PAYG Withholding
Withholding is when you deduct amounts from payments to entities or enterprises (suppliers, employees, contractors, etc). PAYG Withholding replaces the PAYE (Pay As You Earn), PPS (Prescribed Payment System), RPS (Reportable Payment System), Provisional Tax, Company Tax Instalments, and TFN Withholding Tax. Also included in PAYG Withholding is the new ABN Withholding Tax. Withholding tax applies to the following circumstances:
Employee Payments
Payments of salary and wages Payments to company directors and office holders, and Payments in respect of a retirement payment, termination payment, annuity, benefit or compensation payment
No ABN was quoted on the Tax invoice
The supplier's ABN must be printed on all Tax Invoices you receive. If the supplier fails to provide their ABN, you are required to withhold tax (currently 48.5%) from the total amount. Withheld amounts are remitted to ATO via your BAS or IAS
You do not have to withhold if the payment is for:
- Private or domestic purposes does not exceed $50;
- The whole amount is exempt income for the recipient (eg the payment is to an income tax exempt entity);
- The supplier is wholly input taxed under GST;
- The entity or enterprise, from who you have withheld tax, is entitled to claim the withheld amount as a credit on their next tax return.
Also, you should not withhold if you are satisfied that:
- The supply is made in the suppliers' private capacity, or as their hobby;
- The payment is to an non-resident, who is not carrying on a business in Australia;
- The supplier is an individual or partnership, and not an enterprise.
If you are unsure, ask the supplier to provide you with a written statement the supply is excluded for one of these reasons. This statement must be kept for five years. This Form is available from the ATO and can also be downloaded here .
Under PAYG, an employee is someone who works for you. The ATO has a publication called 'Status of the Worker' which has guidelines to assess whether someone is an employee or not.
As an investment Provider you are required to withhold tax (currently 48.5%) from the distribution of all interest/investment derived income, for which the investor has not provided a Tax File Number.
Under PAYG Withholding, if you make certain payments to your employees, you are required to withhold amounts from the payments, and remit it to ATO. You must withhold amounts from:
Even where payment is made without cash, say with property or services, you still must meet withholding requirements. The ATO has a tax sheet called 'Withholding for Non-cash Benefits'.
If you are making payments from which you have to withhold, your obligations include:
- Registering for PAYG withholding;
- Notifying and paying the amounts you withhold, using the BAS/IAS;
- Providing your recipients with an end-of-year payment summary;
- Submitting the tax-file number declarations to the ATO as well as annual reporting on all your withholdings to the ATO
If you are a small withholder (total annual withholdings of up to
$25,000) then you will be required to report quarterly on the BAS. If the withholdings exceed $25,000 per annum - (which is approximately three staff earning $36,000pa) then you are a medium withholder, and will be required to report monthly for your PAYG withholding, even if you are only required to report quarterly for the GST. The ATO will send you pre-printed forms which should explain when and how to report.
Group certificates will be replaced by payment summaries. Payment summaries will be provided by the ATO. The payment summary must be given to the payee by 14 July after the end of the financial year. The payee can require a payment summary at any time - eg if they are leaving employment. This is not the case, however, where the payer also provides reportable fringe benefits to the payee. The FBT can only be calculated and completed at the end of the year.
By 14 August after the end of each financial year, you must provide ATO with a report about payments from which you have withheld amounts, if the payments were of the following kind:
- salaries, wages, allowances, bonuses or commissions paid to employees
- payments to company directors
- payments to office holders
- return to work payments
- pensions and annuities
- eligible termination payments
- payments for unused leave
- social security or similar payments
- Commonwealth education or training payments
- compensation, sickness, or accident payments
- payments under a voluntary agreement, and
- payments under a labour hire arrangement
If you are required to withhold from other types of payments, (eg when the ABN isn't quoted), then you must report on an approved form by 31 October after the financial year's end.