Taxpayers beware: No deductions if you don't meet your tax obligations

December 2018

New laws passed by parliament last month directly target the behaviour of taxpayers that don't meet their obligations.

Taxpayers who don't meet their tax obligations are the target of new legislation that has passed in the Australian Parliament, particularly where they are not meeting their PAYG, taxable payments reporting, and contractor payment reporting obligations by not allowing tax deductions.

So what does this mean for you and your business?

Tax deductions denied

Failing to meet PAYG withholding obligations means that from 1 July 2019, taxpayers will not be able to claim a tax deduction for the following types of payments:

  • Salary, wages, commissions, bonuses or allowances to an employee;
  • Directors' fees;
  • To a religious practitioner;
  • Under a labour hire arrangement; or
  • Made for services where the supplier does not provide their ABN.

The main exception includes realising that a mistake has been made and voluntarily correcting it, for example if payments made to a contractor should actually have been paid as if they are an employee but no PAYG was withheld.

In these circumstances, a deduction may still be available if it is voluntarily corrected however penalties may still apply for the failure to withhold the correct amount of tax.

This underlines the importance of strategic planning for business owners who may be used to taking the funds from their companies and getting the accountants to clean it up afterwards when the compliance work is done.

Real-time compliance – and enforcement

The ATO is moving towards real time compliance and enforcement, as shown in the expansion of the Single Touch Payroll System, which rolls out to all businesses from 1 July 2019.

When it commenced on 1 July 2018, Single Touch Payroll was targeted to employers with 20 or more employees and the system will eventually replace PAYG payment summaries and numerous other reporting requirements.

Single Touch Payroll is designed to capture real-time data relating to mainstream employees and together with Super Stream (the payment of superannuation electronically by employers, including it's associated payment details) is giving the ATO and enormous amount of compliance clout – so much so, that it's almost embarrassing (and presumably why the Government announced an amnesty on catching up on unpaid super without the usual associated penalties!).

The main strategic point for business owners is… think ahead

Unfortunately we do regularly see request for the band-aid solution (i.e. after the event, "my accountant will fix it!"), it's not a particularly viable option unless you're willing to accept the increased costs of fixing the problem.

The best strategy is to have a strategy in the first place: Reporting and keeping your payments on-time is always the better solution and part of the normal tax planning process you should be engaging in with your accountant.

Business owners often have strategic, personal or other reasons not to pay themselves a salary from their businesses, but without appropriate tax planning strategies, this can result in  paying excess tax unnecessarily.

So once the strategy is in place, ensure it is implemented. The intention of this legislation is to capture the strategy being implemented after the event. It doesn't take much to ensure it happens real-time. That's why we are here.

Need a review?

Talk to us on 02 9957 4033 or email the team and we can work with you to implement the right approach to managing your reporting and payment obligations.

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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