Paying a tradie, designer or casual helper in cash and getting a handwritten invoice is common. But if that supplier has not given you an ABN, you may be required to withhold tax from what you pay them.
The rule
The ATO says a payer generally has to withhold 47 per cent of a payment if the supplier has not quoted an ABN by the time of payment. Sending a tax invoice with the ABN after you have already paid does not undo the requirement.
What you do with the money
- Report the amount you withheld on your activity statement, at label W4.
- Give the supplier a PAYG payment summary, so they can claim the amount as a credit in their tax return.
- If you should have withheld and did not, you can be liable for a penalty equal to the amount that should have been withheld.
When you do not need to withhold
- The ATO says withholding is not needed where a single payment is $75 or less.
- Some suppliers, such as people not carrying on a business, can complete a Statement by a supplier not quoting an ABN. It is not available to people running a business or entitled to an ABN. Keep the statement for five years, and withhold anyway if you have reasonable grounds to think it is false or misleading.
Make it a habit
- Ask for the ABN before the work starts, and ask for a valid tax invoice.
- Check the ABN on the ABN Lookup website. Payers can be caught if they have reasonable grounds to think the ABN belongs to someone else.
- Set up new suppliers properly in your accounting software with their ABN before your first payment.
A two minute check at the start saves a withholding headache at BAS time.
This tip is general information only and does not take your circumstances into account. Check the ATO website or speak to a registered tax professional about your situation.