World indicates that the on-hire services industry generates revenue in excess of $20 billion within Australia, more than that of accounting services and more than that of legal services.

2. On-hire firms are direct employers

On-hire firms directly employee workers and then on-hire those worker to client companies on a short or medium term basis in return for an inclusive hourly or set fee.

3. The on-hire industry is among the largest employers or workers in Australia

Members of the RCSA and firms in the employment services sector employee in excess of 475,000 workers (FTE) in Australia, and on any single day over 325,000 workers (FTE) are placed into work by an RCSA member and companies in the employment services sector1.

4. Business is more productive and competitive because of the use of on-hire workers

RMIT University research found that 76% of organisations using on-hire workers were more productive and competitive as a result.2

5. Most on-hire employees employed by RCSA Members are either skilled or professional workers

RMIT University research found that 61% of RCSA on-hire employees are skilled or professional workers with the remaining 39% being semi-skilled or unskilled.

1 Ciett Economic Update 2015

2 Brennan, L. Valos, M. and Hindle, K. (2003) On-hired Workers in Australia: Motivations and Outcomes RMIT

Occasional Research Report. School of Applied Communication, RMIT University, Design and Social Context Portfolio Melbourne Australia

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Background to RCSA Submission

The RCSA fully supports the Government’s initiative to reduce the amount of red tape for employers and business. As a majority of RCSA members are small to medium businesses these initiatives will provide a welcome relief. In response to the questions raised in the consultation paper, the RCSA has consulted with its members and has provided answers to questions in several areas.

The RCSA does however have a number of concerns about the proposal to move the payment of

PAYG and SG to a Single Touch Payroll from July 2016 which are highlighted in the Principles of this

submission below. The payment and reporting of PAYG and SG when employees are paid will

present considerable impacts for RCSA members and impose a further and onerous burden on their

businesses.

Key Principles of the RCSA Submission

The RCSA has identified several key principles it believes require reconsideration prior to the

proposal for Single Touch Payroll proceeding:

1. The negative impact for RCSA members on cash-flows as a result of this proposal will be

significant. The period between the payment of wages to an on-hire employee and the collection

of payment from a client for those on-hire services currently averages 30 to 90 days.

RCSA does not subscribe to the Government’s belief that changes to the frequency of PAYG and

SG payments will reduce the number of days before invoices are paid. This is not reflective of

market trends, in fact in the current environment clients are actively seeking to extend payment

terms and are incorporating these trading terms in Service Level Agreement and RFP’s.

2. Currently small businesses have until 28 days after the quarter to pay PAYG and similar deferral

for SG. These have been established for many years to help small business SURVIVE. The move

towards Single Touch Payroll, whilst deferred, is far more onerous on small businesses which are

least able to generate sufficient working capital.

Without wanting to appear alarmist, the RCSA believes it seems inevitable there will likely be an

increased level of failure among SME on-hire businesses and, indeed, all small business. The

proposed changes are likely to encourage these employers to move to fortnightly or monthly

payrolling in order for these businesses to survive.

3. 62 per cent of RCSA members are primarily small to medium sized enterprises. RCSA believes the

proposed changes will directly impact the willingness and capacity of SME on-hire firms to

maintain their current level of on-hire workforces.

This also raises significant concerns for the RCSA as the risk arises of on-hire employees being

forced into employment relationships which erode the protections currently offered to these

workers.

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While RCSA members abide by the RCSA Code for Professional Conduct (view the code) of which

ethical and legal practices in the engagement of labour are key principles, not all on-hire firms

are created equal.

RCSA is concerned this proposal may result in unlawful practices by non-member firms in the

engagement of labour and will drive unlawful labour firms underground through practices such

as engaging workers as independent contractors in order to transfer PAYG and SG

responsibilities to workers.

RCSA believes the adoption of Single Touch payroll is also likely to act as a disincentive for SME

on-hire businesses to employ casual staff. This may lead to increased unemployment particularly

amongst the young and most vulnerable for which on-hire work is a frequently utilised as an

immediate pathway to the workforce.

4. RCSA does not believe sufficient consideration has been given to the practical implementation of

Single Touch Payroll for SME on-hire firms, nor in the proposed transitional arrangements and

timeline.

Comment from RCSA member, national on-hire firm:

Re: Costs of reducing red tape,

With 3 pays a week, it will increase processing time with paying tax and super 3 times a week. Super will need to be remitted 12 times a month compared to the 1 time which is the current process. There are obvious competitive advantages to offering frequent payroll cycles by recruitment firms, but this proposal will have a significant impact on this offering.

Re: Costs of reducing red tape,

Companies have already been burdened with extra costs to ensure their systems are Super Stream compatible. There will now be a further cost to ensure system compatibility with the proposed changes.

