The rules for claiming deductions for payments to workers are changing.

From 1 July 2019, you can only claim deductions for payments made to your workers where you have met the pay as you go (PAYG) withholding obligation for that payment.

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

  • withhold the amount from the payment before you pay your worker
  • report that amount to the Australian Taxation Office (ATO).

Payments that must comply

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 (except from supplies of goods and real property) where the contractor has not provided you with their ABN.

You won’t lose your tax deduction if you:

  • withhold an incorrect amount by mistake – to minimise any penalties you can correct your mistake by lodging a voluntary disclosure in the approved form
  • withhold the correct amount but made a mistake when reporting – correct your mistake as soon as possible.

If there is a withholding or reporting requirement and no amount is withheld or reported to the ATO, you will lose your tax deduction unless you make a voluntary disclosure in the approved form before the ATO let you know they have begun an examination of your affairs.

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