Non-compliance with PAYG obligations means payments of salaries or wages will be non-deductible

15 September 2021

The pay as you go (PAYG) withholding and reporting obligations require businesses to withhold an amount from a payment made to a worker (i.e. either an employee or contractor) and report the amount that was withheld to the ATO.

If businesses did not comply with these two PAYG obligations, no tax deduction is available when payments are made:

  • For salary, wages, commissions, bonuses or allowances to an employee.
  • For directors’ fees.
  • To a religious practitioner.
  • Under a labour hire arrangement.
  • For a supply of services where the contractor has not provided an Australian business number (ABN).

Businesses that have withheld an incorrect amount or reported an incorrect amount by mistake will not lose the deduction. However, businesses that have failed to withhold or failed to report will lose the deduction, unless they have made a voluntary disclosure of their mistake.

If you are unsure whether you would be able to claim a deduction for payments made to employees or contractors or have mistaken an employee for a contractor please speak to your adviser or contact the Findex Tax Advisory team.