Do you understand what non-compliance with your PAYG withholding obligations means for your business or you personally?

The changes to personal income tax announced during the Federal Budget have now been incorporated into the ATO withholding schedules and tax tables and will apply to payments made on and from 13 October 2020 Employers have until 16 November 2020 to implement these changes into their payroll otherwise they may be penalised (in some cases personally) and/or lose their ability to claim a deduction for payments to their workers.  

Failure to withhold

Pay as you go (PAYG) withholding obligations mainly apply to businesses.  Businesses are required to withhold tax from payments to: 

  • Employees, directors, office holders or other individuals in various capacities; and 
  • Enterprises that do not quote an Australian business number (ABN) for a supply. 

 Businesses must also pay the ATO an amount for: 

  • Amounts withheld; 
  • Alienated personal services payments; and 
  • Non-cash benefits. 

 The penalty for a failure to meet your requirements to withhold or pay is equal to the amount that you should have withheld or paid. 

Liability of a Company Director

If you are a company director, you are legally responsible for your company meeting its PAYG withholding obligations.  Failure to meet a PAYG withholding obligation in full by the due date means you could personally become liable for a penalty equal to the unpaid amount. 

Denial of Deductions

Businesses may claim deductions for payments to employees and contractors if they have complied with their PAYG withholding and reporting obligations.  If, however, the business does not withhold or report the PAYG amounts correctly, they will be unable to claim a deduction for any non-complying payments. 

Deductions will similarly be denied for non-cash payments such as goods and services unless a business pays a withholding amount to the ATO (equal to the amount they would be required to withhold if the payment were money based on the market value of the benefit) before making a non-cash payment. 

Deductions will also be denied for businesses that fail to withhold PAYG from a payment to a contractor where the contractor does not provide their ABN. 

Ensure your business is compliant

While you are checking that your PAYG withholding affairs are in order, take the time to look at other aspects of your wage protocols. Are you underpaying your staff? Is your rostering being managed appropriately? Do you have good practices and procedures in place that ensure your business can meet its obligations to your staff? As a company director do you have an appropriate business structure in place that will minimise your personal risk? 

JFM LAW can assist you with any legal issues arising out of the employment of staff including ensuring that your business is structured in a way that protects your assets and minimises your personal risk. Call us on (02) 9199 8597 to chat about your situation and how we can help.