As the end of the financial year approaches, it is important to be aware of changes to compliance obligations for small business owners.

New penalties for business’ pay-as-you-go (PAYG) withholding and reporting obligations will commence 1 July 2019, with businesses now prevented from claiming deductions for payments to employees and certain contractors if they fail to comply.

Payments that are impacted include salaries, wages, commissions, bonuses or allowances  to an employee, payment under a labour-hire arrangement, payment to a religious practitioner or payments for a supply of service.

The new laws will prevent an employer from claiming a deduction for payments to employees if they fail to withhold an amount as required under PAYG withholding rules or report a withholding amount to the ATO.

It is also necessary to understand the importance of lodging your business activity statement on-time, as a failure to do so may result in a business permanently losing its tax deduction for wages paid under the new law.

Businesses will also have to ensure they obtain a valid ABN from their suppliers and withhold at the top marginal rate if an ABN is not provided.

A business that fails to comply with these rules will be denied a deduction if the payment relates to a contract for the supply of services. Contracts for goods and property are excluded from the operation of these new laws.

Voluntarily disclosing mistakes to the ATO before an audit or other compliance activity in regards to your tax affairs can allow your business to retain their deduction. Taking early action to ensure your business is compliant to these updated PAYG withholding laws will make a difference to whether you remain eligible for deductions.

If you have any questions around PAYG and your business please contact your accountant or business adviser.