Single Touch Payroll

Explained: Single Touch Payroll: Closely held payees

By Robyn Jacobson, CTA, Senior Advocate, The Tax Institute


STP Phase 1


Under STP Phase 1, which started on 1 July 2018, employers report their employees’ payroll information to the ATO each time they are paid through STP-enabled software.

Payroll information includes:

  • salaries and wages;
  • Pay as you go withholding (PAYGW); and
  • superannuation guarantee (SG).

The implementation of STP was staggered, depending on the size of the employer, to be mandatory from:

  • 1 July 2018 — for employers with 20 or more employees
  • 1 July 2019 — for employers with 19 or fewer employees.

Numerous concessions have been provided by the ATO, depending on the type of business, industry, or employer. Most of these ends on 1 July 2021. If you have a current concession you will need to be reporting each pay day through STP by this date.

Closely held payees

Small employers (19 or fewer employees) have been required to report their arm's length employees since 1 July 2019 (subject to any applicable deferrals or exemptions) but have been exempt from reporting their closely held payees (CHP). They were originally exempt only until 30 June 2020 but, due to the COVID-19 pandemic, this was extended until 30 June 2021 (i.e. for 2019–20 and 2020–21). There was no need to apply for this exemption.

From 1 July 2021, small employers will have to report payroll information relating to their CHP through STP.

STP reporting for closely held payees

Large employers (20 or more employees) have been required to report their CHP since 1 July 2018.

From 1 July 2021, small employers will need to report their CHP through STP. Small employers may choose to report this information each pay day or on a quarterly basis. However, they must still report their arm’s length employees on or before each pay day.

How does an employer report through STP?

STP reports can only be lodged via an STP-enabled digital solution. STP reporting does not involve an additional label on your activity statement. Payroll information cannot be reported using an activity statement or through online services (myGov, Online Services for Agents or Online Services for Business).

What is a closely held payee?

A CHP is an individual who is directly related to the entity from which they receive payments, for example:

  • family members of a family business;
  • directors or shareholders of a company;
  • beneficiaries of a trust.

All other employees are arm’s length employees.

What does an employer need to report for closely held payees?

The employer needs to report payments to CHP that have an STP reporting obligation. This is triggered by the payment that is subject to PAYGW, such as salary and wages, allowances and director’s fees.

Payments such as dividends, trust distributions, loans and fully-expended reimbursements are not subject to STP reporting. The reporting of fringe benefits through STP is optional.

What are the options for reporting closely held payees?

From 1 July 2021, small employers can report payments to their CHP through STP in any of the following three ways:



1. Report actual payments each pay day

The employer reports actual payments made to their CHP on or before each pay day.

2. Report actual payments quarterly

The employer reports actual payments made in a quarter to their CHP by the date on which the activity statement is due.

3. Report a reasonable estimate quarterly

The employer reports a reasonable estimate of the total amounts expected to be paid to CHP, across each quarter, by the date on which the activity statement is due.

If the employer reports quarterly, the STP report is due at the same time as the quarterly business activity statement (BAS). If the employer lodges a monthly activity statement to report its PAYGW or GST, the STP report is due at the same time as the activity statement for the last month of each quarter, i.e. September, December, March and June. The due date of the STP report will always align with the due date of the BAS, inclusive of any extended lodgment concessions which may apply to the employer’s circumstances.

If an employer chooses to report actual payments made to their CHP each quarter, this does not change the due date for:

  • notifying PAYGW on the activity statement (generally monthly or quarterly depending on the amount of annual withholding) and paying by the usual due date; and
  • making SG contributions for closely held payees (by the 28th day following the end of the quarter).

Option 1 is suitable for employers who make regular payments of salary and wages, allowances and director’s fees to their CHP. The amount is known, there is regularity to the pattern of payments and, in some cases, the employer may also have arm’s length employees so it may be reasonably straight-forward to report the CHP through STP by each pay day along with the arm’s length employees.

