Tax deductions denied
If taxpayers don’t meet their PAYG withholding tax obligations from 1st July 2019, they won’t be able to claim a tax deduction for the following 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.
For instance, if payments are made as a “contractor” but it should have been done under an “employee” and no PAYG has been withheld, a deduction can still be available if the correct information has been rectified voluntarily, although keeping in mind failure to withhold the right amount of tax could incur a penalty.
Important to know if you are in the road freight, IT or security, investigation or surveillance business
The Government has been keeping a close eye on the taxable payments reporting systems for the building and construction industry and the cleaning and courier services and now are branching out to the bigger scope in more industries about how flow of cash payments to contractors are made. If your business has an ABN, in road freight, IT, security, investigation or surveillance all payments to be made to contractor needs to be reported to the Australian Tax Office (ATO)
Know your industry
Know the definition of your industry and the subtitle of service it covers for instance “Investigation or Surveillance” includes Locksmiths as the definition is “protection from, or measures taken against, injury, damage, espionage, theft, infiltration, sabotage or the like.” If you are unsure ask your accountant.
Another example is IT services, “Specialising in computer hardware and software for the services of the client, covering areas of software installation, web development and design, computer management, software simulation and testing but that doesn’t apply to the selling of computer software or hardware leases.
Road freight has been expanded to cover the transportation of good by large vehicles such as log haulage, removal of furniture, taxi trucks, towing trucks etc this has been added to the existing delivery and logistic areas like courier deliveries services which were already required to disclose payments to contractors.
If you think your business will be impacted by these changes, speak to your accountant. As of the 1 July 2019,
you need get the following information for all your contractors
- the ABN
- name and address
- gross amount paid
Having these records from the start will have reporting your first Taxable Payments Annual Report (TPAR), by 28 August 2020 easily and more accurate. Planning ahead will save you time and money in the long run.
Do you need to report?
Contractor payments obligation to report to the ATO are comprehensive and now include areas such as investigation, road freight, surveillance services, security and IT.
The following services are required to report contractor payments:
|Service||Reporting of contractor payments|
|Building and construction services||From 1 July 2012|
|Cleaning services||From 1 July 2018|
|Courier services||From 1 July 2018|
|Road freight, IT or security, or investigation or surveillance services||From 1 July 2019|
For businesses providing mixed services, 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.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
This article was written based on information supplied from Knowledge Shop Newsletter December 2018.