PAYG withholding: New penalties for non-compliance

New penalties for business’ pay-as-you-go (PAYG) withholding and reporting obligations will commence 1 July 2019. The new legislation will now prevent businesses from claiming deductions for payments to employees and certain contractors if they fail to comply.

Payments that are impacted include:

  • Salary
  • Wages
  • Commissions
  • Bonuses or allowances to an employee
  • Payment under a labour-hire arrangement
  • Payment to a religious practitioner
  • Payments for a supply of service

This measure highlights a key reason why governance over all employment tax is important. Specifically, the new laws will prevent an employer from claiming a deduction for payments to employees if they fail to withhold an amount from the payment as required under PAYG withholding rules or report a withholding amount to the ATO.

It is also necessary to understand the importance of lodging your business activity statement (BAS) 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 take care to obtain a valid ABN from their suppliers and withhold at the top marginal rate if an ABN is not provided. A 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.

If you make a mistake by failing to withhold an amount or to report it and you voluntarily disclose this to the ATO before an audit or other compliance activity in regards to your tax affairs, your business will not lose its deduction. Taking early action to ensure your business is compliant to these updated PAYG withholding laws will make a difference to whether you remain eligible for deductions.


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