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PAYG withholding: new penalties for non-compliance

In 2017, a government taskforce on the black economy reported concerns that some Australian businesses are making payments to employees and contractors that are not being properly recorded. In response, the government has acted to deny deductions for payments where businesses fail to comply with the PAYG withholding and reporting rules. 

Specifically, new laws commencing on 1 July 2019 will prevent an employer from claiming a deduction for payments to employees such as salary, wages, commissions and bonuses if the employer fails to:

  • withhold an amount from the payment as required under PAYG withholding rules; or

  • report a withholding amount to the ATO as required.Deductions will similarly be denied for non-compliant payments to directors or payments under a labour-hire arrangement.

What happens if my business makes a mistake?

If you make a mistake by failing to withhold an amount (or to report it), you will not lose your deduction if you voluntarily disclose this to the ATO before it commences an audit or other compliance activity in relation to your tax affairs. However, you may still incur penalties.

Ensure your business is compliant

Now is a great time to check that your PAYG withholding affairs are in order. Taking early action to correct and disclose PAYG withholding mistakes will make a big difference to whether your business remains eligible for deductions. Please contact our office if you require any assistance.



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