July 16, 2019

New law could cost you deductions

Did you know that a new law took effect from 1 July 2019 which could prevent you from claiming a tax deduction for certain payments?

In November last year, legislation was passed which denies a tax deduction for payments where withholding or reporting obligations have not been met.

The ATO is referring to these as “Cash in Hand Payments.”

The most common example would be a business paying an employee and not deducting Pay As You Go Withholding (PAYGW) from the payment. Other examples of payments that require a withholding include director’s fees, bonus’, allowances, commissions etc.

A business that pays a directors fee or directors bonus at year end will need to withhold the correct amount of PAYGW at the time of the payment to be eligible for a tax deduction. This has not always happened in the past.

Another type of payment that will be affected, is a payment to a contractor where they have not provided a valid ABN and no tax has been withheld. If no ABN is provided, a business is required to withhold 47% from the payment and send the amount withheld to the ATO.

Now more than ever it is important to lodge your BAS on time to meet your reporting requirements. An exemption is available if the ATO are notified voluntarily of a withholding mistake in the approved form before they start investigating. This would extend to lodging a BAS late (but before the ATO makes an enquiry) however we wouldn’t recommend relying on this exemption.

We recommend business owners review their circumstances in relation to the new rules, as the cost of getting it wrong could be significant. Please contact Daniel Breheny on 9387 5637 if you would like to discuss further.

Daniel Breheny

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