Proposed tax shock for those engaging contractors or employees

The May 2018 Federal Budget has left little doubt that anyone looking for a tax deduction for payments to contractors or employees had better get their house in order.

Currently payers are required to withhold the required amount of tax from payments to employees, and either obtain an ABN from a contractor, or withhold tax if no ABN is provided. Where such withholding does not occur, the payer is required to pay the tax, although in practice this is generally only enforced in the case of a tax audit.

From 1st July 2019 the government will amend the tax law to deny a tax deduction where a withholding obligation exists but no tax was withheld. The announcement, which was a recommendation contained in the final report of the Black Economy Taskforce, significantly changes the playing field, creating a financial disincentive for businesses to engage in Black Economy behaviour.

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