PAYG Withholding in Australia

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What Is PAYG Withholding?

In Australia Pay As You Go (PAYG) withholding is a system of withholding income tax from an employee or contractor’s salary or wages. The payer of the income therefore, rather than the recipient of the income, pays the tax directly to the ATO on behalf of the employee or contractor. These payments are made based on your expected income level for the year and will be taken into account when assessing your tax at EOFY.

PAYG is different to PAYG Installments. You can read more about the difference systems here.

Are you obligated?

Registration for the PAYG withholding is required for your business if you:

• Have employees
• Have other workers (including contractors) where it is voluntarily agreed that you will withhold amounts from your payments to them
• Make payments to businesses that do not quote their Australian Business Number (ABN)

You will need to register your business by the day you are required to start withholding amounts, which is simple to do online or by phone for a ABN registered business.

Exceptions

If your business however, is a sole trader or partnership structure and you draw amounts from the business, this is not considered a wage. Hence, these drawings are not subject to PAYG withholding. Instead, these are provisions for your income tax liability for your business through PAYG Instalments. Another thing to note is that if your employee or contractor earns under the tax-free threshold, you are not required to exclude them from PAYG withholding. Instead, they can make a claim against the amount withheld by your business at the end of the financial year through their individual tax return.

Understanding the Australian Taxation systems can be difficult to understand and become more confusing as your business grows. If you need reliable tax advice for your business, get in touch with Mead Partners today. We’re accountants based in Melbourne that helps businesses big or small with efficient solutions for your business needs. Enquire about a free hour of specialised advice for you business here.

DISCLAIMER: The above information is general in nature, and must be tailored to your personal circumstances. The information is provided as a guide only.