5. The RCSA calls on the ATO to consult further and more broadly with industry and employers

most affected by the proposed changes. The RCSA has not been consulted regarding this

proposal, which we would have expected, given RCSA on-hire member firms collectively employ

approximately 250,000 workers and is among the nation’s largest employers.

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RCSA response to Consultation Questions

The RCSA has consulted with its members and provides answers to the following questions.

Would Single Touch Payroll reporting reduce or increase red tape costs for business in the long

run?

RCSA is concerned the burden of compliance administration and cost that will accompany the

proposed Single Touch Payroll system will in the long run provide no reduction in red tape for the

on-hire businesses or our members. This assessment is based on the very limited information

available about the proposal, the indicated design for a software system and the means by which

that system may interface with existing software systems.

What impact would the more frequent PAYG withholding and super payments have on your cash

flow position, and how could this be mitigated?

The negative impact of this proposal on cash-flows for RCSA members will be significant. In brief, on-

hire firms direct employee workers and then on-hire those worker to client companies on a short or

medium term basis in return for an inclusive hourly or set fee. As a direct employer, the on-hire firm

is responsible for the payment of PAYG withholding, SG and other statutory charges as is the case

with any direct hire employee.

Currently small business has until 28 days after the quarter to pay PAYG and similar deferral for SG.

These have been established for many years to help small business SURVIVE. The move towards

Single Touch Payroll, whilst deferred, is far more onerous on small business that is least able to

generate sufficient working capital.

Of principle concern to RCSA and its members is the impact this proposal will have on cash flows and

the likely additional cost incurred by SME on-hire businesses through early payment of PAYG and SG

payments. The proposal does not acknowledge the period of up to 90 days that transpires between

the payment of wages to an on-hire employee and the collection of payment for those on-hire

services.

Under this proposal on-hire firms will incur PAYG and SG costs within three to four days of the

commencement of the collections cycle. It is likely a number of SME on-hire firms will not have the

capital base to fund early payment of PAYG and SG, thereby forcing an on-hire firm to incur

unnecessary new costs to finance these payments on behalf of the ATO.

7

The following information has been provided by RCSA members to illustrate this point:

RCSA members advise that payment to an on-hire worker is made within 3 to 4 days of

completion of an assignment or at the end of the working week.

The average terms of payment from users of on-hire services is between 30 days and 90 days.

This is influenced by trading terms within Service Level Agreements, trading conditions in

particular industry sectors and individual relationships or agreements.

The period between payroll for a worker and collection of payment is therefore between 26 days

and 86 days.

An SME on-hire firm is unique in they will be required to now remit PAYG and SG at the time of

sale (ie: invoicing) rather than on receipt of payment. This is similar to other sectors such as

professional services.

For those on-hire firms that utilise debtor financing services to assist in managing their cash-

flows, the average period of debtor financing for payroll is currently 20 days. This will on average

increase to between 26 days and 86 days under a proposed Single Touch Payroll.

Debtor financing currently costs between 2 per cent and 2.5 per cent of total payroll per month.

This an additional cost for SME’s and a further disincentive to direct employment.

It is likely a number of SME on-hire firms will not have the capital base to fund early payment of

PAYG and SG, thereby forcing an on-hire firm to incur unnecessary new costs to finance these

payments on behalf of the ATO. The proposition that businesses would be able to smooth out the

cash flow spikes that previously existed does not reflect the reality of the payroll cycle and payment

cycle for an on-hire firm.

This proposal is expecting SME employer on-hire firms to remit PAYG and SG payments independent

of any consideration of the realities of the collections cycle. This is an unacceptable impost on SME’s

and a deterrent to SME on-hire employers to continue to employ more Australians.

Comments from RCSA member, national on-hire firm:

Re: Payment terms,

With PSA clients, the average payment terms are 49 days. Working with high volume PSA clients will have a significant impact with the proposed changes, as there is always pressure on margins and payment terms during contract negotiations.

Re: SG payments and reconciliation,

Detailed super reconciliations are undertaken before payments of super are made. With the proposed system, these reconciliations cannot be done until after the fact. This makes it a reactive approach rather than proactive approach which is not the preferred business model.

8

Under the Single Touch Payroll real-time reporting and payment capability, how should the

payment of SG for new employees be managed to ensure they have sufficient time to make an

informed investment decision?

The proposed Single Touch Payroll will not allow sufficient time for workers to make an informed

decision about which superannuation they choose. This is opposite to the objectives of the

government in its design of Super Stream, as employees will be required to potentially make

uninformed decisions, opt into a default fund, and then likely incur further costs to transfer SG

balances to their find of choice once they have had sufficient time to consider that decision.

