As of 1 July 2019, you can no longer claim a tax deduction for a worker payment if you failed to comply with PAYG withholding and reporting obligations.
Payments can include:
- employee salary, wages, commissions, bonuses or allowances
- directors’ fees
- labour-hire arrangements
- contractor services (except supply of goods and real property) where no ABN was provided
- non-cash benefits to any of the above parties
When PAYG rules require you to withhold an amount, you must
- withhold the amount from the payment before you pay it to them
- report the amount to the ATO
If these steps are not followed, you won’t be able to claim a deduction.
However, if you do accidentally withhold or report an incorrect amount, you won’t lose your deduction, but you should correct your mistake as soon as possible to minimise any penalties.
If you genuinely believed your employee was a contractor you can correct the mistake by lodging a voluntary disclosure.
You also won’t lose your deduction if you fail to report withholding payments on a taxable payments annual report (TPAR) or a payment summary annual report (PSAR).