Any employer who does not comply with their pay as you go (PAYG) withholding obligations for employees will no longer be permitted to claim a deduction for the wages connected to that withholding. Similarly, where payments are made to contractors without an ABN and the business does not withhold the appropriate tax, such payments will also no longer be tax deductible.
Previously, employers who paid cash-in-hand could be penalised for failing to withhold and report the appropriate PAYG Withholding. These penalties remain in effect and are strengthen by the new measures which provide the ATO with further powers to penalise employers and payers who are failing to correctly withhold.
Particular care must be taken by business owners who’s remuneration may be linked to Director fees or Wages, as a variety of remuneration strategies result in Withholding not occurring in accordance with the new rules – With these new measures in play, significant deductions may be at risk. The ATO also holds discretionary exemption powers for use in cases where the failed withholding is the result of a mistake, but this should not be relied upon in most circumstances.
Date of Issue: 20 June 2019
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