SINGLE TOUCH PAYROLL ACCI s response to the ATO s discussion paper MARCH ACCI Single Touch Payroll March

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ACCI – Single Touch Payroll – March 2015 1

SINGLE TOUCH

PAYROLL – ACCI’s

response to the

ATO’s discussion

paper

MARCH 2015

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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.

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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 L 10 140 Arthur St

North Sydney NSW 2600 T: 02 9458 7574

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The Australian Chamber of Commerce and Industry is the leading voice of business in Australia

Canberra Office Melbourne Office

COMMERCE HOUSE Level 3, 486 Albert Street

Level 3, 24 Brisbane Avenue East Melbourne VIC 3002

Barton ACT 2600

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AUSTRALIA AUSTRALIA T: 02 6273 2311 T: 03 9668 9950 F: 02 6273 3286 F: 03 9668 9958 E: [email protected] E: [email protected] W: www.acci.asn.au W: www.acci.asn.au

This work is copyright. Reproduction is permitted, with direct attribution and notification to the Australian Chamber of Commerce and Industry.

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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.

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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

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

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ACCI – Single Touch Payroll – March 2015 7 explanation/roundtable sessions and would be pleased to work with ATO/Treasury to

assist with this.

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.

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ACCI – Single Touch Payroll – March 2015 8 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.

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

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ACCI – Single Touch Payroll – March 2015 9 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 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

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

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ACCI – Single Touch Payroll – March 2015 10 skewed by business size. In 2012-13 91.0% of businesses with fewer than 5 persons had

internet access.

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. TRANSITION

There is a compelling logic in the idea that increased automation of these types of information processes is beneficial, but, as noted above, the real story is about getting 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

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ACCI – Single Touch Payroll – March 2015 11 policy. Policy-makers are great at visualising what they think will be the end

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

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ACCI – Single Touch Payroll – March 2015 12 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

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ACCI – Single Touch Payroll – March 2015 13 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

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ACCI – Single Touch Payroll – March 2015 14 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

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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

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ACCI – Single Touch Payroll – March 2015 16 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

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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?

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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.

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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.

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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.

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ACCI – Single Touch Payroll – March 2015 21 Our specific activities include:

 Representation and advocacy to Governments, parliaments, tribunals and policy makers both domestically and internationally;

 Business representation on a range of statutory and business boards and committees;

 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 and training, migration, trade, workplace relations and occupational health and safety;

 Representing business in international and global forums including the International Labour Organisation, International Organisation of Employers, International Chamber of Commerce, Business and Industry Advisory Committee to the Organisation for Economic Co-operation and Development, Confederation of 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 law and policy.

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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

SINGLE TOUCH PAYROLL ACCI s response to the ATO s discussion paper MARCH ACCI Single Touch Payroll March

SINGLE TOUCH

PAYROLL – ACCI’s

response to the

ATO’s discussion

paper

MARCH 2015

EXECUTIVE SUMMARY

CONTENTS

1.

INTRODUCING SINGLE TOUCH PAYROLL

1.1

Introduction

1.1.1

Silence is not assent, nor lack of interest

1.1.2

Information and consultation about STP

2.

SINGLE TOUCH PAYROLL REPORTING

CAPABILITY

2.1.1

Does STP mean changes to BAS and

payment summaries?

2.1.2

The context of STP

2.1.2.1

All employers will have to comply with SuperStream

by 1 July 2016

2.1.2.2

SuperStream compliance does not mean universal

updated employer IT

2.1.2.3

Some employers are seemingly ready

3.

TRANSITION

3.1

The cost of transition

3.1.1

Introducing

real

time

tax

and

superannuation reporting

3.1.2

Assessing the costs

3.2

Smoothing cash flow

3.3

Should STP include automatic payment?

3.3.1

A robust transactional system

3.3.2

Opt-in and trialling

3.3.3

Existing compliance obligations

3.3.4

Avoiding unfair competitive advantage

3.3.5

Superannuation and STP

3.3.5.1

Default contributions and choice

3.4

Transition into STP

4.

ABOUT ACCI

4.1

Who We Are

4.2

What We Do

ACCI MEMBERS