Removing tax deductibility of non-compliant PAYG payments

PAYG

When it comes to tax, it pays to be aware of upcoming changes and one of the changes that take effect this month is the removal of tax deductibility of non-compliant PAYG payments.

What has changed?

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

Any payments you make where you haven’t withheld or reported the PAYG tax are called non-compliant payments. You won’t be able to claim a deduction if you don’t withhold any PAYG tax or report the PAYG tax.

Do you know your PAYG withholding obligations?

When it comes to PAYG if you have withheld tax amounts from payments you make to your payees, you need to:

  • provide the withheld amounts to the ATO
  • report those amounts to them regularly on activity statements
  • lodge an annual report confirming your total withholding
  • provide payment summaries detailing total payments and withholding to each of your payees.

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
  • report the amount to the ATO

So what can I claim?

You can only claim a deduction for the following payments if you 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.

What if I don’t report or I make a mistake?

As with any breach of tax law and responsibilities, there are penalties that apply for non-compliance, so it pays to ensure you are functioning within your obligations. If you make an error let us know we can assist you with the appropriate action to correct it asap, the good news is, if you report it you won’t lose your deduction.

Need help with employee obligations?

If you need help with your employee payment obligations, connect with the team here at JSM Accounting Group today on 1800 CALL JSM or visit us online at www.jsmaccounting.com.au we can help get you back on track.

References:

https://www.ato.gov.au/General/Gen/Removing-tax-deductibility-of-non-compliant-payments/

https://www.ato.gov.au/General/Correct-a-mistake-or-amend-a-return/Correct-an-activity-statement/PAYG-withholding—correcting-mistakes/

https://www.ato.gov.au/Business/Business-activity-statements-(BAS)/What-if-you-can-t-lodge-and-pay-on-time-/