Effective from 1 July 2019, businesses will not be able to claim tax deductions for cash and non-compliant payments to employees and contractors unless the business has satisfied the ATO PAYG withholding and tax reporting obligations. This is part of the ATO crackdown on the cash/black economy.
“Non-Compliant Payments” are those where a business has not withheld or reported the PAYG withholding tax.
This applies to:
- • Employee salary, wages, commissions, bonuses, and allowances;
- • Directors’ fees;
- • Under a labour hire arrangement;
- • Contractor payments for the supply of services where no ABN is provided; and
- • Non-cash benefits provided (such as the provision of goods or services).
A tax deduction can be claimed for the above payments if the business has satisfied the PAYG withholding tax rules which requires:
- • PAYG withholding tax must be withheld from the payment before it is made to the employee or contractor; and
- • Report the PAYG withholding tax withheld to the ATO.
Businesses will not lose the tax deduction if mistakes were made in determining the amount to withhold or reported incorrect amounts to the ATO. The errors must be disclosed and rectified with the ATO as soon as possible.
Please note that this information is not specific and is general in nature and cannot be relied upon as advice. Please contact us for specific advice for you and your circumstances.