Late last year, new legislation to deny an income tax deduction for certain payments if the associated withholding obligations have not been complied with were passed.
Payments that are impacted includes salary, wages, commissions, bonuses or allowances to an employee; director’s fees; payments under a labour hire arrangement; payments to a religious practitioner; and payments for a supply of services.
The deduction is only denied where no amount has been withheld at all or no notification is made to the commissioner.
BDO partner Mark Molesworth said accountants should advise their clients on the importance of on-time lodgment of BAS if they want to hold on to their deductions.
“The on-time lodgement of BAS is now even more important than ever, because a failure to lodge the BAS on time may result in a business permanently losing its tax deduction for wages paid,” said Mr Molesworth.
Mr Molesworth said the new law will also mean businesses have to take particular care in obtaining a valid ABN from their suppliers and to withhold at the top marginal rate of tax if an ABN is not provided.
“While this requirement has been part of the law since 2000, many businesses have ceased to focus on it… a renewed focus on obtaining a valid ABN from all suppliers is suggested.” he said.
“An exemption is available for voluntary notification to the ATO of mistakes in relation to compliance with withholding requirements. Therefore, provided a business rectifies its mistake before the ATO asks them about it (e.g. where a business lodges their BAS late, but before the ATO initiates an enquiry) they will still get their tax deduction.
“Businesses should not intend on relying on this exemption however, because the ATO’s data collection systems are sophisticated at picking up non-compliance in real time and launching enquiries.”
RSM senior manager Tracey Dunn had previously said that businesses should take the opportunity to review payments made to employees and contractors to ensure withholding obligations are being met.