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Business Owners could be Denied a Deduction for Wages

Article By Jeff Little | | Accounting & Tax

As part of the black economy package within the 2018 Federal Budget, the government announced it would be removing tax deductibility of non-compliant payments.

From 1 July 2019, it is proposed that businesses will no longer be able to claim deductions for wage payments to employees where PAYG Withholding is not deducted despite the PAYG withholding requirements applying. While most business owners correctly account for employee wages and PAYG Withholding, some may not be as meticulous with their own wages.

Simply withdrawing funds from the business and deciding later if it is wages, drawings or dividends, is already a compliance risk that could lead to ATO penalty. From 1 July 2019, it could also result in a business owner effectively taxed up to 94%.

With the introduction of Single Touch Payroll for all businesses from next year, the ATO will have all the payroll information they need to identify non-compliant wage payments when they happen without the need to undertake an audit. High risk businesses include those:

  • not reporting owner wages and/or PAYG Withholding on activity statements
  • paying personal expenses from the business bank account
  • varying or calculating wages for business owners at year end
  • without a payroll system that is single touch payroll compatible

If you need help ensuring your wages comply with this change, contact your Altitude Adviser and they can assist you with implementing the right payroll solution for your business.