Guide to pay as you go (PAYG) withholding
Guide to pay as you go (PAYG) withholding
Overview
Pay as you go (PAYG) withholding is a system for withholding amounts from payments you make to employees and businesses so they can meet their end-of-year tax liabilities.
You will have withholding obligations if you:
- have employees
- have other workers, such as contract workers, and you enter into voluntary agreements to withhold amounts from payments you make to them, or
- make payments to businesses that do not quote their Australian business number (ABN).
If you make payments subject to withholding, you must:
- register for PAYG withholding
- withhold amounts from wages and other payments
- lodge activity statements and make payments to us
- provide payment summaries to workers
- provide us with a PAYG withholding payment summary annual report.
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This guide does not explain your other tax-related obligations as an employer. For information on your:
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Registering for PAYG withholding
There are a number of ways to register. You must apply for registration by the day on which you are first required to withhold an amount from a payment.
Withholding amounts from wages and other payments
Your withholding obligations vary depending on whether your worker is an employee or a contractor. Other factors that can affect the amount you withhold include an employee's has Higher Education Loan Program (HELP) or Financial Supplement debts and eligibility for tax offsets.
Reporting and paying the withheld amount
You need to report and pay amounts you withhold to us and to lodge your activity statements.
Payment summaries and annual reports
A payment summary shows how much you paid a worker and how much you withheld during the financial year. The payment summary you need to use and when you provide it depend on a range of factors including whether the worker was a contractor or an employee. An annual report summarises all payments and amounts withheld for the year.
When a worker leaves or retires
When an employee or contractor stops working for you, your obligations may include making and reporting employment termination payments.
No longer need to withhold
If you cease to be an employer, you should cancel your registration for PAYG withholding.
Registering for PAYG withholding
If you don't have an Australian business number (ABN) you can register for PAYG withholding at www.abr.gov.au at the same time as you apply for an ABN, using the same form.
If you have an ABN and would like to add a PAYG withholding account, you can do so online at www.abr.gov.au using an Administrator AUSkey
Alternatively if you have an ABN, you can register for PAYG withholding:
- online through the Business Portal at www.bp.ato.gov.au (you will need an AUSkey)
- by phoning 13 28 66
- by completing Add a new business account (NAT 2954) (send your completed form to the address shown on the form)
- through your tax advisor.
If you are not required to have an ABN but need to withhold tax from a payment - for example, a supplier hasn't quoted their ABN or you employ people such as nannies or gardeners - you can register by completing the Application to register a PAYG withholding account (NAT 3377). When this form is processed you will be issued with a withholding payer number (WPN).
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You must apply to register by the day on which you are first required to withhold an amount from a payment.
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Withholding amounts from wages and other payments
As an employer, you may need to withhold amounts from payments you make to your workers and businesses you deal with, and send the withheld amount to us.
The most common payments you need to withhold amounts from are payments you make to:
- your employees
- your directors
- businesses that do not quote their ABN to you
- contractors who have a voluntary agreement with you.
Employee or contractor
You need to establish the status of your workers, as your withholding obligations are different depending on whether your worker is an employee or a contractor.
Payments to employees
If you need to withhold amounts from payments to employees, including overseas workers and foreign residents, you need to get them to complete a tax file number declaration. In some cases, they may also complete a withholding declaration. Using the information in the declarations and our tax tables, you can work out how much to withhold.
Payments with special rules
Payments to workers in some industries and occupations have special rules you must use when calculating the amount of PAYG to withhold. Industries or workers include:
- household employees
- shearers
- horticultural industry workers
- religious practitioners
- creators of Indigenous artwork.
Payments to building and construction industry contractors
From 1 July 2012, businesses in the building and construction industry need to report to us the total payments made each year to each contractor for building and construction services.
Payments to contractors under a voluntary agreement
If you enter into a voluntary agreement with a contract worker, you may need to withhold amounts from payments you make to them.
Payments to labour hire workers
If you are a labour hire firm providing individual workers under a labour hire arrangement, you must withhold an amount from each payment you make to each worker.
