There’s recently been a big tax law change that may reduce the tax deductions for many small businesses across Australia.
This may happen if you:
- Don’t lodge your BAS’s on time; or
- Don’t lodge your payroll each week using Single Touch Payroll (STP); or
- Don’t properly withhold a tax amount from a payment before you pay it to an employee or a contractor.
Make sure that this doesn’t happen to you!
WHAT HAS CHANGED?
From 1 July 2019, you can only claim deductions for payments you make to your workers (employees or contractors) where you have complied with the pay as you go (PAYG) withholding and reporting 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, and
- report the amount to the ATO.
Any payments you make where you haven't withheld or reported the PAYG tax are called 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 to us. If you make a mistake and withhold or report an incorrect amount, you will not lose your deduction.
Figure 1: These changes are going to hurt if you're not ready for them - it's like losing a grand final!
WHAT CAUSES THIS PROBLEM?
The deduction is only denied where no PAYG withholding amount has been withheld at all or no notification is made to the ATO, either in a Business Activity Statement (BAS) or a Single Touch Payroll (STP) pay event.
WHAT DO YOU NEED TO DO?
The approved forms for making a voluntary disclosure for reporting or correcting PAYG withholding obligations are the BAS or the STP pay event report.
If a taxpayer does not report their PAYG withholding using the STP pay event report they can still report using the BAS and not lose their deduction. A voluntary disclosure using the approved form can be made any time up until the ATO tells you they are commencing a review or other compliance activity.
To ensure that you don’t lose your tax deduction for your employee or contractor payments, ensure that you lodge your BAS’s on time, ensure you lodge your STP events every time you pay wages, and ensure that you withhold the correct amounts from your payments to employees and subcontractors.
Please contact our team if you have any questions about these recent tax law changes.
We are here to help you!