The ATO have introduced new rules which disallow certain deductions to businesses who don’t meet their PAYG obligations.

When a business pays an employee, director, or certain contractors, it must withhold an amount for PAYG and report it to the ATO. The business can then claim the payments as a tax deduction. Under the new rules, if a business fails to withhold an amount and/or doesn’t report it, the ATO won’t allow the business to claim the payments as a deduction.

For example, Company A hires Leonard as a builder and pays him $1,000 per week. Company A needs to withhold $183 each pay run for PAYG, and report this amount to the ATO in their next activity statement. If Company A fails to withhold the amount and/or report it to the ATO, then they will not be able to claim Leonard’s pay or PAYG as a deduction.

There can also be PAYG obligations when a business hires a contractor that doesn’t quote their ABN. In this case, the business hiring the contractor is required to withhold 47% of the payment for PAYG and report this amount to the ATO in their next activity statement. For example, Company A contracts Pierre, a bricklaying contractor, to work on a building job. Pierre issues an invoice for his work to Company A for $1,000, but he doesn’t quote his ABN. When Company A pays Pierre, it will pay him $530, withhold the other $470 and report it to the ATO on their next activity statement. If Company A doesn’t withhold the $470 or report it to the ATO, then they won’t be able to claim the $1,000 as a deduction.

Don’t miss out on your deductions; if you need help with meeting your PAYG obligations then please contact the team on (02) 4933 3466 or crest@crestaccounting.com.au.

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