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Non-compliant payments to workers no longer tax deductible

You can no longer claim deductions for payments to workers if you have not met your pay as you go (PAYG) withholding obligations. This applies to income tax returns lodged for the 2020 income year onwards.

Reminder if PAYG withholding rules require an amount to be withheld, you must:

  • withhold the amount from the payment before you pay your worker
  • report that amount to the ATO

You will not lose your deduction if they withhold:

  • an incorrect amount by mistake – to minimise penalties you can correct the mistake by lodging a voluntary disclosure in the approved form
  • the correct amount but make a mistake when reporting – you should correct the mistake as soon as possible.

You will only lose your deduction if no amount is withheld or reported to the ATO, unless you voluntarily disclose this before they examine your affairs.

This measure aims to level the playing field for honest businesses doing the right thing by their workers. It is part of the government’s response to recommendations from the Black Economy Taskforce.

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