Deductibility of Employee Wages – BIG CHANGES!
For most businesses, wages are one of the largest expenses. Ordinarily, the payment of wages would be tax deductible for a business. However, from 1 July 2019, payments to workers will not be deductible if the employer has not met their PAYG withholding obligations for the wages.
Where the PAYG withholding rules require an amount to be withheld from wages, an employer must withhold that amount and report the withheld amount to the ATO.
An employer won’t lose their deduction if they:
Withhold an incorrect amount by mistake but correct the mistake by lodging a voluntary disclosure form with the ATO; or
Withhold the correct amount but report an incorrect amount, provided the mistake is corrected as soon as possible.
Generally, an employer will only lose their deduction if there is a withholding or reporting obligation and no amounts were withheld or reported to the ATO (unless there is voluntary disclosure to the ATO in the approved form before the ATO reviews their business affairs).
These changes will work hand-in-hand with the new Single Touch Payroll (STP) reporting requirements that commence on 1 July 2019 for most businesses. See our article here on Single Touch Payroll.
What payments does this apply to?
The PAYG withholding system applies to the following payments:
of salary, wages, commissions, bonuses, or allowances to an employee
of directors fees
under a labour hire arrangement
for a supply of services where the contractor has not provided you with an ABN.
If you do not comply with the PAYG withholding system for any of these payments, you may lose a deduction for that payment.
What does this mean for my business?
If you employ staff, you will need to make sure you have systems in place to withhold the correct amount of tax from your employees’ pay. The amount withheld must then be reported and paid to the Australian Taxation Office as part of your business activity statement reporting cycle.
Businesses using accounting software packages should ensure their payroll modules are up-to-date and using the current year tax tables. You also need to ensure that you have the correct documentation for your employees to support their wages and the PAYG withholding (including tax file number declarations).
How can we help?
We are conducting payroll health checks for businesses with employees. Please contact us today on (07) 56656469 if you would like us to review your payroll systems to ensure they will be compliant at 1 July 2019.
DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent,
Jeanette has over 20 years experience as an accountant in public practice. She is a Chartered Accountant, registered tax agent and accredited SMSF Association advisor. When she is not helping business owners grow their empires, you will likely find her out running on the trails or lifting weights in her local CrossFit gym. Book in to see Jeanette today.