Option 2 is suitable for employers who make payments of salary and wages, allowances and director’s fees to their CHP but only wish to report though STP on a quarterly basis.

Option 3 is suitable for employers who may not know the exact or actual amount of payments made to CHP each quarter, and prefer to report quarterly using a reasonable estimate of the total amounts expected to be paid to CHP.

Table 1: Reporting CHP under Option 3 compared to arm’s length employees


Closely held payee
(e.g. director of company)

Arm’s length employees


Drawings from company for personal expenses

Fortnightly payment of salary and wages

STP reported amount

Reports director’s fees quarterly, PAYGW and SG liability using a reasonable estimate

Reports salary and wages, PAYGW and SG liability on or before pay day each fortnight


By 30 September, if the employer has both CHP and arm’s length employees

By the due date of lodgment of the CHP’s individual income tax return, if the employer has only CHP

14 July each year

How does an employer report closely held payees through STP using a quarterly reasonable estimate?

Small employers can choose to report their CHP on a quarterly basis using a reasonable estimate of year-to-date amounts (Option 3).

An employer makes a reasonable estimate by estimating and reporting an amount that reflects the circumstances of the CHP. The employer should consider whether the CHP’s circumstances are similar to those in the last year the employer completed a finalisation declaration for the CHP (or last finalised a payment summary annual report (PSAR)).

The ATO will accept that a proportionate year-to-date amount reported in the STP report is reasonable provided the circumstances have not changed. If the circumstances are not similar, then the employer is expected to make an estimate that reflects the changed circumstances. The estimate can, and should, be adapted or updated during a financial year if the circumstances change.

The ATO will accept the following approach in reporting a reasonable estimate where the circumstances are similar to the last year the employer completed a finalisation declaration:

Table 2: How to make and report a reasonable estimate

STP report

Year-to-date amounts

Quarter 1


Quarter 2


Quarter 3


Quarter 4



Make any adjustments so that the STP reporting shows the actual amount for the financial year

Provided the employer reports using one of the above three options, they will be able to make any adjustments before finalisation so that the STP reporting shows the actual amount for the financial year. The ATO will not impose any failure to withhold penalty in respect of PAYGW the employer may incur provided they:

  • report year-to-date a mounts in their quarterly STP reports based on the reasonable estimate approach set out above across each quarter of the income year; and
  • report and pay the PAYGW amount on time.

However, GIC will still apply to any underpayments of PAYGW.

Additionally, regard should be had to the non-compliant payment rules in s 26-105 of the Income Tax Assessment Act 1997 which deny a deduction for certain payments where the employer has failed to withhold or report PAYGW when required.

Are quarterly reasonable estimates subject to superannuation guarantee?

Options 1 and 2 are based on actual payments — which constitute ordinary time earnings (OTE) under the Superannuation Guarantee (Administration) Act 1992 (SGAA) — made to the CHP. The employer will therefore be liable for the SG charge for a quarter if they have an SG shortfall, that is, if they fail to make SG contributions on these payments by the 28th day following the end of a quarter.

A reasonable estimate made under Option 3 to report payments made to CHP does not constitute OTE. Accordingly, an employer who reports amounts in a quarterly STP report based on a reasonable estimate is not required to make an SG contribution in respect of that amount.

However, the employer will be liable for the SG charge if they:

  • later finalise the amounts reported through STP during the year, and no SG contributions have been made; or
  • later finalise by adjusting (i.e. increasing) the amounts reported through STP during the year on which SG contributions were paid, such that insufficient SG contributions have been made.

This is not to say that SG is payable only on amounts reported under Options 1 and 2, and not under Option 3. Rather, that the making of a reasonable estimate under Option 3 does not of itself constitute OTE which is subject to SG, but if this amount is later confirmed to be the remuneration, it will be subject to SG.

If the finalised amount is less than what was reported through STP during the year, and SG contributions were paid on the higher amount, it will not be possible to withdraw the excess SG contributions from the fund.

