Types of payments affected
If you comply with the PAYG withholding and reporting requirements for the following payments, you can claim a deduction for them. These payments are:
- salary, wages, commissions, bonuses or allowances to an employee
- directors’ fees
- payments to a religious practitioner
- payments under a labour hire arrangement
- for a supply (either wholly or partly) of services where the independent contractor hasn't provided you with their Australian business number (ABN).
Non-cash benefits
A non-cash benefit is something you provide instead of paying cash, for example goods or services.
You must report to us the PAYG withholding amount relating to non-cash benefits in order to be able to claim a deduction.
Correcting a mistake
You won't lose your deduction if you:
- withheld an incorrect amount by mistake
- withheld the correct amount but made a mistake when reporting it to us.
To minimise any penalties, you should still lodge a voluntary disclosure in the approved form as soon as possible.
Failure to withhold or report
You will lose your deduction for payments that:
- you should have withheld from a PAYG amount but didn't
- you withheld from a PAYG amount but didn't report the amount to us.
We may also charge you penalties for failing to withhold an amount from a payment or failing to report the amount to us.
You may avoid penalties or be able to claim your deduction if you make a voluntary disclosure in the approved form before we start an audit or other compliance activity involving your PAYG withholding obligations or deduction claims.
Mistaking an employee for an independent contractor
If you mistakenly treated the person working for you as an independent contractor, rather than an employee, and didn't withhold an amount from their payments, you won't lose your deduction for these payments if you had:
- obtained an invoice, or some other document relating to the payment, that quoted the independent contractor's ABN
- no reasonable grounds to believe that it was not the independent contractor's ABN or that the ABN was incorrect.
You can correct your mistake by lodging a voluntary disclosure in the approved form.
You can use our employee or independent contractor information pages help you work out if your worker is an employee or independent contractor.
Payments to independent contractors
You won't lose your deduction for a payment you make to an independent contractor for their services if both of the following apply. You have:
- been given an invoice, or some other document that relates to the payment, that quotes the independent contractor's ABN
- no reasonable grounds to believe that it's not the independent contractor's ABN or that the ABN is incorrect.
It is always good business practice to check the:
- ABN on the invoice is active and correct
- independent contractor is registered for GST (if they have charged GST).
You can use ABN LookupExternal Link to perform these checks.
How we tell you about an audit
If you have been selected for an audit or other compliance activity, we will usually phone you, or we may tell you in person or in writing. We will also tell you the scope of the audit and the period(s) under review.
Penalties
If you don't comply with your PAYG withholding and reporting obligations for a payment, you may:
- lose your deduction for that payment
- face penalties for failure to withhold and report amounts under the PAYG withholding system.