Comments from RCSA member, national on-hire firm:

Re: Choice of Superannuation fund choice and early wage payments,

The new process will not allow new candidates the time to make an informed decision on which super fund they want to opt into. Collecting super information is already a drawn out process (especially with the particular requirements of Super Stream), and if super needs to be remitted when a candidate is paid it limits the decision making process and collection of information for the candidate. Also, no super details will mean no pay to candidates either which will cause angst.

The RCSA would welcome the opportunity to discuss further the characteristics of the on-hire

industry and how the relate to this proposal. We thank you for the opportunity to make this

submission and invite any questions to be directed to:

Steve Granland

CEO , Recruitment and Consulting Services Association

9

Appendix 1 – RCSA Categories of Service

Talent2 would like to make the following submission in relation to the implementation of Single

Touch Payroll (STP).

1. We feel that an implementation period of 12 months is too short for implementing STP.

Implementing STP is going to be much more complex than implementing SuperStream, and

SBR2 is very new technology. Legislation and Specifications aren’t yet available so it will be

several months before we can even start on development. We won’t be ready to start

implementing clients on 1/7/2016. So we feel that the transitional period should start on

1/7/2017.

2. Consideration will need to be given to how to handle the situation when an employer goes

live on STP during the middle of the year. For example, if an employer goes live on the 15th

of September, how will they handle the period from the 1st July to 14th September. Will they

issue payment summaries just for this part of the year. This may be confusing for employees

if they receive a payment summary for only part of the year.

3. Consideration should be given to allowing a CSV file format (like the SuperStream Alternative

File Format SAFF) as not all payroll providers may be able to integrate SBR2 into all of their

payroll products, especially older legacy systems, which cannot support web services. Some

service providers/gateways are already offering similar services for SuperStream to SMSF’s

to provide them with ESAs (Electronic Service Addresses) and service providers/gateways

are also converting CSV files to XBRL. A similar thing could be done for STP with a third party

converting CSV files into XBRL and handling the messaging components. Or the ATO could

accept CSV files as well as XBRL.

4. Employees may also need to complete TFN declarations and Choice Of Super forms during

their course of employment as their circumstances change. So these forms are not just

needed when a new employee joins. So these situations should be handled by STP also to

be consistent.

5. Will need to be appropriate error handling in place to prevent an employer accidentally

submitting the same file twice.

6. Processes will need to be considered to allow an employer to cancel and resubmit a file.

7. File processing will need to cater for negative amounts for when overpayments are being

recovered.

8. If payment summaries are no longer issued, how will individual allowance/deduction

amounts currently shown on the payment summary be reported to an employee by the

employer.

9. How will Lump Sum E details (individual dates and amounts) above the threshold be

reported to an employee by an employer under STP.

10. Will payroll software need to keep an exact copy of the data sent, or will it be sufficient that

it can rebuild the data sent from the source data.

11. In relation to paying SG in real time for new hires, an option would be that the super

payment goes to the default fund but that there are no fees if the employee requests to

transfer from the default fund to another fund within a certain time-frame on joining. There

should also be the ability to initiate the automatic (electronic) roll-over from the default

fund to the employee's choice fund on the employee's behalf.

12. Are all payment summary types (eg; such as Superannuation Income Stream and Foreign

Employment Income) in scope for STP.

13. What about ETP Payment Summaries. Will they still need to be printed and issued to

employees under STP.

14. Payment summary amounts are currently reported with cents truncated. If we are reporting

each pay period, then we would recommend that amounts are not truncated. This will make

reconciliation easier. The total amounts for the year would end up quite different if

truncated separately each pay period.

15. Special consideration will be required for Reportable Fringe Benefit amounts. Currently only

reported if above the threshold, but won’t be able to apply the threshold if reporting on a

pay period basis. So will have to report all amounts. Also some Reportable Fringe Benefit

amounts can come from other software systems (eg; GL or Salary Packaging systems), so

may not currently be processed in a payrun. So this may require additional changes to

payroll software so they can be included in the last payrun of the year for ATO reporting

purposes, but not for actual payment.

David Ware

17-23 Station Street, Malvern, VIC 3144

Level 10, 175 Pitt Street Tel: 02 8223 0000 info@taxinstitute.com.au Sydney NSW 2000 Fax: 02 8223 0077 taxinstitute.com.au

ABN 45 008 392 372

16 March 2015

Mr Martin Mane Senior Director Service Delivery (Customer Service & Solutions) Australian Taxation Office

By email: SingleTouchPayroll@ato.gov.au

Dear Mr Mane,

Single Touch Payroll

The Tax Institute writes to comment on the Australian Taxation Office (ATO) discussion paper in relation to Single Touch Payroll (Discussion Paper). Single Touch Payroll has the potential to significantly impact our members and their clients, many of which are small businesses.

