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September 12, 2019

STP and shadow payroll arrangements

If you run shadow payrolls for foreign employees (inbound assignees), you may have been exempt from reporting these employees through Single Touch Payroll (STP) for the 2018/19 financial year.

However, from 1 July 2019, you will be required to start reporting your shadow payroll arrangements to the ATO via STP.

What is a shadow payroll?

When an inbound assignee is seconded to work in Australia, they may continue to remain on their home country’s payroll.

In these circumstances, a shadow payroll is then required to be performed on the employee in Australia to meet reporting and tax obligations.

Shadow Payrolls and Reporting Deadlines

The ATO understands that when it comes to shadow payroll arrangements, it may be difficult to make the standard STP reporting deadline for a number of reasons. The standard STP reporting deadline is the day of or before payment is made to an employee.

Therefore, the ATO has allowed for a concession on the reporting deadline for eligible inbound assignees under shadow payroll arrangements. If eligible, the due date for reporting through STP is the last day of the next calendar month, after the relevant payment is made.

The ATO has also made concessions for the finalisation due date. The ATO has provided the following deadlines for eligible shadow payroll arrangements;

  • Financial Year 2019/20 deadline – 14 September 2020
  • Financial Year 2020/21 deadline and beyond – 14 August following the end of the relevant financial year

Remember, when it comes to your standard payroll, you will need to have completed your STP finalisation declaration by 14 July annually.

Who is eligible?

The Australian Taxation Office (ATO) has stated, if you have an inbound assignee that meets the following criteria, you may be eligible for shadow payroll concessional reporting;

  • The employee is employed by an offshore entity, for example, an entity that is non-resident for Australian taxation purposes
  • The employee is seconded to Australia
  • The employee has all or part of their base salary and other remuneration paid by an offshore entity
  • The employee is maintained in Australia using a shadow payroll arrangement, for example, a notional payroll for the purposes of tax and social security obligations and internal tax equalisation and protection policies.

For more information on STP, inbound assignees and shadow payroll arrangements, visit the ATO website.

If you are unsure how to manage your shadow payroll arrangements, Definitiv provides clients with an end-to-end payroll outsourcing solution and is a licenced payroll provider. Find out more about our outsourcing services here.