When a business doesn't quote its ABN
If a business supplies you with goods or services, it should quote its ABN to you. If it doesn't, generally, you must withhold from the payment you make to them at the top marginal rate plus Medicare levy.
Employee or contractor
Your withholding obligations are different, depending on whether your worker is an employee or an independent contractor.
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Having an ABN or working on a casual basis doesn't automatically make a worker a contractor - the specific conditions under which the worker is engaged need to be considered.
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If your worker is an employee, you generally have to withhold amounts from payments you make to them and send the withheld amount to us.
If your worker is a contractor, you generally don't withhold amounts from payments you make to contractors (unless you have a voluntary agreement with them). However, if a contractor does not quote their ABN, you must withhold amounts from the payments you make to them.
The easiest and quickest way to work out whether your worker is an employee or contractor is to use our online Employee/contractor decision tool. This tool asks simple questions about your relationship with your workers and their working arrangements.
Casual workers, apprentices and workers with ABNs
Having an ABN or working on a casual basis doesn't automatically make a worker a contractor - the specific conditions under which you engage the worker need to be considered.
Individuals you hire as apprentices are your employees, not contractors.
Payments to employees
Tax file number (TFN) declarations
If you have a new employee, they must complete a Tax file number declaration. They may also complete a Withholding declaration.
Lodging tax file number (TFN) declarations
You need to lodge TFN declarations with the ATO within 14 days after the form is either signed by your employee or completed by you (if not provided by your employee) You can lodge TFN declarations on paper or electronically.
Withholding declarations
Withholding declarations tell you what adjustments to make to the rate of withholding as shown in the tax tables.
Amount to withhold
The information an employee gives you by completing these declarations will allow you to work out the amount to withhold.
Employees with HELP or Financial Supplement debts
If an employee has indicated that they have a HELP or Financial Supplement debt, use the HELP or Student Financial Supplement Scheme tax tables to work out how much extra to withhold for these debts. Add this to the amount withheld shown in the relevant column of the tables.
Employees claiming tax offsets
An employee may indicate on their Tax file number declaration or Withholding declaration that they wish to use their entitlement to a tax offset to have a reduced amount withheld from their regular payments throughout the year.
Variations
An employee may request adjustments to their withholding because of their liabilities or entitlements:
- tax offsets
- Medicare adjustments
- withholding for additional pays in the year
Variations can be to increase or decrease the amount you withhold (upwards or downwards variations). We must approve downwards variations before you decrease the amount you withhold.
Withholding from other payments to employees
You must withhold amounts from employee payments, including wages, salary, commissions, allowances, bonuses and employment termination payments.
If you operate your business as a company or trust with a corporate trustee, it is likely you are either an employee or director of that business. If the company or corporate trustee pays you a wage or directors fees, it has the same responsibility to withhold amounts from these payments and send the withheld amounts to us.
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If you operate your business as a sole trader or a partnership and you draw amounts from the business, these drawings are not wages and you do not have to withhold from them. You make some provision for your income tax liability through the PAYG instalments system.
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Situations that may affect the amount to withhold
Special rules apply if your employee:
- works overseas
- is not an Australian resident
- generates personal services income.
Tax file number (TFN) declarations
Each of your employees should complete a Tax file number declaration. When you receive a declaration you must:
- complete the payer section
- send the original to us within 14 days
- keep a copy for your records.
An employee's Tax file number declaration gives you certain information that allows you to work out the amount you withhold from payments you make to that employee. For example, whether they:
- are claiming the tax-free threshold
- are an Australian resident for tax purposes
- have a HELP debt or a Financial Supplement debt.
You only use the information for payments you make after you receive the declaration.
If an employee gives you a new declaration, it overrides any earlier declaration.
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Is your employee entitled to work in Australia?
It is a criminal offence to knowingly or recklessly allow someone to work, or to refer someone for work, where that person is from overseas and is either in Australia illegally or is working in breach of their visa conditions.
People or companies convicted of these offences may face fines and/or imprisonment. To avoid penalties, ensure your prospective employee has a valid visa to work in Australia before you employ them.
