The progression from tax stamps to single touch payroll.


BACK

The progression from tax stamps to single touch payroll.

Do you remember the tax stamp system that was around in the early and middle of the 20th Century?  It was not that long ago that things were very different, and employers were “affixing” various stamps to “tax check sheets”. Today, we are reporting to the ATO as it happens!

Single Touch Payroll (STP)

STP is the term used for “pay day reporting by employers to the ATO as it happens”. It became a requirement on 1 July 2018 for large employers, that is 20 or more employees.

From 1 July 2019, the tax office’s STP system will NOW also apply to all small employers (those with fewer than 20 employees). While any change like this for small business can be daunting, it is, as the ATO says, “an important step in streamlining business reporting and keeping pace with the digital age”.

We should remember that this digital age does allow efficiencies once the details are bedded down.  And the system is fairer for all when tax collection is universal.

Tax stamps

Some of us may remember tax stamps, going back to the early and middle of the 20th century. These were like an ordinary postage stamp but were in various amounts of currency. The stamps were purchased by employers and were used to pay their employee withholding deductions.

In those pre-digital days, wages were paid in cash. Employers needed to go to the bank and bring back some hundreds of pounds, shillings and pence to pay their employees.

Tax stamps were at least a bit safer than cash as a way of paying taxes. An example is former s 221G of the Income Tax Assessment Act 1936. An employer had to keep a “tax deduction sheet” and at the time of paying the wages “purchase and securely affix in the space provided for the purpose on the tax stamps sheet” tax stamps of a face value equal to the amount of the deductions made from the wages of the employees paid during the relevant period.

TAX STAMP 1

And, at the time of affixing a tax stamp, the employer had to securely affix the corresponding tax check on the ‘tax check sheet’ being “the portion of a tax deduction sheet provided for the affixing of tax checks”; and “cancel the tax stamp and tax check by writing his name thereon in ink”. The word “adhesive” sometimes appears in the law as a requirement of stamps to allow them to be affixed.

The employer had to then “complete and sign the tax stamps certificate and deliver it, together with the tax stamps sheet”, to that employee.

There were tax stamps for a range of other taxes, including alcohol, entertainment and customs duty. Departure tax was paid by stamps until 1994.

TAX STAMP 2

The law-imposed liabilities on employers who “refused or failed to … affix tax stamps of a face value equal to the amount of the deduction”.

Preparation for STP

Coming back to today’s STP seems like another world.  The ATO says it is working with software providers to develop low and no-cost reporting solutions including simple payroll solutions, portals and mobile apps. The ATO has published a list of providers on its website at ato.gov.au/stpsolutions.

The Tax Commissioner has given his “personal guarantee” that the ATO’s approach to extending STP will be “flexible, reasonable and pragmatic”. In particular, the ATO says it understands there will be circumstances where more time is needed to implement STP or lodge reports.

Details of the support being offered by the ATO are at this link. The ATO reports that many small employers have already taken up STP reporting and they have provided positive feedback that STP makes payroll reporting easier.

In the context of history, it does beat loads of cash and employers affixing various stamps to tax check sheets.

As to the future, over the next year or two, most employers will be on board with the new STP reporting. Directors should be cognisant that once reported then payment is required by the due date. If there is a blip in one’s payment, directors may be vulnerable personally and recognised much sooner by the ATO than previously. There are anecdotal reports that if an employer has not paid their employees’ superannuation payment for the period, then the system may lock the employer out of lodging the next period superannuation report.

So, in summary, while the mechanisms for payment of employee taxes might have radically changed over the years, the same policy applies; that is, the responsibility of the employer to deduct and pay their employees taxes, super etc remains the same.  And just as there were penalties for not affixing the correct amount of tax stamps, there are penalties now for employers not recording via STP and then paying the correct amount of tax withholdings.  As stated in various recent headlines – you could say it was “wage theft”!

If your clients are facing cashflow problems and/or showing signs of difficulty keeping up with any obligations, you may wish to refer them to our expert, Suelen McCallum of dVT Group who may be able to assist them.

If you believe your client needs more assistance and the problem may be terminal, then please refer them as soon as possible to David Solomons who will assist your client and minimise the impact where possible.

To contact us, please call Suelen or David on (02) 9633 3333, email
mail@dvtgroup.com.au or complete our online contact form to find out more about how we can help you.

dVT Group is a business advisory firm that specialise in business turnaround, insolvency (both corporate and personal), forensic services and business strategy support.