No tax deductions if you don’t meet your tax obligations


New laws passed by parliament directly target the behaviour of taxpayers that don’t meet their obligations.

Tax deductions denied

If taxpayers
do not meet their PAYG withholding tax obligations, from 1 July 2019 they will
not be able to claim a tax deduction for payments:

  • of salary, wages, commissions,
    bonuses or allowances to an employee;
  • of directors’ fees;
  • to a religious practitioner;
  • under a labour hire arrangement; or
  • made for services where the supplier
    does not provide their ABN.

The main exception
is where you realised there is a mistake and voluntarily corrected it. For
example, if you made payments to a contractor but then later realised that they
should have been paid as an employee and no PAYG was withheld. In these
circumstances, a deduction may still be available if you voluntarily correct
the problem but penalties may still apply for the failure to withhold the
correct amount of tax.

Are you in the road
freight, IT or security, investigation or surveillance business?

The Taxable
Payments Reporting system was introduced to stem the flow of cash payments to
contractors and rampant under reporting of income. Since the building and
construction industry was first targeted in 2012, the reporting system has
expanded to include cleaning and courier services. Now, a broader set of
industries have been targeted.

If you have
an ABN, and are in road freight, IT or security, investigation or surveillance,
then any payments you make to contractors will need to be reported to the
Australian Tax Office (ATO).

Be careful here as the definition of these
industries is very broad.
For  example, ‘investigation or
surveillance’ includes locksmiths. The definition covers services that provide
“protection from, or measures taken against, injury, damage, espionage, theft,
infiltration, sabotage or the like.”

IT services
are the provision of “expertise in relation to computer hardware or software to
meet the needs of a client.” This includes software installation, web design,
computer facilities management, software simulation and testing. It does not
include the sale of software or lease of hardware.

freight is typically goods transported in bulk using large vehicles. This
includes services such as log haulage, road freight forwarding, taxi trucks,
furniture removal, and road vehicle towing. The addition of road freight to the
taxable payments reporting system completes the coverage of delivery and
logistics services as businesses in courier services are already obliged to
report payments to contractors to the ATO.

If your
business is impacted by these changes, you need to document the ABN, name and
address, and gross amount paid to contractors from 1 July 2019. Your first
report to the ATO, the Taxable Payments Annual Report (TPAR), is due by 28
August 2020. This might seem like a long way away but it will come around
quickly and you need to ensure that your systems are in place to manage the
reporting required easily and accurately.

Who needs to report?

obligation to report contractor payments to the ATO is already quite broad. The
addition of road freight, IT or security, or investigation or surveillance
services, adds another layer.

Service Reporting
of contractor payments
Building and construction services From 1 July 2012
Cleaning services From 1 July 2018
Courier services From 1 July 2018
Road freight, IT or security, or investigation or surveillance services From 1 July 2019

For businesses providing mixed services, if 10% or more of your GST turnover is made up of affected services, then you will need to report the contractor payments to the ATO.

Need assistance? Give Craig Rosen a call on +61 2 9221 6666.