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From 1 July 2019, businesses will only be able to claim deductions for payments to their employees where their PAYG obligations have been met.

Where the PAYG withholding rules require an amount to be withheld you must:

  • Withhold the amount from the payment before paying workers
  • Report withholdings to the ATO

This change is part of the government’s response to recommendations from the Black Economy Taskforce. PAYG withholders will be required to ensure that all lodgments are made on time in order to avoid large penalties or denial of tax deductions.

These rules will apply even if you pay yourself a director’s fee from your own company. If you don’t withhold and remit PAYG, your company will not be eligible for a tax deduction.

Employers will not lose their deductions if they withhold the incorrect amount by mistake or make errors in their reporting, so long as these errors are reported to the ATO prior to any examinations being conducted.

These changes increase the importance of tax planning prior to the end of the year to ensure that amounts can be determined and compliance requirements met to ensure the best outcome at tax time.

For more information regarding the changes to deductibility, visit the Australian Tax Office website. For tailored advice on these changes and how they will affect your business, contact your advisor or accountant.