What is PAYG Withholding?

Pay as you go (PAYG) is a withholding tax which requires you to pay incremental amounts which accumulate towards your expected end of year income tax liability. Before you lodge your tax 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.

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 employ people;
  • 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  • You make payments to businesses that do not quote their ABN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’ 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;
  • By phoning the ATO on 13 28 66;
  • Through a registered tax agent or BAS agent.

If you are looking to register for 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 amounts 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  • Business that do not quote their ABN to you;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 a worker leaves or retires

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

  • 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 by latest 14 July;
  • Keep on record the employee’s TFN declaration till the end of the next financial year;
  • Keep record of the necessary 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.

No longer need to withhold

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:

  • Online through the Business Portal on the ATO website;
  • By phoning the ATO on 13 28 66;
  • Through a registered tax agent or BAS agent

Unsure where to start? Contact a LawPath consultant on 1800LAWPATH to learn more about customising legal documents, obtaining a fixed-fee quote from our network of 600+ expert lawyers or to get answers to your legal questions.

Nina Marie Bishay

Nina is a Paralegal working in our content team, which aims to provide free legal guides to facilitate public access to legal resources. With a passion for copyright law, her research focuses on small businesses, and how they can navigate convoluted legal procedures.