The ATO is reminding business taxpayers that deductions are no longer available for certain payments to workers if they have not met their PAYG withholding obligations from 1 July 2019.
If the PAYG withholding rules require an amount to be withheld (either from salaries, wages or any other payment to contractors), to claim a deduction for most payments, a business taxpayer must::
- withhold the amount from the payment before they pay their worker; and
- report that amount to the ATO.
If you fail to undertake either of these steps the payment is classified “non-compliant” and becomes non-deductible.
Importantly, where a taxpayer simply makes a mistake and withholds or reports an incorrect amount, they will not lose their deduction, although any such errors should be corrected as soon as possible so as to minimize penalties.
Additionally, a deduction is still available if they voluntarily disclose to the ATO prior to the commencement of an audit or other ATO compliance activity involving their PAYG withholding obligations or deduction claims.