No deduction for certain non-compliant payments for work and services

non-compliant payments

By Robert Erb & Jenna Podolczak

Robert Erb

On 1 July 2019 new rules came into effect that limit deductions for payments to workers if PAYG Withholding requirements have not been met.  While these changes will not impact the 2019 income tax year returns currently being prepared, they will apply to income tax returns lodged for the 2020 income tax year onwards.

In order to claim a tax deduction for PAYG Withholding, entities will need to:

  • Withhold the required amount (if applicable) before paying a worker
  • Report that amount to the ATO

Any payments made to a worker where an amount has not been withheld or reported will be a treated as a non-compliant payment and no tax deduction will be allowed for the payment.

These new measures will target payments such as:

  • salary, wages, commissions, bonuses or allowances to an employee
  • directors’ fees
  • payments to a religious practitioner
  • payments under a labour hire arrangement
  • payments for a supply either wholly or partly of services where the contractor has not provided you with their Australian business number (ABN).

Where payments are made to contractors, entities making payment will need to be satisfied that there are no reasonable grounds for believing the contractor’s ABN is incorrect or does not belong to that contractor.  If in doubt, the contractors ABN can be confirmed at  Where a contractor has not provided a valid ABN, a withholding tax rate of 47% applies to the contractor payment.

If there is a mistake in withholding or an incorrect amount is reported this will not result in a loss of deduction but the mistake will still need to be corrected as soon as possible.

If you have any queries about how these new rules may impact your business please contact your Vincents adviser.

Want to know more?

If you have any further questions or want to know more please contact Robert Erb, our Business Advisory Manager, for assistance.

An Important Message

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents.  Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.



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