The operation of the SGAA is very strict and the ATO cannot disregard SG shortfalls or the draconian penalties that the SGAA imposes on non-compliant employers, even in respect of CHP.

How can the employer’s exposure to the SG charge be managed?

Employers of CHP could consider voluntarily making SG contributions on the reasonable estimate amounts, even though these amounts do not constitute OTE to avoid becoming liable for the SG charge once the amounts are later confirmed as OTE.

Alternatively, the employer will not be liable for the SG charge if they make:

  • quarterly contributions based on the maximum contribution base ($58,920 for 2021–22) because they will satisfy their SG obligation each quarter;
  • contributions up to 12 months in advance of a quarter, again based on the maximum contribution base; or
  • a concessional contribution of $27,500 for the year.

Some employers may pay the CHP only once a year, in June, for example, by converting drawings put to a loan account during the year into a salary, wage or director’s fee. This amount could be reported through STP under Option 1, the PAYGW would be paid based on that amount in the June activity statement and SG contributions would need to be paid by 28 July. Provided the finalisation did not increase the amount paid to the CHP, this would also satisfy the employer’s SG obligations.

Finalisation of STP reporting

After the end of each financial year, the employer must finalise the STP data reported during the year. There is no requirement to issue payment summaries or lodge a Payment Summary Annual Report (PSAR) where amounts are reported through STP.

An employer must make an annual finalisation declaration as set out in the table below.

Table 3: Finalisation declaration

Must make finalisation declaration by:


Large employer

Small employer

Where the employer has only arm’s length employees

14 July


14 July

Where the employer has a combination of arm’s length employees and closely held payees

14 July for the arm’s length employees

30 September for the closely held payees

Where the employer has only closely held payees

30 September

The due date of lodgment of the CHP’s individual income tax return

STP Phase 2

Under STP Phase 2, the data collected through STP will be expanded to include information reported about employees to multiple government agencies such as Service Australia (Centrelink). This will also support the administration of the social security system. As with Phase 1, employers will report the additional information through STP on or before each pay day. The mandatory start date for STP Phase 2 reporting was originally slated for 1 July 2021.

However, due to pressures, disruptions and delays resulting from the COVID-19 pandemic, the professional bodies advocated in a joint submission on 14 December 2020 for a 12-month deferral of the start date to 1 July 2022. On 3 February 2021, the ATO announced that the start date for STP Phase 2 had been deferred to 1 January 2022.

Not all digital service providers (DSP) will be ready by 1 January 2022. A deferral framework is in place for DSPs to apply for a deferral. Where a DSP is granted a deferral, the clients of that DSP will be covered by that deferral. If an employer needs more time than what is provided by their DSP’s deferral, they will be able to apply for a deferral themselves.

The deferral process for employers will be available from 1 October 2021 and more information will be provided soon. The ATO will consider applications on a case-by-case basis.

Key benefits and features of STP Phase 2

The ATO’s website sets out the key benefits and features of STP Phase 2:

  • reducing the duplication of information employers provide to Government which will also reduce unnecessary interactions including:
    • incorporating the reason for an employee ceasing employment to reduce the need for separation certificates;
    • reporting child support garnishee and deduction amounts voluntarily through STP instead of through the separate manual remittance process;
  • removing the need to send tax file number and withholding declaration information to the ATO — this will now be captured in the employment conditions section of the STP report;
  • better defining the components that make up gross income that will:
    • make it easier for employers to understand their obligations;
    • help employees understand their earnings and help them with their interactions with Services Australia;
    • ensure consistency of reporting across the various income types;
  • reporting employee payments by income type (or income streams) including:
    • salary and wages;
    • foreign employment income;
    • closely held payees;
    • working holiday makers.

Further guidance and information

We will provide further guidance and information as it becomes available.

If you have any specific concerns that have not been outlined above, please email


DISCLAIMER: The material and opinions in this article should not be used or treated as professional advice and readers should rely on their own enquiries in making any decisions concerning their own interests.