Businesses can no longer claim deductions for payments to workers (employees or contractors) if they have not met their pay as you go (PAYG) withholding obligations. This applies to income tax returns lodged for the 2020 income year onwards.
If the PAYG withholding rules require you to withhold an amount from a payment you make to a worker, you must:
- Withhold the amount from the payment before you pay it to them
- Report that amount to the ATO
Any payments you make to a worker where you haven’t withheld or reported the PAYG amounts are called non-compliant payments.
You won’t be able to claim a deduction if you are required to withhold an amount and you don’t withhold or report any amount to the ATO.
You will not lose the deduction if you withhold:
- An incorrect amount by mistake
- The correct amount but make mistake when reporting – you should correct the mistake as soon as possible
You won’t lose your deduction for failing to report payments on a Taxable Payments Annual Report (TPAR) or a Payment Summary Annual Report (PSAR).
You will only lose the deduction if no amount is withheld or reported to the ATO, unless you voluntary disclose this before the ATO examines your affairs.
Mistakes can be corrected by lodging a voluntary disclosure in the approved form, which can be accessed using the link here
This measure aims to level the playing field for honest businesses doing the right thing by their workers. It is part of the government’s response to recommendations from the Black Economy Taskforce.
Author – Sean Kirby
Reference – www.ato.gov.au