Small business owners should be aware of changes to compliance obligations for claiming deductions for PAYG. From 1 July 2019, businesses will be prevented from claiming deductions for payments to employees and certain contractors if they fail to comply. Payments include the following:

  1. Salaries;
  2. Wages;
  3. Commissions;
  4. Bonuses or Allowances to an Employee;
  5. Payments under a Labour-Hire Arrangement;
  6. Payments to a Religious Practitioner; and
  7. Payments for a Supply of Service.

The new laws commencing 1 July 2019 will prevent an employer from claiming a deduction for payments to employees if they fail to withhold an amount as required under PAYG withholding rules or report a withholding amount to the ATO.

The claiming of deductions for payments to employees also includes the necessity to understand the importance of lodging your business activity statement on-time, as a failure to do so may result in a business permanently losing its tax deduction for wages paid under the new law.

Businesses will also have to ensure they obtain a valid ABN from their suppliers and withhold at the top marginal rate if an ABN is not provided.

Any business that fails to comply with these rules will be denied a deduction if the payment relates to a contract for the supply of services. Contracts for goods and property are excluded from the operation of these new laws.

Voluntarily disclosing mistakes to the ATO before an audit or other compliance activity in regards to your tax affairs can allow your business to retain their deduction.

Ensuring your business is compliant to these updated PAYG withholding laws will make a difference to whether you remain eligible for deductions.