For more information and to check a visa holder's status online, visit the Department of Immigration and Citizenship website.
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If an employee does not quote their tax file number (TFN), claim an exemption from quoting their TFN on the declaration or provide a declaration at all, you must:
- complete the payee section with all the information you know about them
- send the declaration to us
- withhold at the top marginal rate plus Medicare levy for residents (currently 46.5%) or the top marginal rate for non-residents (currently 45%) from all payments you make to that employee.
Super
When an employee gives you a completed Tax file number declaration, you must pass their TFN on to their super fund or retirement savings account if you make contributions for them. You must do this within 14 days of receiving the declaration.
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For more information on:
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Lodging tax file number (TFN) declarations
You need to lodge TFN declarations with the ATO within 14 days after the form is either signed by your employee or completed by you (if not provided by your employee). You need to retain the payer's copy for your records. For information on storage and disposal, refer to Tax file number declaration - Storing and disposing of TFN declarations.
You may lodge the information:
- online - lodge your TFN declaration reports using software that complies with ATO specifications. There is no need to complete Section B of each form as the payer information is supplied by your software.
- on paper - complete Section B and send the original to the ATO within 14 days.
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Penalties
You may incur a penalty if you do not:
- lodge TFN declarations with us
- keep the payer copy of completed TFN declarations for your records
- provide your employee's TFN to their super fund where they quoted it to you.
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Withholding declarations
Your employee must give you a completed Withholding declaration if they want to:
- claim an entitlement to tax offsets by having a reduced amount withheld from payments made to them
- increase the amount you withhold
- advise you of changes to their
- tax-free threshold
- residency status
- accumulated HELP or Financial Supplement debt.
Withholding declarations tell you what adjustments to make to the rate of withholding as shown in the tax tables.
A withholding declaration takes effect from the first payment you make after the employee has provided the declaration. A later declaration provided by an employee overrides an earlier declaration.
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A valid tax file number declaration must be in place before a payee can authorise you to vary their withholding by providing a withholding declaration.
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You don't need to send withholding declarations to us - keep the completed declarations with your employee records.
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You can download a copy of a Withholding declaration or request a paper copy:
- by using our online ordering system
- from most newsagents
- by phoning us on 1300 720 092.
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Amount to withhold
The easiest and quickest way to work out how much tax you should withhold is to use our online tax withheld calculator.
Alternatively you can use the tax tables.
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If the employee is under 18 years of age, you do not have to withhold amounts from payments you make to them if those payments are not more than:
- $350 - if you pay them weekly
- $700 - if you pay them fortnightly
- $1,517 - if you pay them monthly.
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If an employee does not quote their tax file number (TFN), claim an exemption from quoting their TFN on the declaration or provide a declaration at all, you must:
- complete the payee section with all the information you know about them
- send the declaration to us
- withhold at the top marginal rate plus Medicare levy for residents (currently 46.5%) or the top marginal rate for non-residents (currently 45%) from all payments you make to that employee.
Where your employee has indicated on their declaration that they have applied to us for a tax file number, you don't have to withhold at 46.5% for the first 28 days - you withhold at the standard rate according to the PAYG withholding tax tables.
If an employee has indicated that they have a HELP or Financial Supplement debt, use the HELP or Student Financial Supplement Scheme tax tables to work out how much extra to withhold for these debts. Add this to the amount withheld shown in the relevant column of the tables.
An employee may indicate on their Tax file number declaration or Withholding declaration that they wish to use their entitlement to a tax offset to have a reduced amount withheld from their regular payments throughout the year.
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To calculate the correct amount to withhold:
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Variations
The rates of withholding provided in the tax tables are designed to approximate the amount of tax your employees are liable to pay at the end of the financial year. However, because individual circumstances vary, some employees may find the amount withheld using the tax tables is either less or more than the total amount of tax they expect to be liable to pay at the end of the financial year, even after tax offsets and changes to liability for HELP and Student Financial Supplement Scheme (SFSS) are taken into account.
Your employees can apply to vary their rate of withholding upwards or downwards.
