Will the Australian government’s “single touch payroll proposal” create more insolvencies?

19/03/2015 by Michael Jones

The Australian government announced measures to cut red tape for business and to provide a simplified payroll system that would mandate or a “single touch payroll system”

The Australian Taxation Office (ATO) is currently conducting a consultation process in order to examine the consequences of this measure and has called for submissions from stakeholders.

Under “single touch payroll”, employers will be required to electronically report payroll and super information to the ATO (Australian Tax office) when employees are paid, using standard business reporting – enable software. This is different to the current situation where employee tax deducted from payroll is reported in the employers BAS and only forwarded to the ATO depending on the particular companies reporting requirements. Superannuation is only required to be forwarded 28 days from the end of each quarter. If the super deducted from employees pay is unremitted employers have three months to report the breach to the Australian taxation office.

The Institute of Chartered Accountants has been privy to the discussions behind this strategy and has shared some useful insights.

The “single touch payroll” proposal does appear to afford a considerable reduction in red tape and is therefore clearly very advantageous to business.

payroll proposal

This should make small businesses much more efficient and as a consequence reduce the likelihood companies going into liquidation or administration or directors facing personal bankruptcies

On the other hand there may be cash flow implications for small businesses in that they will be required to remit the employee deductions at the end of each pay period.create more insolvenciesIt is likely that this cash flow pressure will increase the numbers of company liquidations, administrations and receiverships due to the fact that company directors will be forced to approach insolvency practitioners at a much earlier time.

There is of course a very big advantage to the ATO that there will be an early warning where tax and superannuation are unremitted.

One of the biggest problems facing the economy so far as insolvent companies are concerned is that when a company is in financial difficulty and cash flow is tight it is too easy to use unremitted PAYG tax and super as working capital to fund the ailing business. (See Related Article Insolvency and the Tax Man Jekyll and Hyde)

The problem is compounded because the ATO appears to be somewhat inefficient in chasing up these outstanding debts. As a consequence the insolvent company is allowed to continue for a considerable time often incurring more debts and creating unfair competition in its industry environment.

In defence of the ATO it is frequently unaware of the liability because the employer has not lodged the appropriate documentation.

As a consequence so-called fraudulent Phoenix activity (See related Article Phoenix Fire Reignites) involving a succession of liquidated companies with a similar name, address and phone number employees and website—has become common.

The single touch payroll proposal is a practical way of solving this problem.

Call us or visit our website to see how our specialist team can help businesses facing financial pressure as a result of unremitted taxes and superannuation