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Removing tax deductibility of non-compliant payments

You can only claim deductions for payments you make to your workers (employees or contractors) from 1 July 2019 where you have complied with the pay as you go (PAYG) withholding and reporting obligations for that payment.

Beginning 1 July 2019, payers can only claim deductions for payments they make to workers (employees or contractors) where they have complied with their PAYG withholding and reporting obligations for that payment.

If withholding applies to the payment, the payer must:

  • withhold the amount from the payment before the worker is paid; and
  • report the amount to the ATO as usual.
    The payment will be deemed a non-compliant payment when a payer fails to meet the requirement to withhold on that payment and report the payment to the ATO under the PAYG system. To be clear, the payer will not be entitled to claim a deduction however check the voluntary disclosure rules to source if a remedy exists.
    Payment types include:
  • Salary, wages, commissions, bonuses or allowances to an employee
  • Payment of directors’ fees
  • Payment to religious practitioners
  • Payment under labour hire arrangements
  • Payment for a supply of services where a contractor failed to provide their ABN
  • Non-cash benefits provided instead of paying cash, where a withholding and reporting obligation applies.

Mistake can be fixed (the ATO may however impose penalties):

  1. If an incorrect amount was withheld or reported, the payer won’t lose the deduction if they make a voluntary disclosure to the ATO using the approved form. 
  2. If you failed to withhold or report on a payment, the deduction is not available, unless you voluntarily advise the ATO before they have embarked on an audit or other compliance activity. You can do this by making a voluntary disclosure in the approved form.
  3. If you withheld the correct amount of PAYG withholding, but made an error reporting it, or failed to report it when you should have, a revised activity statement can be lodged.

Learn More

Category
ABA
Published
07 Aug 2019
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