Did you know that a supplier must give you an ABN and if they don’t then you must withhold PAYG at 47%?
That brings us to the big question …
How often do you check the ABN records of suppliers?
When was the last time you checked that the ABN your supplier gave you was active AND the GST status was correct?
The reality is these details should be checked before every payment; despite the process only allowing you to check one ABN at a time. We all know that there are only so many hours in a day, so how realistic is this to even do?
We need a solution right? There are a few different options out there.
As always, you are held responsible
The business owner is ultimately responsible for checking the ABN validity of their supplier before payment. Where the supplier doesn’t have an ABN or it’s no longer active, you need to withhold. It’s as simple as that.
Note: There are certain suppliers that are not required to quote an ABN. In that case the supplier can give you an ATO approved form ‘Statement by Supplier for not quoting an ABN’. Once completed by the supplier, this document gets kept with your own records. This form can be found here along with the instructions for use:
Link to ATO: https://www.ato.gov.au/forms/statement-by-a-supplier-not-quoting-an-abn/
Where can I learn more about ABN & GST requirements?
The legislative provisions are found in section 12-190 of Part 2-5 (the PAYG provisions) of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953).
That section imposes an obligation on the paying entity to withhold an amount from the relevant payment where the payment is for a supply made or proposed to be made in the course or furtherance of an enterprise carried on by the supplier in Australia and none of the exceptions listed in the section apply.
If you want further, specific information on this legislation you can refer to Taxation Ruling-TR2002/9 ‘Income tax: withholding from payments where recipient does not quote ABN’: You can find that HERE.
No Withholding. No Deduction.
From 1 July 2019, you need to meet your PAYG Withholding obligations otherwise the payment may not be tax deductible.
The intent of the tax law amendment was to provide a greater incentive for employers and entities engaging contractors to comply with their withholding obligations.
To encourage compliance, the amendment removed the ability of taxpayers to deduct certain payments where the associated withholding obligations had not met.
These rules were brought in to crack down on the cash economy. The practical effect is that the rules are far reaching when applied to real world business transactions.
The good news is using the new ABN & GST Checker makes checking bulk ABN records simple.
Importance of lodging on-time
The deduction will be denied where:
- No amount has been withheld at all; OR
- After withholding an amount, a taxpayer fails to notify the Commissioner by the due date in the approved form.
In short, there is no tax deduction where an amount was supposed to be withheld but wasn’t. Or where a withholding was made, but the Commissioner wasn’t notified by the due date.
What is an approved form for notice?
Approved form includes your Activity Statement and disclosure under Single Touch Payroll (STP) as well.
What to do today?
At a minimum you should start checking your big suppliers before you make the next payment.
You can always hire a Virtual Bookkeeping Assistant to do this task for you otherwise. If you’re looking for one of those please reach out to us to ask us how you can find one.
Really, What’s the Source?
I don’t know about you but sometimes I read articles and will wonder what the source of that information is. If you’re like me, here’s the links to some of the bigger points referenced above:
https://www.ato.gov.au/general/gen/removing-tax-deductibility-of-non-compliant-payments/
And for our Not-For-Profit friends, this is specifically for you:
