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Taxation law update

June 20, 2019

There is an existing requirement to withhold a sum equal to the top tax rate (46.5%) when paying contractors who do not quote an Australian Business Number (ABN).  There is already an offence for failing to withhold in this situation. 

From 1 July 2019 there is an additional risk for not withholding.  The business who has paid the contractor without withholding will not be able to claim the payment to the contractor as an income tax deduction.  This also applies to not withholding PAYG for employees.

This change to the income tax deduction rules could have a significant impact on your assessable income if payments to contractors are a major cost to your business and you fail to get ABNs or do not comply with withholding PAYG rules.  Without being able to claim these payments as income tax deductions your assessable income and your income tax bill higher. 

What should you do?

Make sure that contractors provide an ABN in their quotes and invoices.  It is also recommended that you regularly ensure that the ABN is current and check that the contractor is registered for GST as well.

HIA has information sheets about the obligations to withhold payments on its website.

Further information can be found at the ATO website