As an award-winning and trusted bookkeeping practice, we understand the importance of staying up-to-date with changes in payroll processes. One change that has recently come into effect is the reporting requirements for Closely Held Payees.
What are Closely Held Payees (CHP)?
A closely held payee is an individual who is directly related to the entity from which they receive payments. This can include directors or shareholders of a company, spouses of business owners, family members of a family business, and/or beneficiaries of a trust.
Who is not a Closely Held Payee?
Sole traders, individual partners of a partnership, and arm’s length employees are not considered closely held payees.
Changes in reporting requirements
In the past, it was acceptable for closely held payees to have their wages calculated once a year at the time of preparing their personal tax returns. However, this is no longer acceptable with the enhanced reporting and digitisation of payroll processes.
While employers don’t have to finalise the payroll of a Closely Held Payee until their tax return is prepared by the Tax Agent, there are now minimum reporting requirements in place for how and when payments made to CHPs are reported.
What payments are reported?
Employers must now report payments made to CHP, which are subject to withholding, in the scope of STP reporting. The payment type is then classified according to its category, such as gross, directors’ fee, bonus, etc.
Options for reporting amounts paid to CHP
Small employers (19 or fewer employees) can report actual payments on or before the due date, report actual payments quarterly, or use the ATO’s CHP income type to report their wages.
It’s important to note that if the business owners leave the finalisation of their and other Closely Held employees’ wages until after the ATO’s deadline for regular employees’ payroll finalisation, the CHP income type must be used to report their wages.
Additionally, if a trust chooses to pay its closely held payees through trust distributions, it remains outside the scope of STP reporting. However, if they choose to pay in another way that’s in the scope of STP, for example, wages, then the payments must be reported.
Why the changes?
These changes have been put in place to make it easier for the Australian Taxation Office (ATO) to identify amounts that have specific tax, superannuation, or social security considerations. Additionally, it will help the ATO with pre-fill functionality for employees when they lodge their individual income tax returns.
What does this mean for business owners?
It means that you must ensure that you keep accurate records of all payments made to closely held payees throughout the year. This includes keeping track of any taxable and non-taxable payments and any superannuation contributions made on behalf of the payee.
How We Can Help
At Being Accountable, we’re here to help you navigate these changes and ensure you meet all reporting requirements. Our team of experienced bookkeepers can assist you with setting up a payroll system that meets these new requirements and ensures that you keep accurate records of all payments made to closely held payees.
We can also assist you with ensuring that all superannuation contributions made on behalf of your closely held payees are reported correctly and on time. With the ATO keeping a closer eye on these types of payments, ensuring you meet all reporting requirements to avoid any penalties or fines is essential.
Contact Us Today
Get in touch with Jo at Being Accountable to learn more about how we can assist you with CHP reporting and with your payroll processes. To discover more about our services, visit our website at beingaccountable.com.au.
