New rules have now passed parliament that impose new rules to claim deductions, as well as require more industries to report payments made to contractors.

New Deduction Rules

From 1 July 2019, you will not be able to claim an income tax deduction for certain payments if the associated withholding obligations have not been complied with.

Businesses will no longer be able to claim deductions for payments to their employees such as wages where they have not withheld any amount of PAYG from these payments, despite the PAYG withholding requirements applying.

There will also be no deductions for payments made by businesses to contractors where the contractor does not provide an ABN and the business does not withhold any amount of No ABN withholding.

However, specific exceptions to these rules mean deductions will not be denied where:

  • a supplier of goods or real property has failed to quote their ABN (i.e., the new rules only apply to service providers);
  • an employer honestly believed an employee was acting as a contractor (and has either been quoted an ABN or has withheld if an ABN has not been quoted); or
  • the taxpayer has voluntarily notified the ATO of a mistake before an audit/compliance activity commenced.

However deductions will only be denied if no withholding took place, or no notification has been made. That is, incorrect amounts withheld or reported to the ATO will not impact a taxpayer’s entitlement to deductions.

New Taxable Payment Reporting Rules

From 1 July 2019, businesses that supply road freight, security, investigation, or surveillance services, or IT services will need to report payments made to contractors (basically any transaction in which other entities are engaged to undertake those services on their behalf).

This brings those industries into the same Taxable Payments Reporting regime that currently applies to businesses in the Building and Construction, Courier and Cleaning industries.

Both of these changes are made in the “Treasury Laws Amendment (Black Economy Taskforce Measures No 2) Bill 2018” that has recently completed its passage through parliament and now awaits royal assent