Non-compliant payments to workers no longer tax deductible

Businesses can no longer claim deductions for payments to workers if they have not met their pay as you go (PAYG) withholding obligations.

This applies to income tax returns lodged for the 2020 income year onwards. Any payments made to a worker where PAYG amounts haven’t been withheld or reported are called non-compliant payments.

Where PAYG withholding rules require an amount to be withheld, businesses will need to withhold the amount from the payment before they pay their workers and report the amount to the ATO.

Businesses that don’t comply with PAYG withholding and reporting obligations may lose the deduction for that payment and face penalties that apply for failure to withhold and report amounts under the PAYG withholding system.

Withholding an incorrect amount by accident or making a mistake when reporting, however, will not result in a loss of the deduction. Businesses can correct mistakes by lodging a voluntary disclosure form to minimise penalties.