Changes to deductions for non-compliant payments to workers

The rules for claiming deductions for payments to workers are changing. From 1 July 2019, employers can only claim deductions for payments made to workers where they’ve met the pay as you go (PAYG) withholding obligation for that payment.

Where the PAYG withholding rules require an amount to be withheld, employers must:

• withhold the amount from the payment before they pay their worker
• report that amount to the ATO.

Employers won’t lose their deduction if they withhold:

• an incorrect amount by mistake – to minimise any penalties mistakes can be corrected by lodging a voluntary disclosure in the approved form.
• the correct amount but make a mistake when reporting – mistakes are to be corrected as soon as possible.

Employers will only lose their deduction if there is a withholding or reporting requirement and no amount is withheld or reported to the ATO, unless the employer makes a voluntary disclosure in the approved form before being told by the ATO or before an examination of the employers’ affairs has begun.

This change is part of the government response to recommendations from the Black Economy Taskforce.

See also:

• Removing tax deductibility of non-compliant payments
• PAYG withholding
• PAYG withholding payment summaries