As an employer, it is your obligation to collect tax from the payment you make to employees in helping them meet their end-of-year tax liabilities.

Registering for PAYG withholding

An entity must register as a PAYG withholder if it has a withholding obligation and must register before the day they must first withhold an amount.

Payment you need to withhold from

There are 35 types of payments which entities should withhold when making payments. The most common payment includes salary, wages and commissions. Allowance, compensation, sickness and accident payments it pays, depend on the nature, are also subject to PAYGW.

Noted that PAYGW obligation does not apply to payments made to a company or trust and partner salary.

PAYG payment cycle

Below is a detail table showing how and when withholding must be remitted to the Commissioner.

Withholder status Amounts withheld for year How and when withholding must be remitted to the Commissioner
Large > $1 million Electronic payment mandatory. Payment is required within 6 to 8 days on a Monday or a Thursday after the day of withholding
Medium > $25,000 and ≤ $1 million Electronic payment is required unless the Commissioner permits, in writing, some other method to be used. Monthly on the 21st day after the end of each quarter or BAS due date for deferred BAS payers
Small Neither large nor medium Electronic payment is required unless the Commissioner permits, in writing, some other method to be used. Quarterly on the 21st day of each quarter or BAS due date for deferred BAS payer

The requirement for a tax file number

New employees are required to provide a TFN declaration to their employer within 14 days of commencing employment. It is the employer’s obligation then to lodge completed TFN declarations with the ATO.

Employer is required to withhold tax at the top marginal rate (plus medicare levy if resident employee) and notify the Commissioner if no TFN is provided by employee, otherwise may result of a penalty of 10 penalty units.

Payments to contractors

Employers usually have no PAYG withholding obligations when making payment to contractors, unless:

  • The payment is made to building and construction industry contractors; or
  • Both parties have agreed and entered into a voluntary agreement.

No-ABN withholding

If the payee (entity or contractor) doesn’t quoted an ABN, the payer entity is required to withhold an amount at the top marginal rate (47%) for the total payment under the no-ABN withholding rule, unless:

  • Payment is not in course or furtherance of an enterprise;
  • GST exclusive payment is not more than $75;
  • Supply is made in activity as a member of local governing body;
  • Supply is wholly input taxed;
  • Payment is subject to rules relating to investment and TFN quotations; or
  • Payment is to individual who provided written statement that supply is in relation to a hobby or is wholly private and domestic.

Reference:

https://www.ato.gov.au/Business/PAYG-withholding/

https://www.ato.gov.au/Business/PAYG-withholding/Payments-you-need-to-withhold-from/

https://www.business.gov.au/new-to-business-essentials/withholding-tax-from-wages-and-other-payments

https://www.ato.gov.au/business/single-touch-payroll/in-detail/single-touch-payroll-employer-reporting-guidelines/

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