Running a family business or managing your own trust? If you're paying directors, shareholders, or relatives through payroll, and they not at “arm’s length” then Single Touch Payroll (STP) reporting for closely held payees is a compliance box you can’t afford to miss.
Since July 2021, employers have been required to report payments to closely held payees through STP, but in 2025, many small business owners still aren’t clear on what that actually means. The good news? The ATO offers flexible options, and CloudPayroll supports them all, making it easy to stay compliant without the admin burden. Here’s what you need to know.
A closely held payee is someone directly connected to your business, such as:
These individuals differ from arm's-length employees, who have no close relationship with the business and are hired independently. For example, if you’re paying your spouse, child, or yourself through the business, they likely count as closely held payees. Under STP Phase 2, which is now fully rolled out, you must also label these individuals correctly in your reporting using the income type “Closely Held Payee.”
From 1 July 2021, the ATO removed the exemption for closely held payees, meaning all employers must report their payments via STP. This rule remains in place in 2025. However, the ATO recognises that payments to closely held payees can be irregular or hard to predict. That’s why they allow three flexible reporting methods, giving you options that match how your business operates.
Whether you pay yourself weekly, monthly, or just once a year, one of these reporting options will suit your situation:
Every time you pay a closely held payee, you report it through STP on or before payday, just as you would for other employees.
Report the actual amounts paid each quarter, and at the same time, you lodge your BAS. This option gives you more breathing room and is often used by family-run businesses where payments aren’t made every week.
Instead of reporting exact figures, you can lodge a reasonable estimate every quarter, based on 25% of the previous year’s total gross pay and tax withheld.
STP requires employers to complete a finalisation declaration for each employee at the end of the financial year. This process confirms that all data reported through STP is correct.
Here’s what you need to know:
This extra time acknowledges that many closely held payees (like sole directors or family trust beneficiaries) won’t have their income confirmed until tax time.
STP Phase 2 brought changes that apply across the board, including closely held payees. The main differences include:
CloudPayroll is STP Phase 2 compliant, meaning we’ve made all the behind-the-scenes adjustments, so your reporting stays correct and up to date.
We know STP compliance can feel overwhelming, especially for small business owners handling payroll. That’s why CloudPayroll offers full support for all three ATO-approved reporting options and makes it simple to get started.
Here’s how CloudPayroll’s features help:
Whether you’re running a family business, managing a trust, or paying yourself as a company director, we’ll help you report it right, with less admin and more confidence.
Closely held payees aren’t exempt from STP anymore, but that doesn’t mean reporting needs to be hard. With CloudPayroll, you get all the tools, flexibility, and support you need to manage payroll for directors, family members, and trust beneficiaries.
Talk to our team today and see how easy it is to stay compliant with CloudPayroll.
Disclaimer: This material has been prepared for general informational purposes only and is not intended to be relied upon as payroll, accounting, tax, legal or other professional advice. Readers are encouraged to seek professional advice before taking any action based on the content provided.
