The rules for claiming deductions for payments to workers are changing.
From 1 July 2019, businesses can only claim deductions for certain payments made to workers where they’ve met the Pay As You Go (‘PAYG’) withholding obligation for that payment.
Specifically, a business can only claim a deduction for the following payments if it complies with the relevant PAYG withholding rules:
- Salary, wages, commissions, bonuses or allowances to an employee.
- Directors’ fees.
- Payments to a religious practitioner.
- Payments made under a labour hire arrangement.
- Payments made for a supply of services (except from supplies of goods and real property) where the contractor has not provided their ABN.
Where the PAYG withholding rules require an amount to be withheld, the business must:
- withhold the amount from the payment before they pay their worker; and
- report that amount to the ATO.
Importantly, a deduction will not be lost if an incorrect amount is withheld (or reported) by mistake.