Warning: No tax deductions if you don’t meet your tax obligations The big changes to tax you need to know before June 30.
By Paul Rattray
It’s tax time, and there are some BIG changes this year. One of the most significant is that if you don’t meet your tax obligations, you won’t get some tax deductions.
Yes, you read that correctly.
The ATO has been cracking down in recent months. It has put the STP system in place (which all Australian businesses must be using by the start of the new financial year), in an effort to better support businesses to account for, and report, tax obligations as well as superannuation payments, at the time of each pay cycle.
These initiatives will stem the tide of late payments and will also go some way towards eradicating the ‘black economy’ – that is those who operate outside the tax system, which is estimated to cost Australia tens of billions of dollars a year.
So, what are the new rules?
It’s important that you realise you will not be eligible for some deductions under the new system if you:
- Don’t lodge your BASs on time; or
- Don’t lodge your payroll each week using Single Touch Payroll (STP); or
- Don’t properly withhold a tax amount from a payment before you pay it to an employee or a contractor.
What’s changed?
From 1 July 2019, you can only claim deductions for payments you make to your workers (employees or contractors) where you have complied with the pay as you go (PAYG) withholding and reporting obligations for that payment.
If the PAYG withholding rules require you to withhold an amount from a payment you make to a worker, you must:
- withhold the amount from the payment before you pay it, and
- report the amount to the ATO.
Any payments you make where you haven’t withheld or reported the PAYG tax are called ‘non-compliant payments’. You won’t be able to claim a deduction if you don’t withhold any PAYG tax or report the PAYG tax to the ATO. If you make a mistake and withhold or report an incorrect amount, you will not lose your deduction.
What causes this problem?
The deduction is only denied where no PAYG withholding amount has been withheld at all or no notification is made to the ATO, either in a Business Activity Statement (BAS) or a Single Touch Payroll (STP) pay event.
What do you need to do?
The approved forms for making a voluntary disclosure for reporting or correcting PAYG withholding obligations are the BAS or the STP pay event report.
If a taxpayer does not report their PAYG withholding using the STP pay event report they can still report using the BAS and not lose their deduction. A voluntary disclosure using the approved form can be made any time up until the ATO tells you they are commencing a review or other compliance activity.
Next steps
To ensure that you don’t lose your tax deduction for your employee or contractor payments, ensure that you lodge your BAS on time, and ensure you lodge your STP events every time you pay wages, withholding the correct amounts from your payments to employees and subcontractors.
If you’re not already set up for STP, then to be honest, you’re skating on thin ice.
Xero has an in-built solution that’s really worth considering. Xero can be implemented relatively quickly, it is well supported Australia-wide, and it will really benefit your business in many ways once you embrace it.
If you’re concerned that you’re not ready for STP, then you may be able to get an extension on the compliance deadline from the ATO.
Please contact us via the website or drop into our office in Parramatta, if you have any questions about these recent tax law changes.
We are here to help.
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