Changes to deductions for non-compliant payments to workers
As of 1 July 2019, businesses will only be able to claim deductions for payments made to workers when they've met the pay as you go (PAYG) withholding obligation for that payment.
Created in response to recommendations handed down by the Black Economy Taskforce's final report released in October of 2017, the changes will crack down on cash payments and close the "loophole" which allows companies to deduct "non-compliant payments".
From the start of the 2019/20 financial year where the PAYG withholding rules require an amount to be withheld, you must:
- withhold the amount from the payment before paying your worker
- report that amount to the ATO.
Payments that must comply
Employers will only be able to claim a deduction for the following payments if they can comply with the PAYG withholding rules:
- of salary, wages, commissions, bonuses or allowances to an employee
- of directors' fees
- to a religious practitioner under a labour hire arrangement
- for a supply of services (except from supplies of goods and real property) where the contractor has not provided you with their ABN.
Mistaking an employee for a contractor
If you are in a situation where you genuinely believe that your employee is acting as a contractor and you don't withhold PAYG tax from their payments, then in this instance, although a mistake has been made, you won't lose your deduction for these payments as you complied with the withholding obligations.
Aspen Corporate will be able to assist you with correcting your mistake through the lodgement of a voluntary disclosure form.
If you are unsure as to whether someone is a contractor or employee, contact your Aspen Corporate advisor who can help you determine the appropriate classification.
Failure to withhold or report
You will lose your deduction if there is a withholding or reporting requirement, and no amount is withheld or reported to the ATO, unless a voluntary disclosure form is submitted before the ATO has commenced an audit, or other compliance activity.
If you are concerned about these changes to reporting PAYG payments and would like assistance please contact your Aspen Corporate Advisor.