On Monday 23.7.18, Treasury released an exposure draft legislation to remove tax deductibility of certain payments – including payment of wages and payments to contractors – if the entity making the payment fails to comply with its obligations to withhold and report information to the ATO. This proposal is part of a number of measures aimed at tackling the black economy.
The draft legislation proposes to amend the ITAA 1997 by adding a new s26-105 (Div 26 deals with deductions that are denied), that will deny a deduction, in relation to:
- a payment subject to the PAYG withholding regime if the payer does not withhold the amount from the payment or does not notify the ATO when required; and
- a non-cash benefit provided in lieu of a cash payment.
This proposed amendment is intended to create a financial disincentive to businesses making payments to those operating in the black economy by disallowing deductions that would normally be available. The disincentive created by denying the deduction will complement existing penalties for failures to withhold amounts under the PAYG system.
DATE OF EFECT: 1 July 2019.
COMMENTS are due by 17 August 2018.
[Treasury website: Consultation Page; Draft Bill, Draft EM; LTN 139, 23/7/18; Tax Month – July 2018]