All businesses, including not for profits, are now required to meet their PAYG withholding obligations before they can claim deductions for payments to workers – for example, salary, wages, bonuses, directors’ fees and payments under a labour hire agreement.
Payments to contractors where the contractor does not provide their ABN are also covered by these new rules.
Note! These new rules took effect from 1 July 2019 and apply to income tax returns lodged for the 2020 income year onwards.
What you must do to claim a deduction
In order to claim a deduction, you need to:
- Withhold the required amount (if applicable) before you pay your worker
- Report that amount to the ATO
If you make a mistake and withhold or report an incorrect amount, you won’t lose your deduction. You will need to correct your mistake as soon as possible to minimise penalties.
Using contractors – PAYG obligations
The ATO has published a useful checklist about your PAYG obligations if you hire a contractor.
If the contractor doesn’t provide you with their ABN:
- You generally need to withhold47% from payments to them
- Give a completed PAYG payment summary – withholding where ABN not quoted to the contractor with their net payment, or as soon as practicable afterwards
- Include the payments in your PAYG withholding where ABN not quoted – annual report and lodge the report with the ATO by 31 October
If the contractor is an individual who has a PAYG withholding voluntary agreement with you:
- Work out the PAYG amount to withhold from payments to the contractor – use the tax withheld calculator or tax tables online (take into account any information provided by the contractor in a withholding variation or withholding declaration
- By 14 July, provide a PAYG payment summary – business and personal services income to the contractor showing the total amounts paid and withheld
- Include the payments in your PAYG payment summary annual report and lodge the report with the ATO by 14 August
If you have to withhold PAYG amounts for any reason:
- If you haven’t withheld before, you need to register for PAYG withholding straightaway
- Report and pay the PAYG withholding amounts to the ATO in your BAS which is usually quarterly or monthly for most businesses. A business withholding more than $1 million per year reports and pays more often
Small employers had until 30 September to start reporting through Single Touch Payroll (STP). There …