Financial Services

Types of PAYG Tax Withholding Policy

In order to assist you in determining whether a payment is subject to PAYG withholding tax, we have attached a PAYG flowchart for your reference.

You will note that the first option on the PAYG flowchart requires the University to ascertain whether the payment has been made to an employee or a contractor. It is important to distinguish between these two types of recipients as they are subject to different treatments under the PAYG system.

The University will generally not be required to withhold from payments made to contractors where an ABN is quoted.

Policy statement

Payments to employees, company directors and office-holders

Under PAYG withholding, you must deduct amounts from the following kinds of payments you make to others:

  • salaries, wages, allowances, bonuses or commissions paid to an employee
  • payments to company directors
  • payments to office-holders (such as Members of Parliament)
  • payments to members of the defence forces or police forces
  • return to work payments
  • eligible termination payments
  • payments for unused leave
  • compensation, sickness or accident payments.

Note that where a payment has been made which is exempt from income tax in Australia, no PAYG withholding obligations will apply. An example of this would include payments made to overseas university professors who are not subject to Australian income tax under a double tax agreement.

Payments under voluntary agreements

A business and an individual contract worker who has an ABN can make a voluntary agreement to bring the worker's payments into the PAYG withholding system, if the work payments are not subject to any other PAYG withholding.

If the business and the contractor make a voluntary agreement the business will withhold tax instalments from payments it makes to the worker and send them to the ATO. The contract worker will not be required to pay PAYG instalments for that income.

A business and a contractor can enter into a voluntary agreement only if the contractor is an individual who has an ABN. You cannot enter into a voluntary agreement to withhold unless you are an individual.

How much do I withhold

Withholding from payments to employees and some others directly involved in your business should be in accordance with tax tables published by the ATO.

The tax tables take into account the personal income tax rates plus Medicare levy, any offsets or rebates, the Higher Education Contribution Scheme/Higher Education Loan Program, residency status and other relevant matters. Make sure you use the right tax table for your recipient, taking into account any information they may have provided you on a declaration.

Where the payee does not give you a fully completed tax file number declaration you must withhold tax at the highest marginal tax rate plus Medicare levy (currently a total of 46.5 per cent). Some payees may have been issued with a variation by the ATO. If this is the case you should withhold in accordance with the ATO variation letter or certificate presented by the payee.

Non-cash payments

Under the PAYG system, anyone providing non-cash payments (or receiving such payments, in the case of taxpayers acting for non-residents) must meet their withholding obligations. This ensures that a similar outcome is achieved whether payments are made in cash or in the form of non-cash benefits.

A non-cash benefit includes property or services in any form except money.

Note where the non-cash benefit is provided to an employee or an associate of the employee as a fringe benefit, there will not be a PAYG withholding obligation.

Payments where an ABN is not quoted

Under PAYG withholding, if a business supplies goods or services to another business and does not quote an Australian Business Number ("ABN") on their invoice or some other document, the business that receives the goods or services is required to withhold an amount from the payment to the supplier and remit this amount to the ATO.

When must I withhold

You must withhold if:

  • you are a business making a payment for goods or services
  • the supplier of the goods or services has not quoted their ABN on an invoice or some other document, or has not provided an invoice at all.

You do not withhold from a payment for failure to quote an ABN if:

  • you are an individual and the payment is wholly of a private or domestic nature for you
  • the payment does not exceed $50
  • the whole of the payment is exempt income of the recipient (for example, the recipient is an income tax exempt entity)
  • you already must withhold from the payment because you are an investment body paying an amount for which no tax file number has been quoted
  • the recipient is an individual and has made a written, signed statement that the supply is private or domestic in nature, or relates to a hobby (unless you have reasonable grounds to think the statement is false)
  • the supply is made by an entity through an agent and the agent quotes its ABN.

Generally, you are entitled to rely on quoted ABNs being genuine. However, if you think the ABN quoted on an invoice may be false, or is not the real ABN of the supplier, you should contact the supplier or check the website www.abr.gov.au. If you cannot obtain a valid ABN, you must withhold as if no ABN had been quoted.

How much do I withhold

In situations where you must withhold from payment because an ABN has not been quoted, you withhold at the top marginal rate of tax plus Medicare levy (currently a total of 46.5 per cent).

What if another business withholds from a payment to me

If you do not provide your ABN on invoices you issue, the businesses you are supplying goods or services to should withhold from your payment at the top marginal rate plus Medicare levy, under the same rules set out above. You will be entitled to claim this withheld amount as a credit in your next tax return