PAY AS YOU GO WITHHOLDING (PAYGW) Tax

Australian employers are required to collect tax for some of the payments during the year and pay it to ATO.

This process of withholding tax right-at-the-payment point is called: Pay As You Go Withholding (PAYGW) Tax, and applies when paying:

  • Employee's salaries.
  • Contractors fees working under the voluntary agreement.
  • Businesses services who do not have ABN.

 

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Notes to remember for employers:

a)      All employers are required to register for PAYGW to be allowed to withhold tax.

b)      PAYGW registration must be cancelled and ATO is notified when the employer has not considered as an employer anymore.

c)      It is the duty and responsibility of the employer to check whether the employee, contractor or business is legally allowed to work in Australia.

 

d)      Do not confuse PAYGW tax with payroll tax since they are two different tax regimes.

 

Worker is an employee or a contractor

 

Worker is an employee or a contractor?

Sometimes the conditions of the worker make it difficult for the employer to decide whether the payee is an employee or a contractor.

 

Accordingly, ATO has devised a free online tool to assist employers to distinguish employees from contractors. 

 

 

Deadlines of Reporting PAYGW to ATO:

Employers who are registered for PAYGW tax must provide the details of this type of tax to ATO by 14 August for wages, salaries and other work-related payments.

However, the submission due date will be extended to 31 October each year if the tax is withheld from payment to:

  • Businesses who do not provide their ABN.
  • Non-residents for interests, dividends, and loyalties.
  • Foreign residents for the work they do or for the provision of natural resources.
  • Payees who do not quote their TFN.
  • Temporary residents for their superannuation payments.

 

PAYGW Details to be submitted to ATO:

  • Amounts withheld from payment and regularly reporting these amounts to ATO.
  • Summaries of total amounts, withholding amount and the balance of payment to the payee.
  • Annual reports of the payment reports to ATO before the due dates mentioned above.

 

PAYGW Special Circumstances:

When a worker leaves: Employer must pay the termination fees while complying with fringe benefits tax (FBT) and superannuation rules. The reports of all the payments must be sent to ATO.

When a worker dies: Generally no amounts is withheld for the salaries and wages that were earned when the payee was alive but is going to be paid after the death.  Similarly, no amounts should be withheld from the payments to the worker for unused annual leave or unused long service leave which are paid after payee’s death.