No More Tax Deductions for Non-compliant Payments

Businesses that make payments considered “non-compliant” will no longer be able to claim tax deductions starting 1 July 2019.

They will only be qualified for such deduction claims if the employer has satisfied the requirements for Pay-As-You-Go (PAYG) withholding and other tax reporting obligations for the specific payment.

What businesses must do

If, in adherence to PAYG withholding rules, the business withholds an amount from a payment made to a worker, it must withhold the amount before payment to the worker is made and then report it to the ATO.

What is considered “non-compliant payment”?

These are payments made by businesses that have not withheld an amount or reported the PAYG tax to the ATO. Such payments are considered non-compliant and will make the employers ineligible for tax deductions.

Payments that qualify for tax deductions

Granted that employers have complied with PAYG withholding rules, these payments qualify for a tax deduction:

• salary, wages, commissions, bonuses or allowances paid to an employee;
• director’s fees;
• those made under a labour hire agreement; and
• for a supply of services (supplies of goods and real property are not included) where the contractor has not provided the ABN.

Non-cash benefits

In cases where a business provided a non-cash benefit instead of cash payment, the employer will still need to report to the ATO for this type of payment to be considered compliant, therefore allowing for a deduction claim.

Mistakes in reporting and withholding amounts

Employers don’t need to worry about losing deductions in case they make a mistake either in withholding amounts or reporting to the ATO as long as they correct the mistake as soon as possible by lodging a voluntary disclosure via an approved form.

The same applies in situations where a business mistakes an employee for a contractor and wasn’t able to withhold PAYG tax from payments made.

This should not cause the employer to lose the deductions especially if the business has complied with the withholding requirements for a contractor.

More resources on maximising tax savings:

6 Tax-saving Tips That Can Be Used Right Now

Helpful Guide On Boosting Your Tax Return

End Of Financial Year Spending Strategies For Small Business

Important note…

Bear in mind that not meeting PAYG withholding obligations will not only negatively impact tax deduction claims; it also puts businesses at risk of facing penalties.

If you have questions about this update or would like to know more about tax deductions, reach out to an accountant. Book an appointment today by clicking here.

If you have questions about this update or would like to know more about tax deductions, reach out to a financial adviser. Book an appointment today by clicking here.
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