Single touch reporting comes to Australia
Much has been made of the Australian Taxation Office’s new single touch reporting system, and not all of it is good.
When the Australian Taxation Office (ATO) first floated the idea of a single touch reporting system the feedback was not all positive. Certainly, it would cut red tape, increase efficiencies and simplify processes, critics said.
But at the same time, particularly when it came to SMEs, the new process seemed of most benefit to the ATO, they believed.
For a long time Australians have assumed that our financial well-being is a given. As with a lack of civil unrest, a high and constantly rising standard of living and a strong social support network, economic strength has always been understood to be a typical part of the Australian landscape, but that is no longer the case.
For example, Michael Croker, Head of Tax at Chartered Accountants Australia & New Zealand, said the regularity of PAYG being paid to the ATO would put further pressure on an SME cash flow balance that is already precarious.
“Nobody disputes that PAYG tax and super is an employee entitlement and must be paid, the sooner the better,” Michael said to Accountants Daily magazine in 2015. “But this is an area where a desirable policy objective needs to take into account the fact that many SMEs struggle with cash flow.”
Nobody disputes that PAYG tax and super is an employee entitlement and must be paid, the sooner the better.
"It takes more than 50 days on average for small business accounts to be paid and many are in a weak negotiation position with key clients.”
Since then, single touch reporting has been delayed. But now it’s back on track and coming into play on 1 July 2017 for businesses with 20 or more employees.
Twelve months later, from 1 July 2018, it will be mandatory that all businesses with 20 or more employees use the new reporting system. For SMEs the story is less clear.
“Employers with 19 employees or less will be able to report to us through Single Touch Payroll from 1 July 2017,” the ATO says.
“However, it is not a requirement at this stage. We will be running a pilot with small businesses soon. This will help us understand their needs, and explore the benefits of Single Touch Payroll for small business.”
What is single touch reporting?
Here is how the ATO explains ‘Single Touch Payroll’.
“When employers pay their staff, the employees’ salary or wages and PAYG withholding amounts will be automatically reported to us.”
“Employers will also have the option to pay their PAYG withholding at the same time they pay their staff.”
“There will also be some changes to how superannuation is reported to us. There will be no changes to the way employers pay their superannuation. However, when those payments are made to their employees’ funds, the information will be automatically reported to us.”
Essentially, as soon as employees are paid each week, fortnight or month, the accounting software being utilised by the employer will automatically report payroll information to the ATO.
This cuts red tape and means employer activity statements will no longer be required by the ATO.
Are we over-simplifying?
Nobody argues that a simple and innovative system is of no benefit. But at the same time, some accountants are warning of the dangers of over-simplification.
Catherine Irving CA, ICAS member and Practice Manager with Newcombe & Co in Sydney, says that when the simplification of one-touch extends to the individual then they will likely miss out on almost all of their potential deductions.
“If clients go for single touch reporting then they are just going to use the pre-filled form from the ATO,” Catherine explained. “It could mean that accounting practices will not be doing as many individual taxation returns.”
“Individuals are going to miss out on so much if they use single touch reporting and just hit the button. They are going to miss out on claiming their self-education expenses and their motor vehicle expenses and their depreciation and asset expenses etc. The ATO will automatically know about an individual’s income and tax paid, but it will not automatically know about expenses.”
More than ever we have to become advisors rather than pure accountants.
This changes the game for accountants who are looking to add value to their practices, and who are hoping to become perceived as more valuable to their clients.
“More than ever we have to become advisors rather than pure accountants,” Catherine said. “I have been in Australia for 13 years and in that time I have seen an increase in the number of clients who move frequently between accountants because they feel they’re not getting enough advice or help. Sometimes they move away from accountants and try to do everything themselves.”
“As single touch reporting comes online, all clients need to know that they can use the automation that is being put in place, but at the same time they absolutely must seek, and be offered, valuable advice from their accountant or they’ll likely pay too much tax.”