If you operate a family business, trust, or small company where wages often go to directors, family members, closely held employees, or company beneficiaries, you’ve likely come across the term “STP exemption for closely held payees.”
These are examples of affected employees whose payments are subject to specific reporting requirements.
The Australian Taxation Office (ATO) no longer provides a single touch payroll exemption for closely held payees.
This change affects both closely held employees and arm’s length employees differently.
However, small businesses now have concessional STP reporting options that make compliance easier and more flexible, especially when payments are irregular, quarterly, or paid as year-end adjustments.
This 2026 guide from Pherrus, Australia’s trusted business tax experts, explains what qualifies as a closely held payee, the reporting methods available, and how to stay compliant this financial year.
It will also cover the impact on family business directors and company beneficiaries.
Consistent communication, clear compliance, and reliable accounting support.
Who Qualifies as a Closely Held Payee?
A closely held payee, also referred to as a closely held employee, is someone who is directly related to the entity, either personally or financially, rather than a standard employee hired at arm’s length. This category also includes company beneficiaries.
Typical examples include:
- Family members such as a spouse, child, sibling, or parent who receive payments from the business.
- Company directors or shareholders who draw director’s fees or a salary from their own company.
- Trust beneficiaries paid distributions or wages from the trust based on entitlement, not through a standard employment contract.
Company beneficiaries are individuals who receive payments from a company or trust due to their relationship with the entity.
These individuals differ from arm’s length employees, who are hired and paid through regular channels and have no close personal or financial connection to the business owners.
Non arm’s length payments are those made to closely held employees due to their relationship with the business.
You only need to report amounts that you pay to closely held payees which are subject to withholding and in scope for STP reporting.
You must continue to report information about all your other employees (known as arm’s length employees) via STP on or before each payday.
The STP Exemption Has Ended: What It Means in 2026
Before 1 July 2021, businesses could claim an STP exemption for closely held payees.
That no longer exists. All closely held payees must now be reported through Single Touch Payroll (STP).
This change impacts all affected employees, including closely held employees, who are now subject to the updated reporting requirements.
However, the ATO recognises that closely held payees often have irregular payment patterns.
For example, family members or directors might be paid quarterly, annually, or even via year-end adjustments.
To accommodate this, the ATO provides concessional STP reporting options tailored for small businesses.
You must still report payments to closely held payees, but you can choose a reporting method that suits the way your business operates.
STP Reporting Options for Closely Held Payees in 2026
1. Report Actual Payments Quarterly
If you prefer accuracy over estimation, you can choose to report actual payments quarterly instead of reporting after every pay event.
Under this option, you must report amounts paid to closely held payees for the relevant quarter, including all pay runs up to and including the final month of the quarter.
This means you need to report all amounts paid for each relevant quarter and ensure all amounts are included in the report, whether payments were made on or before each pay day.
Under this option, you’ll report all actual payments made to closely held payees through your STP-enabled software by the same due date as your quarterly Business Activity Statement (BAS) or activity statement.
Quarterly due dates:
- Q1 (July–September) — 28 October
- Q2 (October–December) — 28 February
- Q3 (January–March) — 28 April
- Q4 (April–June) — 28 July
The quarterly STP report is due on the same day as the final activity statement for the month, such as for the September quarter, December and June quarters.
This ensures your STP reporting aligns with your quarterly activity statements.
This method lets you align your STP reporting with your quarterly BAS, reducing administrative pressure.
Just ensure you maintain accurate records for all payments to closely held payees each quarter.
2. Report Reasonable Estimates Quarterly
If your payees are paid irregularly or only when cash flow allows, you can instead report a reasonable estimate quarterly.
Here, you report your best reasonable estimate of year-to-date payments made to closely held payees each quarter, not the exact amounts, and then reconcile at year-end based on the actual payments made.
Using an estimate means you can report amounts on a quarterly basis as a reasonable estimate based on previous years’ amounts, such as salary or director fees.
When working out a reasonable estimate, consider all of your circumstances and adjust your estimate to reflect your current situation.
This reporting should be aligned with your quarterly activity statements and, if applicable, monthly activity statements.
Your estimates should be based on credible information such as:
- Expected drawings or planned income for the financial year
- Payment patterns from the previous financial year
- Forecasts based on projected business activity
You’ll then make any necessary corrections in your final STP report to ensure your total year-to-date income is accurate.
Adjustments for the actual amount must be made by the due date of the payee’s individual tax return.
If you identify that your estimates were too low, you’ll need to revise your activity statement and ensure you’ve contributed enough superannuation payments.