We have focussed on issues raised in the Discussion Paper which are of interest our members, rather than responding to each particular question posed.

As a general comment, we support the initiative as it has the potential to reduce red tape for many businesses. We do, however, have concerns that the initiative will increase the compliance burden on small businesses and we suggest that it be optional for those businesses. We have also noted issues in relation to early payment, customised payroll systems, and administration.

Red tape for small businesses

Single Touch Payroll should be ‘opt in’ for small employers, with those businesses having the option to continue with the present system. For these businesses, the initiative may create a burden rather than reducing red tape.

As part of Single Touch Payroll, employers will need to upgrade their existing payroll software or acquire compatible software to fulfil their obligations. Unless the ATO makes a simple SBR-enabled payroll system available free of charge of employers to use as part of this initiative, additional cost will likely result that may not be offset by savings generated by red tape reduction for those businesses.

There are many small business that keep track of payroll amounts in a simple Excel spreadsheet or in hard copy in a payroll book. For those businesses, this existing

Page 2

system is quick and efficient. It may well be preferable for them to continue with a single quarterly Business Activity Statement as being the best method to provide particulars to the ATO of PAYG withholding concurrently with GST reporting.

We have had significant feedback from our members with small business clients in relation to this initiative. For example, one member has around 400 small business clients many of whom cannot read or write. From these clients perhaps one or two have the relevant software. Many such small businesses employ workers and still provide primary documentation in relation to their expenses to their accountant. Many still do not have computers and reliable internet access.

The Discussion Paper states that a business with six employees may have to complete in excess of 400 manual transactions each year to meet their employer reporting and payment obligations. However our members indicate that paying staff comprising a similar number of employees takes very little time by automatic pay via a bank account and 20 minutes at the end of the year to complete PAYG withholding statements. For these businesses, such a change as suggested in the Discussion Paper may force them to use accounting services at an additional cost to them.

If the government pursues compulsory Single Touch Payroll for all businesses, the stated objective of reducing red tape for clients may be compromised in favour of the pursuit of increased data collection and earlier collection of revenue.

Impact of earlier payment

We appreciate that Single Touch Payroll encourages businesses to ensure that they factor in payments to the ATO as part of weekly cashflow. However, many businesses use overdraft facilities and commonly defer payments until the end of the quarter in order to reduce interest costs. By way of example, some primary producers typically receive income well after wages are paid, for example, shearing wages paid in advance of wool income or employees harvesting grain being paid well in advance of any grain income being received. In these circumstances, paying quarterly can alleviate the financial burden of the taxpayer.

If Single Touch Payroll is to be introduced from 1 July 2016 for both reporting and payment, initially as an optional initiative, some form of compensation or incentive should be provided to encourage employers to adopt early payment at that stage.

Customised payroll systems

Many businesses do not use generic payroll software, having developed their own in-house payroll processes and solutions to cope with their unique business circumstances. Those systems may not be regularly updated due to cost. Some payroll information is stored in databases, in simple spreadsheets (as discussed above), and in various other formats. Many of these businesses transmit their own data to the ATO at the end of each year or send paper forms. Any more frequent submission of payroll data to the ATO will be an extra burden on these employers.

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We understand that the ATO is engaging in consultation with software developers and practitioners in relation to Single Touch Payroll. We suggest that the ATO consider ways of including in-house software developers in communications and consultations in relation to this initiative. Specifications for the required SBR-enabled software should be released as soon as possible so that businesses currently using in-house software can conduct a viability study to determine whether they should build or buy the relevant payroll software. If businesses wish to build customised software, they may be prevented from becoming early adopters of this initiative given the delay in releasing the relevant specifications.

Administrative issues

Currently, an employer is not required to make any superannuation contribution for employees receiving salary or wages of less than $450 in a month. For casual employees, it may not become apparent whether the employee is above or below this threshold until the end of the month. It is unclear how Single Touch Payroll will operate in relation to such employees, as its operation may result in overpayment of superannuation contributions for these employees.

There is also a reduced margin for error under this initiative. If an incorrect amount is paid to an employee due to human error, the error would be compounded as it will instantaneously result in incorrect payments being made in respect of PAYG withholding and superannuation. Under the current system, employers would have had between one to three months to rectify the error before superannuation is remitted.

The Discussion Paper notes one of the key benefits of the initiative as being the reduction of red tape involved in ‘on boarding’ employees. It unclear how employees who commence prior to a TFN declaration being made will be dealt with under the new regime.

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Yours sincerely,

Stephen Healey President