New legislation could see businesses lose tax deductions for payments to employees and contractors. This article details this new law, and provides a checklist of how to be compliant…
In March, legislation was passed which will deny an income tax deduction for certain payments if the associated withholding obligations are not complied with by the business making the payment. This new law commences on 1 July 2019, and provides a very strong incentive for employers to comply with their withholding obligations. Under current law, employers are entitled to a deduction for actually having made a payment to an employee or contractor – irrespective of whether they have correctly met the withholding requirements in respect of these payments. This is, the payment itself is sufficient to claim a deduction.
From 1 July 2019, a deduction will no longer be allowed in relation to the following payments:
- Of salary, wages, commissions, bonuses, or allowances to an employee
- Of directors’ fees
- To a religious practitioner
- Under a labour-hire arrangement
- For a supply of services – excluding supplies of goods and supplies of real properyt – where the recipient of the payment has not quoted their Australian Business Number (ABN)
….if withholding applied to the payment, and the payer was required to withhold an amount from the payment and did not withhold an amount OR did not notify the ATO when required. To be clear, deductions will only be denied where no amount has been withheld at all from the payment that attracts withholding or no notification is made to the ATO. Withholding an incorrect amount (such as from an allowance etc.) or reporting the withholding incorrectly will not result in a deduction being denied.
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