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.

As an example, if you pay your employee’s weekly a net cash wage but don’t withhold tax and report and pay this to the ATO as is required – you will be denied a tax deduction for the wages you have paid to your employees.

If PAYG withholding rules require an amount to be withheld, you must:

  • withhold the amount from the payment before paying your worker
  • report that amount to the ATO (on an activity statement or via STP).

You will not lose your deduction if you withhold:

  • an incorrect amount by mistake – to minimise any penalties you or your accountant can correct the mistake by lodging a voluntary disclosure in the approved form
  • the correct amount but make a mistake when reporting – you or your accountant should correct the mistake as soon as possible.

You will only lose your deduction if no amount is withheld or reported to the ATO, unless you voluntarily disclose this before they examine your affairs.

This measure aims to level the playing field for honest businesses doing the right thing by their workers. It is part of the government’s response to recommendations from the Black Economy Taskforce.

Published : 24 Oct 2019

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