Didn’t meet your tax obligation? New laws mean no tax deduction

New laws directly targeting the behaviour of taxpayers that don’t meet their obligations passed parliament last month. So, under the laws, taxpayers who do not meet their PAYG withholding tax obligations, from 1 July 2019 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.

Are the any exceptions?

The main exception is if you realise there is a mistake and voluntarily correct it.

For example, if you make payments to a contractor, but then later realise they should be paid as an employee and no PAYG is 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.

Check your industry

Are you in any of these industries?

  • road freight
  • IT
  • security
  • investigation
  • surveillance

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. It now includes cleaning and courier services. And, a broader set of industries have been targeted.

Therefore, if you have an ABN, and are in any of the above industries, then any payments you make to contractors will need to be reported to the Australian Tax Office (ATO).

Be careful – the definition of these industries is very broad

Did you know – locksmiths are classified as ‘investigation or surveillance.’

The definition covers all 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.

Road freight is typically goods transported in bulk using large vehicles. This includes services such as:

  • log haulage
  • road freight forwarding
  • taxi trucks
  • furniture removal
  • road vehicle towing

The addition of road freight to the taxable payments reporting system completes the coverage of delivery and logistics services. Businesses in courier services are already obliged to report payments to contractors to the ATO.

Who needs to report?

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

For building and construction services – From 1 July 2012

For cleaning services – From 1 July 2018

For courier services – From 1 July 2018

For road freight, IT or security, or investigation or surveillance services – From 1 July 2019

Businesses providing mixed services, listen up! 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.

I’m impacted – what should I do?

If your business is impacted by these changes, here’s what you need to do.

Document the

  • ABN
  • name
  • address
  • 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.

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