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ATO cautions on deductions for worker payments

Giving of money

Employers are being reminded that a new law is set to come into force next financial year that will restrict their ability to claim deductions for payments made to their workers.

In an online update, the tax office said that from 1 July 2019, deductions covering payments made to employees and contractors will only be available to businesses that have met the pay-as-you-go (PAYG) withholding obligation covering the payments.

Under the rule change, employers required to withhold an amount will need to do so before the employee is paid AND report the amount withheld to the ATO before they are eligible to claim any deduction.

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“This change is part of the government response to recommendations from the Black Economy Taskforce,” the ATO said.

It stipulated that legitimate mistakes won’t lose a business their eligible deductions, with reporting errors able to be corrected as soon as any mistake is discovered.

Penalties may still be applied where an incorrect amount is withheld, but the ATO said that such penalties can be minimised by voluntarily disclosing the error rather than waiting for it to be picked up by the tax office down the track.

The law was approved by Parliament in November last year, and covers a range of payments made to workers, including salary, wages, commissions, bonuses or allowances to an employee; director’s fees; payments under a labour hire arrangement; payments to a religious practitioner; and payments for a supply of services.

Measures aimed at curbing the so-called black economy were unveiled in last year’s federal budget.

At least some of the measures have received a lukewarm reaction from the business community, particularly a limit on cash payments, with one My Business reader lamenting at the time “it is amusing that paying with the legal tender of the Commonwealth is not to be acceptable”.

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Adam Zuchetti

Adam Zuchetti

Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016. 

The two-time Publish Awards finalist has an extensive journalistic career across business, property and finance, including a four-year stint in the UK. Email Adam at This email address is being protected from spambots. You need JavaScript enabled to view it.

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ATO cautions on deductions for worker payments
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