We often get asked about PAYG and how that affects a business. But simply put, ‘PAYG’ stands for ‘Pay As You Go’. It is an acronym used for two different processes systemised by the Australian Tax Office (ATO) for businesses in Australia: PAYG instalments and PAYG withholding.
This system allows you and your business to meet your income tax obligations by making payments at the end of each quarter of the year. These quarterly payments go towards the expected income tax obligation accumulated from your business and investment income for the current financial year. The ATO will write to you should you need to make these payments. But generally, it will apply to individuals, organisations or trusts who earn a certain amount of individual, gross business or investment outcome.
It is important to note however, that there are special rules and exceptions that apply to PAYG instalments for different business and company structures, trusts, primary producers and consolidated groups. For instance, if you are a company or superfund, you will need to complete PAYG instalments if the ATO calculates an instalment rate of above zero for your GST-registered organisations. For more on these special requirements, you can check out our other quick guide here.
The purpose of the system is to pay your employee or contractor’s income tax obligation on their behalf. Your company is obligated to withhold some of their payment and send it to the ATO at regular intervals. Additionally, registration with the system is required it you make payments to businesses that do not quote their Australian Business Number (ABN) or have employees. If your employee or contractor earns under the tax-free threshold, they can make a claim against the amount withheld by your business at the end of the financial year through their individual tax return. You can learn more about the PAYG withholding system in our quick guide here.
The Australian tax system may seem to have a lot of nooks and crannies that can be tricky to navigate. But the team here at Mead Partners we can help you map out your tax requirements from A to Z. We provide reliable tax advice and more to individuals and businesses of all shapes and sizes around Melbourne. So feel free to give us a call or enquire about a free hour of specialised advice 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.