Non-compliant payments to workers no longer tax deductible
Businesses can no longer claim deductions for payments to workers 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. Any payments made to a worker where PAYG amounts haven’t been withheld or reported are called non-compliant payments.
If PAYG withholding rules require an amount to be withheld, businesses will need to:
- Withhold the amount from the payment before they pay their worker.
- Report that amount to the ATO.
Businesses will not lose their deduction if they:
- Withhold an incorrect amount by mistake. To minimise penalties businesses can correct the mistake by lodging a voluntary disclosure form.
- Withhold the correct amount but make a mistake when reporting, though mistakes should be corrected as soon as possible.
- Fail to report payments on a Taxable payments annual report (TPAR) or a payment summary annual report (PSAR).
Businesses will only lose their deduction if no amount is withheld or reported to the ATO unless voluntarily disclosed before the ATO examine their affairs.
This measure aims to create honest businesses and owners doing the right thing by their employees. This is part of the government’s response to recommendations from the Black Economy Taskforce.
Businesses that don’t comply with PAYG withholding and reporting obligations may lose the deduction for that payment and face penalties that apply for failure to withhold and report amounts under the PAYG withholding system.