The rules have changed for pay as you go (PAYG) withholding. There are now changes to the rules surrounding claiming deductions on payments to your employees. As a small business owner, it is important that you keep up to date with and understand what changes have been made.
Here is the rule change:
What has been changed?
From the 1st of July 2019 you will need to report the amount of tax withheld from an employee’s salary before you can claim a deduction on the salary as a business expense. Previously, employers could claim the deduction without reporting PAYG tax withheld. As the ATO is looking to further scrutinise any claimed deductions, they are strengthening their powers and introducing new measures to penalise employers who are failing to withhold correctly.
This means that you are required to prove that you have withheld the correct amount of tax from an employee’s salary before you can claim the deduction. To ensure that you can claim the deduction all you will need to do is to withhold the correct amount before you pay your employee and then report that amount.
What if I make a mistake?
If you make a mistake and report or withhold an incorrect amount you will need to correct this mistake as soon as possible. While you won’t lose your deduction, you could face penalties.
To correct any mistakes, you should lodge a voluntary disclosure on an approved form. Completing this as soon as possible will help minimise any penalties and will allow you to keep your deduction. If you simply reported an incorrect amount but withheld the correct amount you will not lose your deduction. In this case you should still correct any mistakes as soon as possible.
If you fail to withhold or report, you will lose your deduction. To keep the deduction, you must voluntarily tell the ATO before they have commenced an audit. Do this through a voluntary disclosure on an approved form.
If you are diligent at ensuring you withhold the correct amount and report the correct amount, then you will find no change from these new rules. They simply force businesses to take extra care in reporting and withholding the correct amounts.
The easiest way to ensure that you are compliant with PAYG withholding is by talking to an accountant. Give Link Advisors a call and see how these changes will affect you.