When you are paying your employees, there are certain parties you need to withhold amounts from and instead send this to the ATO. This is to ensure these parties don’t have to pay larger amounts of unnecessary tax at the end of the year. We’ve put together a handy guide to make sure you don’t get caught out heading into the end of the financial year.
From July 1, 2019 you can only claim deductions for payments made to your workers where you have met the PAYG withholding obligations for that payment.
If the PAYG withholding rules require you to withhold an amount from a payment you make to a worker, you must:
- Withhold the amount from the payment before you pay it
- Report the amount the ATO
Any payments you make where you haven’t withheld or reported the PAYG tax are non-compliant payments. You won’t be able to claim a deduction if you don’t withhold any PAYG tax or report the PAYG tax.
You can only claim a deduction for the following payments if you comply with the PAYG withholding rules:
- Salary, wages, commissions, bonuses or allowances to an employee
- Directors’ fees
- To a religious practitioner
- Under a labour hire arrangement
- For a supply of services where the contractor has not provided you with their ABN
These are all well and good, but what if you are providing something which is not cash, goods and services for example. If this is the case, you will still have to report the PAYG tax in order for this to be classified as a compliant payment and allow you to claim a deduction.
It’s important that you ensure you are complying with PAYG withholding and reporting obligations for a payment. If you don’t, you face losing your deduction for that payment or existing penalties that apply, which can be a hefty fine.
If you do make a mistake, you don’t need to start hyperventilating, instead you should lodge a voluntary disclosure form and correct your mistake as soon as possible. However, if you should have withheld PAYG tax and didn’t, you do stand to lose your deduction for that payment.
As always, you can get in contact with us if you have any worries about your PAYG activity.