By Marie Olesen

If your business isn’t up to date with your PAYG withholding obligations, you may not be entitled to claim any business related tax deductions.

From 1 July 2019, businesses will no longer be entitled to claim a tax deduction for payments made where they have not met their PAYG Withholding obligations (to withhold or to notify the Tax Office as required e.g. on your quarterly BAS). This includes withholding from:

  • Payments for employees’ wages,
  • Payments to directors,
  • Payments made by labour hire firms,
  • Payments for Personal Services,
  • Payments to a supplier who has not quoted their ABN.

A deduction is only denied where no withholding has occurred or no notification is made to the Tax Office, withholding an incorrect amount will not affect your ability to claim a deduction.

A deduction will be maintained where the taxpayer voluntarily notifies the Tax Office in the appropriate form of their mistake prior to the commencement of any audit or compliance activity.

Where an employer makes a payment to a contractor with a valid ABN whom the Tax Office believes is actually a common law employee, a deduction won’t be denied provided they would not have been required to withhold on the assumption that the individual is a contractor.

Denial of a deduction is in addition to the existing penalties that exist for failure to withhold. Company Directors are legally responsible for their company meeting its PAYG Withholding obligations and bear personal responsibility for unpaid amounts.

If you’re concerned about meeting your tax obligations as an employer, please feel free to contact our office to discuss your situation further.