Comply with your withholding obligations to claim tax deduction


Tax deductions

Businesses who fail to comply with their withholding obligations will be denied an income tax deduction based on new laws that will focus on the on-time lodgment of BAS.

The new PAYG laws will deny a tax deduction for certain payments if the business has not complied with the associated withholding obligations. These payments include salary, commissions, wages, employee allowances or bonuses, director’s fees, payments to a religious practitioner, payments under a labour hire arrangement and payments for a supply of services. The deduction will be denied when no amount has been withheld or no notification is made to the commissioner.

Businesses should know the importance of on-time BAS lodgment so they can hold on to their deductions. Failure to lodge the BAS on time may result in permanent loss of tax deductions for wages paid. Businesses should ensure they have a valid ABN from their suppliers and withhold at the top marginal tax rate if an ABN is not provided.

Voluntary disclosure of mistakes related to compliance with withholding requirements to the ATO is exempted, so if a business corrects its mistake before the commissioner commences an audit or initiates an enquiry, it can still receive a tax deduction. However, they should not rely on this exemption because the ATO now has sophisticated data collection systems which can pick up non-compliance and launch enquiries in real time.

Businesses are encouraged to review payments made to employees and contractors and make sure they are meeting their withholding obligations. Some businesses are used to waiting until year-end to classify payments as fees or bonuses but they have to start reviewing the withholding requirements when payments are made. This will also ensure compliance with STP reporting requirements.

The best way to reduce any non-compliance risk is to review all payments that could be impacted, so that if there are PAYG withholding obligations that have not been met, a voluntary notification to the ATO can be done.

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