Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt,...

Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt,

Slides prepared by Peter Miller

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PAYG Withholdings

Chapter 3



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PAYG SYSTEM OVERVIEW

PAYG is a system for regularly collecting income tax from earnings during the income year.

(Pay As You Go)

There are two limbs of PAYG:

1. PAYG Withholdings

2. PAYG Instalments



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PAYG System

PAYG

PAYG

withholding

PAYG

instalments

Means paying tax you withhold from

payments to others

Means paying tax on your own income

Regular reporting and remitting of tax to ATO



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• From the payees point of view, PAYG taxes are prepayments of expected annual income tax payable.

• Payees claim any PAYG tax paid during the income year as a tax credit on their annual income tax returns for the year.

PAYGA prepayment system



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• Payments of remuneration to employees.• Payments of directors’ fees to company directors.• Payments to contractors under voluntary

agreements.• Payments for labour services under labour hire

arrangements.• Payments for the supply of goods or services

where the payee does not quote an ABN.• Compensation,sickness or accident payments to

individuals.

PAYMENTS COVEREDSome of the payments by business payers to payees subject to PAYG withholding include:



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Employee remuneration includes:• Wages • Salaries• Allowances• Bonuses• Commissions• Leave entitlements• Eligible termination payments.

PAYMENTS OF REMUNERATION TO EMPLOYEES

Employees are generally individuals whose work tasks arecontrolled by the employer paying them.



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PAYMENT UNDER VOLUNTARY AGREEMENT

PAYER PAYEE

SUPPLY OF SERVICES

NET PAYMENT

BUSINESS INDIVIDUAL CONTRACTOR

(after PAYG tax withheld)



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• The contractor must be an individual.• The contractor must have have an ABN.• The agreement must be in writing and in an

approved form.• The agreement must quote the individual

contractors ABN.

PAYMENTS TO CONTRACTORS UNDER VOLUNTARY AGREEMENTS

Voluntary agreements allow payments to contractors to

come under the PAYG withholding system.

Requirements for a voluntary agreement to apply:



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• The period of agreement may be up to five years.

• Either party may terminate the agreement in writing at any time.

• The effect of the agreement is that payments to the contractor come under the PAYG withholding system.

THE AGREEMENT



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• The contractor does not have to charge GST.

• The contractor does not pay PAYG income tax instalments when dealing with that contractor.

• Instead, the payer withholds income tax from payments to the contractor at agreed rates.

ADVANTAGES OF VOLUNTARY AGREEMENTS



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• In typical labour hire arrangements, the worker is neither an employee of the labour hire firm, nor the business payer.

• The business payer pays the labour hire firm, which subsequently pays the worker.

• Under the PAYG withholding system, the labour hire firm must withhold tax from payments to workers who provide labour services for its clients.

PAYMENTS FOR LABOUR SERVICES UNDER LABOUR HIRE ARRANGEMENTS

Labour hire arrangements occur when businesses contract with labour hire firms which provide labour

services to the business.



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LABOUR HIRE ARRANGEMENT

Business

Payer

PaysLabour

Hire firm

WorkerPays

(works for)



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These payments must be made because of incapacity for work and are based on periodic rates.

COMPENSATION, SICKNESS OR ACCIDENT PAYMENTS TO INDIVIDUALS

Businesses may have to withhold tax from any compensation, sickness or accident payments made to

individuals.



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• The goods or services were bought by an individual for private or domestic purposes.

• The payment does not exceed $50.• The supplier was an individual engaged in a

hobby activity.

PAYMENTS FOR THE SUPPLY OF GOODS OR SERVICES WHERE THE PAYEE DOES NOT QUOTE AN ABN

These situations involve business to business payments, where no ABN is quoted by payees on their invoices for

the supply of goods or services.

Businesses who pay other businesses who do not quote anABN on invoices for goods or services supplied must withhold tax at 48.5%

No withholding is required from payments where no ABN is quoted if:



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Investment bodies such as banks must withhold tax at the highest personal tax rate from any income paid to investors

who do not quote their ABN.

INVESTMENT INCOME PAYMENTS BY INVESTMENT BODIES TO INVESTORS

WHO DO NOT QUOTE AN ABN



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• The PAYG withholding system also extends to payments of dividends, interest or royalties by businesses to non-residents with addresses outside Australia.

• Tax is withheld at flat rates prescribed by the regulations.

DIVIDEND, INTEREST OR ROYALTY PAYMENTS TO NON-RESIDENTS



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PAYERS OBLIGATIONSRegister as a payer

(once only)

Receive TFN declarations

From payees (and sent to ATO)

Withhold PAYG tax from eligible payments to payees

Send PAYG tax withheld with activity statement to ATO at regular intervals

Issue payment summaries to payees at end of income year

Send annual report to ATO at the end of the income year



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• TFN declarations• Withholding schedules• Activity statements• Payment summaries• Annual reports.

DOCUMENTSUsed by payers in the PAYG withholding system



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• Registering is a once-only requirement by mail or via the ATO site, www.business.gov.au.

• New payers register when they apply for an ABN.

REGISTERING FOR PAYG WITHHOLDINGS



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• It is not compulsory for individual payees to submit a TFN declaration to their payers.

• Payees may elect to disclose their TFN and indicate whether they want to claim the tax-free threshold.

TFN DECLARATIONAn authority for the payer to withhold tax at prescribed rates



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• These declarations disclose any tax offsets the payee is entitled to.

• They are used to request a reduced rate of withholding.

WITHHOLDING DECLARATION FORM



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• Wages, salaries, allowances, bonuses, commissions, leave paid to continuing employees.

• Directors’ fees paid to company directors.• Payments under labour hire arrangements.• Compensation, sickness and accident payments

to individuals.

WITHHOLDING PAYG TAXType of withholding payment

Withholding rate to apply

• Rates under the withholding schedules base on progressive personal tax rates.



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• Unused leave paid to employees on termination of employment.

WITHHOLDING PAYG TAX

Type of withholding payment


• Rates under PAYG withholding tax tables.



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• Payments to individual contractors under voluntary agreements.




• The ATO notified instalment rate per cent or 20 per cent, whichever is greater.



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• Payments for supplies where no ABN is quoted by suppliers.

• Payments from investments where the investor does not quote a TFN.




• 48.5 per cent of payment.



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• Electronically transferring funds.• Posting payments to the ATO.• Paying personally at any Australian Post Office.

SENDING PAYG WITHHOLDINGS TO THE ATO

Business payers regularly report and remit PAYG tax withheld to the ATO.

The tax is reported on either a BAS or IAS and sent to the ATO

Ways to make tax payments:



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• The total gross payment.• The total tax withheld from the payment for

the income year.• Any allowances and lump sum payments.

ISSUE PAYMENT SUMMARIES TO PAYEES

Payment summaries are issued to employees after the end of the income year.

Payment summaries must be issued by employers within 14 days after the end of the income year.

A payment summary shows:



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PENALTIES FOR NON-COMPLIANCE

Offence Penalty

Failure to withholdPenalty up to $1100 and liability for amount that should have been withheld.

Failure to register Penalty up to $550

Failure to remit tax by due dateGeneral interest charge for overdue period

Failure to provide payment summaries to employees

Penalty up to $2200

Failure to provide annual report Penalty up to $1100



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Discusses

PAYG Instalments

Chapter 4

Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt,...

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