It is even more important to get the PAYG Withholding right now – changes from 1 July 2019!

From 1 July 2019 employers can only claim tax deductions for payments to workers (employees or contractors) where they have complied with the Pay As You Go (PAYG) withholding and reporting obligations for that payment.

If the PAYG withholding rules require you to withhold an amount from a payment you make to a worker, you must:

  • withhold the correct amount from the payment before you pay it to them, and
  • report the amount to the ATO.

This includes wages paid to yourself – where you are self-employed (including as a director or trustee).

Any payments you make to a worker where you haven’t withheld or reported the correct PAYG amounts are called “non-compliant payments”.

From 1 July 2019 you can NOT claim a tax deduction for “non-compliant payments”.

Employees

If you make a mistake and withhold or report an incorrect amount, you won’t lose your tax deduction.  However you will need to correct your mistake as soon as possible to minimise the penalties, by lodging a voluntary disclosure on an ATO form.

If you fail to withhold any PAYG from a payment that should have had a withholding tax withheld, you will lose your tax deduction for that payment unless you voluntarily advise the ATO before they commence audit activity.

Contractors

You will not lose a tax deduction for payments to contractors if:

  • you have received an invoice which quotes the supplier ABN, and
  • you have reasonable grounds to believe the ABN is correct.

There may be a situation where you make a mistake and treat the worker as a contractor when in fact, they should be an employee.  You will not lose a tax deduction if at the time of payment, you thought they were a contractor, and

  • you have received an invoice which quotes their ABN, and
  • you have reasonable grounds to believe the ABN is correct.

If you have made a mistake and the contractor should be an employee, you can correct your mistake by lodging a voluntary disclosure on an ATO form.

If you are in any doubt whether the contractor should be an employee or about the correct PAYG withholding, please contact us.