If your estimates were too high, you can revise your activity statements to claim back the excess PAYG withholding.
This option is particularly helpful for family-run businesses or trusts where payments fluctuate depending on profits or operational needs.
3. Report Each Pay Event (Real-Time Reporting)
For those who prefer standard Single Touch Payroll compliance, you can choose to report actual pay events as they occur.
If you select this method, you must report STP for closely held employees on or before each pay day.
Under this option, every time your business makes a payment to a closely held payee, whether as a salary, director’s fee, or distribution, you submit an STP pay event report using your STP software.
This means you need to report amounts paid to closely held payees on or before the pay day, just as you would for arm’s length employees.
Although this is the most precise method, it can be more time-consuming if your payments are irregular or infrequent.
Still, many small businesses use this approach for consistency across both arm’s length employees and closely held payees.
Common Reporting Requirements and Due Dates
No matter which reporting method you use, you must report all closely held payee data using STP-enabled software. Each payee’s year-to-date totals are reviewed and finalised at the end of the financial year, just like other employees.
Your finalisation declaration must be submitted to the ATO by 14 July each year (or in line with your BAS reporting cycle if you report quarterly).
This confirms that all salary, wages, and allowances paid to closely held payees have been correctly reported.
Example: How STP Applies to a Family Business
Let’s say you run a family landscaping business and pay your spouse and son occasionally during the year. You can:
- Use quarterly STP reporting to capture actual payments that align with your activity statement.
- Or use a reasonable estimate if your payments vary based on profit or seasonal revenue.
Either approach gives your business flexibility while staying compliant with Single Touch Payroll obligations.
Why Choose Pherrus for STP & Payroll Compliance
The end of the STP exemption for closely held payees doesn’t need to cause confusion.
At Pherrus, we specialise in helping small businesses, family companies, and trusts understand their STP reporting options, optimise payroll systems, and stay ahead of every due date.
Our expert accountants can:
- Help you select the best STP reporting method for your business
- Set up or review your STP-enabled payroll software
- Manage quarterly STP reports and year-end finalisation
- Provide ongoing tax and compliance support throughout the financial year
Whether you’re paying directors’ fees, family members, or trust beneficiaries, we’ll ensure your STP reporting is accurate, compliant, and stress-free.
Contact Pherrus today for a consultation and get your Single Touch Payroll obligations sorted for 2026 the easy, compliant way.
FAQs
What is the STP Exemption for Closely Held Payees in 2026?
The STP exemption for closely held payees no longer applies.
The single touch payroll exemption previously applied to affected employees such as directors, family members, and trust beneficiaries, allowing small employers to use alternative reporting methods for these payees.
Since July 2021, all businesses that make payments to closely held payees such as directors, family members, or trust beneficiaries, must report through Single Touch Payroll (STP).
For the 2025–2026 financial year, the ATO requires all employers to use STP‑enabled software, but allows concessional options like quarterly reporting or reasonable estimates to make compliance easier for family businesses.
How Do I Report Closely Held Payees in STP for 2026?
You can choose one of three STP reporting methods for closely held payees:
- Report actual payments quarterly – align with your quarterly BAS due date.
- Report reasonable estimates – use projected payment amounts and reconcile at year‑end.
- Report each pay event – in real time as wages or director fees are paid.
These are the three methods available to report STP for closely held payees, and you must select the approach that best fits your business’s payroll process.
All options must be lodged through STP‑enabled software by the due date set for that quarter or event.
If you choose to report using reasonable estimates, you must adjust your estimate during a financial year if your circumstances change.
If you identify that your estimates were too low, you’ll need to revise your Quarter 4 activity statement.
If you identify that your estimates were too high, you can revise your activity statements to claim back the excess.
Your finalisation declaration for closely held payees is due by 30 September each year if you have both closely held payees and arm’s length employees.
The ATO will not impose penalties for underestimating or overestimating amounts reported for closely held payees, provided reasonable estimates are made.
What Counts as a Closely Held Payee for STP Purposes?
A closely held payee is someone with a direct relationship to the entity, not an arm’s length employee.
Closely held employees are typically family members, directors, or trust beneficiaries who are involved in the business, as opposed to arm’s length employees who have no such relationship.
This includes family members, directors, and trust beneficiaries who receive payments through business or trust distributions.
Payments made to closely held employees are considered non arm’s length payments because they arise from the special relationship with the business, rather than a standard employment arrangement.
They differ from standard employees because their income often depends on business performance or profit drawings, not a formal wage arrangement.
