Enabling Digital by Default & Single Touch Payroll

1. Enabling Digital by Default& Single Touch Payroll • An overview of two advocacy briefs being progressed by the ATO via Treasury: • Enabling Digital by Default • Single Touch Payroll Presented by Martin Mane Director Strategic Projects Customer Service and Solutions Australian Taxation Office November 2014

2. Single Touch Payroll – Commencement (current vs future) Current Commencement Employee Details and Bank Account Form Employer Files Form Only includes paper and MIPs volumes Employer Files Forms Superannuation Choice Form Information entered into payroll package, including: Employee details, TFN Declaration and Super Choice data Commencement of new employee Employer Files Payer Copy • TFN Declarations outbound – 10M • TFN Declarations inbound – 3.9M TFN Declaration Employer sends ATO copy due within 14 days TFN Declaration Future Commencement • Information entered into payroll package, including: • Employee details • TFN Declaration and • Super Choice data • Validated information sent to • Employer • Superfund • ATO • Other relevant agencies • ELIMINATED: • TFN Declarations outbound – 10M • TFN Declarations inbound – 3.9M Employee completes one commencement form ONLINE with Government. Commencement of new employee

3. What if employee notifies…‘started a new job’? No TFN Declaration, No Super Choice form

4. Single Touch Payroll – Payment & Reporting Obligations (current vs future)

5. Single Touch Payroll – Cash Flow (current vs future) Current Future

6. PAYGW Worldwide

7. Single Touch Payroll – Benefits (current vs future) Current ATO • Processing and exception workloads due to paper and magnetic media • Increased “debt” & “compliance” workloads • Reduced opportunity to “pre-fill” due to lag between payment summary lodgment and ITR lodgment (only 72% of returns pre-filled) • Almost nil access to real time data or real time trends • Australia and for the broader community • Compromised tax revenues and compromised superannuation • Inefficiencies in the tax and super systems • Inefficient data matching between agencies • Significant negative environmental impact (over 1000 tons of outbound paper as well as delivery, storage and processing impacts) Business • Additional administrative burden, not aligned to natural systems • Debts grow as the “spiking” payment events impact cash flow • Long cycle times and the disconnects between natural (payroll) events, reporting events and payment events enable Phoenix behaviour to flourish – thus compromising the “level playing field” Future • Business • Reduced administrative burden for business as: • All payroll obligations and liabilities are actioned at time of payroll • Reduced reporting obligations and payment events • Improved cash flow management • Increased first point resolution • Immediate reduction in Phoenix behaviour (ie level playing field) • Decreases complexity of reporting super and projected super payment dates on payslips • Transition needs to be managed to minimise cash flow impact • Requires employers to pay via electronically enabled payroll software • Some employers will see this as a reduction in their control over their business (even though they are using PAYG or SPR funds) • Individuals • Clients will have confidence that super entitlements are up to date • More timely access to prefilled information • ATO • Improved administration of the tax and superannuation systems, due to: • Reduced operational costs (eg associated with capture, paper processing, phone calls and complaints) • Reduced Debt and Compliance workloads • Eliminates need for the Members Contribution Statement (MCS) • Reduction in Phoenix behaviour as payment and reporting lag times are reduced • Creates opportunities for interactive withholding rate changes • Allows real time data matching between agencies (egCentrelink & CSA) • Increased capacity for operational analytics • Increased prefill as information is available on 1 July each year • Australia and the broader community • Protects tax and super revenues for the community and Australia • Increased efficiency in the administration of the tax and super systems • Increased transparency and ownership of tax and super systems by individuals (PAYGW and SPR are embedded into their ‘pay day’ events’) • Supports business migration to ecommerce/ data standards (eg SBR) • Improved data matching between agencies (eg ASIC, DISSR, CSA & Centrelink) • Reduction in the ATO environmental footprint • Real time payments by the RBA • Points for consideration • Need to consider an incentive that offsets the $$ interest on cash flow • Legislative & policy considerations • The ATO will need to work with software providers and the community to design a seamless experience 7

8. Single Touch Payroll – First round feedback from 2013 • Small Business Feedback • All used digital technology (eg. web, internet banking, social media, ordering products) • All complained of “red tape”, including TFN Dec, Super amounts choice (none actively offered it), PAYGW, Super, PAYGW Summaries etc • Most used an electronic option to calculate PAYGW for payroll (eg. ATO PAYGW calculator & accounting software) • Most used old unlicensed versions of software because it had been too hard to upgrade, update and maintain software • All manually managed payroll and other obligations (eg. manual internet banking, paper payment summaries etc) • All interested in streamlining payroll, but were only reassured after they worked through • screen shots showing usability • security features (ie. compared to internet banking) • costs of software versus savings • All agreed that STP would flatten cash flows and reduce quarterly cash flow “stress” • Agreed that once implemented, STP was easier and more seamless than current processes (“it fulfilled obligations without me having to do anything”) • Agreed that it would “level the playing field” (non-compliers are a significant risk to their competitiveness) • Worried about the transition (ie. carryover of existing obligations whilst implementing STP) • Wanted plenty of notice and support • Software Developer Feedback • Absolute support for STP concept • Many already aware of mandatory digital developments & the rollout of UK RTI • Some already engaged in developing software product for the UK RTI market • Recognised that STP offered significant opportunities to streamline obligations • Agree with the direction towards a fully integrated digital reporting/payment environment • Recognised that pricing and product range will need to be more accessible for businesses and believed this would happen as a result of a broader demand base (as per UK …post RTI) • Cloud solutions & subscription models already reducing costs & complexity of software offers • Prefer 18mths to 24mths lead in time to allow development of product • Want strong engagement and input on design and functionality • Want learnings from UK RTI to be recognised in Australia so as to improve the product development process • Developers will NOT invest in building compatible software unless there is a clear roadmap which includes publicly announced mandatory timelines • Some developers believe that the ATO has compromised them by “shifting the goal posts” after making firm timeline commitments in the past (thus jeopardising the investments made by developers) • Practitioner Feedback Professional association forums • Very supportive of STP concept • Significant “red tape” reduction opportunities • Overwhelming agreement that it would reduce businesses getting into “irrecoverable” debt • Believed it would help “level the playing field” • Believed that ATO should be much firmer in driving the adoption of accounting/business software via “mandatory” digital requirements • Agreed that “carve-out” provisions should only be for the most extreme circumstances • Need to cater for “transitional” cash flow impact for small businesses • Recognised that some practitioners and businesses would be resistant to “mandatory” digital requirements Suburban practitioners • Mixed feedback…. generally reflected their digital literacy and business models • Some only dealt with businesses that used accounting software. Supported STP. • Small number in “cloud”. Supported STP. • Most agreed that STP would require mandatory implementation with support. • Some did not know existing digital functions already available in software • Some recommended clients “not” use any software (ie. agent was glorified bookkeeper) • Some saw software as a threat to their business model 8

9. Single Touch Payroll – Second round feedback occurring from 2014 • Software Developer Feedback • Overall concept was well received due to its improvements for businesses • Supportive of strategic direction of Single Touch Payroll and Digital by Default • Recognition that no work from their end will progress without policy and legislative changes (and a mandated environment) • ATO should not change implementation dates once these have been announced, as this negatively impacts take up by business • The industry will require a minimum of 12 months lead-time to prepare and plan for the changes • Recognition that small business cash flow impacts are managed through transitional arrangements • Expressed interest in being involved in pilot trial in the future • Some developers reaffirmed that the ATO had compromised them by “shifting the goal posts” after making firm timeline commitments in the past (thus jeopardising the investments made by developers) • Requested a software developers kit to reduce the time to build the solution