The rules for claiming deductions for payments to workers changed on 1 July this year, with the ATO becoming a lot more strict and bringing in a harsh new penalty system.
Previously, if you paid someone as a contractor, and then they were later found out to be a common law employee, you (just) had to pay penalties or the tax and super that was added in by the ATO. Under the new rules, those will all still apply but the actual payment to your contractor will no longer be tax deductible at all – which could make a very large difference to your tax result at year end.
|New Law from 1 July 2019||Previous Law before 30 June 2019|
|The deductions (if any) will not be|
available if the entity making the payment
has failed to comply with its obligations
in relation to the payment to withhold
and to notify the Commissioner
|* An employer is generally entitled to a deduction for |
the payment of salary and wages
* A company may deduct directors’ fees paid to directors
* A labour hire business may deduct payments it makes to
individuals employed through its labour hire agreement
* An entity may be able to deduct an amount it pays to
another entity for a supply it receives from the other entity
If you aren’t sure if someone is a contractor or a common law employee, you can use the ATO Employee/contractor decision tool at https://www.ato.gov.au/calculators-and-tools/employee-or-contractor/
More info can be found in our factsheets section here
Unsure if this impacts on you? Give one of the team a call and we can walk you through it.