PAYG withholding

Pay as you go (PAYG) is a withholding tax which requires you to pay incremental amounts of your business’s income to the ATO. These payments accumulate towards your expected end of year income tax liability. Before you lodge your income tax return, it is important to finalise your PAYG instalments. This will ensure that your income tax assessment takes into account the contributions you have paid throughout the year.

This article will outline what PAYG withholding is, and how it can be beneficial for your business.

Your PAYG obligations

As a business owner, you have an obligation under the PAYG withholding rules to collect tax from the payments you make to employees and certain businesses to ensure that they meet their end-of-year tax liabilities.

To determine whether or not you have withholding obligation, check if the following applies:

  • You’re an employer
  • You employ other workers, such as contractors and both of you are entered into a voluntary agreement to withhold amounts from your payments to them
  • You make payments to businesses that do not quote their ABN

If this criteria applies to your business, you must register for PAYG withholding (if you have not already) before you are first obliged to withhold a partial amount of a payment.

Registering for PAYG withholding

There are three ways to register for PAYG withholding. Note that in order to register for PAYG withholding your business’s ABN is required. If your business does not have an ABN, you can check out our guide on How to Register for an ABN. If you do have an ABN, you can register:

  • Online through the Business Portal on the ATO website
  • Through a registered tax agent or BAS agent

If you are looking to register an ACN, you can register a company with PAYG through LawPath.

Payments you need to withhold from

The PAYG withholding system is based on withholding amounts of a payment that you as a business may make. The amount that you withhold is then sent to the ATO.

The types of payments that you withhold from are generally from the payments made to:

  • Employees
  • Directors
  • Business that do not quote their ABN to you
  • Contractor with which you have a voluntary agreement with

Business that operate as either a sole trader or as a partnership and which draw amounts from the business do not have to withhold these payments as they are not classified as a wage.

When an employee leaves or retires

Should an employee cease employment with you, some things you are required to do are:

  • Make any final PAYG withholding payments that may be long standing, on the employee’s behalf
  • Complete an employment termination payment (ETP) form, if applicable
  • Send a payment summary to the employee
  • Keep on record the employee’s TFN declaration till the end of the next financial year
  • Keep record of the PAYG withholding

Should a contractor under a voluntary agreement cease their contract with you, you must then withhold any final payments at the applicable rate and keep record of the necessary PAYG withholding.

This is also applicable to businesses that have not quoted their ABN.

When obligations cease

The situations in which you will no longer be obliged to withhold payment amount is if you should cease as an employer or if you no longer operate your business. Should you cease as an employer you will be advised to cancel your PAYG withholding registration. Should you cease operating your business then you may wish to cancel your ABN registration as well as your PAYG withholding registration.

However before commencing with either action you must ensure that you:

  • Have lodged any outstanding activity statements; and
  • Met all your PAYG withholding registration

To proceed with the cancellation of your PAYG withholding registration you may cancel it:

  • Online through the Business Portal on the ATO website
  • Through a registered tax agent or BAS agent

Need more information? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.

Jackie Olling

Jackie is the Content Manager at LawPath and manages the content team. She has a Law/Arts (Politics) degree from Macquarie University and has worked in the legal industry since 2014. She's interested in legal tech and the opportunities it offers to not only the legal industry, but all people.