Taxable payment reporting extended to other industries
Before 1 July 2018, only taxpayers operating in the building and construction industry were subject to taxable payments reporting.
As set out in a recent top tax tips , employers must lodge a taxable payments annual report in August each year (e.g. the August 2018 report will be a summary of total payments made to contractors in the building and construction industry in 2018) with the ATO and this information is then data matched to the income declared by such contractors in their 2018 tax returns.
In future, this taxable payments reporting system is also extended to taxpayers operating in the:
- cleaning and courier industries - from 1 July 2018 (i.e. data match payments from 1 July 2018 onwards); and
- road freight, information technology and security provider industries – from 1 July 2019 (i.e. data match payments from 1 July 2019 onwards).
If you are involved in any of these industries, please speak to your Nexia advisor so that we can help you prepare and lodge your report.
No deduction if no withholding from 1 July 2019
As mentioned in a recent top tax tips , currently, employers and other entities engaging contractors can generally obtain a tax deduction for payments made to those persons for the supply of services even where the contractor has not quoted an ABN and even if the paying entities have not complied with their PAYG withholding obligations applicable to the making of such payments.
However, legislation was recently passed by the Senate whereby, from 1 July 2019, paying entities will no longer be entitled to a tax deduction if they fail to withhold amounts under the PAYG system. For example, an employer paying a salary to an employee would not be entitled to a tax deduction for the salary if PAYG was not withheld and notified to the ATO. The same rule will apply to payments to contractors where no PAYG is withheld because a contractor does not have an ABN.
However, tax deductions will still be allowed if an incorrect amount has been withheld and reported to the ATO.
There is also a partial exception from this withholding rule in circumstances of employee/contractor misclassification. For example, if an employer genuinely believed that a person was actually acting as a contractor (instead of as an employee) because the alleged contractor quoted an ABN, the employer would not have been required to withhold tax (pursuant to the no ABN withholding rule), and therefore the employer will be entitled to a tax deduction for the payment.
If an ATO audit later reveals that the alleged contractor was in fact an employee, there would be no need to amend tax returns for the previous deductions claimed. However, penalties will be imposed for failure to withhold in the past and in future, the employer will have to withhold PAYG on salary payments made to the “now newly classified employee”.