Upwards variation
An employee may ask you to increase the amount you withhold from payments you make to them; for example, to cover tax they will be liable to pay on investment income. If you agree to this, both you and your employee must complete the relevant sections of the Withholding declaration - upwards variation (NAT 5367).
There are two sections to the form - an agreement and a declaration. Once completed, you keep the declaration and return the agreement to your employee for their records.
Downwards variation
Your employee must obtain approval from us to reduce the amount you would normally withhold from payments you make. This usually happens only in special circumstances where your employee can show the amount of tax they are liable to pay on their total income in the year does not justify the standard withholding rate.
If your employee wants to vary their withholding amount downwards, they must complete a PAYG Withholding variation and lodge it either online or by mail. If we approve a downwards variation, we will send an approval letter to the employee and a variation notice to you, outlining the new rate or reduced amount to be withheld. Both the notice and the letter will clearly specify the expiry date of the notice.
Medicare adjustments
Your employee may choose to complete a Medicare levy variation declaration if they are:
- liable for Medicare levy surcharge, or
- entitled to a reduction in or exemption from the Medicare levy.
You will need to adjust the amount you withhold from payments to them.
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To calculate the correct amount to withhold from payments, refer to:
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Increased number of pay periods in a year
In some income years, payees who are paid:
- fortnightly, will have 27 paydays for the year instead of the usual 26
- weekly, will have 53 paydays for the year instead of the usual 52.
The withholding tax tables we publish are based on the normal number of pays in a year. Tax rates increase as taxable incomes increase. Therefore, the additional pay day will mean that amounts you withhold from salary and wage payments may not cover the amount that will be payable when they lodge their tax returns.
While individual taxpayers' circumstances differ, people who would normally expect to receive a small tax refund at the end of the year are likely to find that they owe us money because of the additional payday.
Payees who are concerned about the possible shortfall in amounts withheld are entitled to ask you to withhold an additional amount.
A payee's request to have additional amounts withheld in accordance with the schedule should be in writing but can be in any format that suits your business. For example, email requests could be used or you may design a paper- or computer-based form for the purpose.
Withholding from other payments to employees
Allowances
Allowances are separate payments you make to employees, company directors or labour hire contractors for:
- working conditions (for example, danger, dirt, height, shift or travelling time)
- qualifications or special duties (for example, trade, first aid certificate or safety officer)
- expenses they can't claim as a tax deduction (for example, normal travel between home and work)
- work-related expenses they may be able to claim as a tax deduction (for example, tools, compulsory uniform, and dry cleaning).
You need to withhold from these payments.
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For more information on:
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Commissions
Commissions are typically payments made as recognition of performance or service, and may be calculated as a percentage of the proceeds of a particular transaction.
Long service leave and holiday pay
When an employee takes leave or receives a payment in lieu of leave, you are required to withhold PAYG amounts from their payment, including any leave loading. If they are leaving your employment, special rules apply.
Bonuses and similar payments
Bonuses
This refers to payments usually made to an employee in recognition of performance or services and may be calculated as a percentage of the proceeds of the particular business transaction. These payments may not be related to a particular period of work.
Other similar payments
This refers to payments that are amounts of a one-off nature which do not relate to work performed in a particular period. Examples of these types of payments include a once-only allowance payment made to an employee as compensation for a changed work location that is further away from their home, or an amount paid as a sign-on bonus to a worker entering a workplace agreement.
Repayment of an overpayment
If you overpay an employee (or other payee), you must decide whether or not you will require them to repay you the overpaid amount.
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If an employee is legally obliged to repay the overpaid amount, fringe benefits tax (FBT) may apply if you:
- allow them time to repay the overpaid amount
- waive their obligation to repay it.
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For more information, refer to:
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Back payments
If you have to make a back-payment to a worker - for example, lump sum payments in arrears or bonus payments - we have provided tax tables that will help you work out what to withhold.
Workplace giving programs
Workplace giving is a simple and effective way for employees to regularly donate to organisations that are entitled to receive tax deductible donations - that is, organisations with deductible gift recipient (DGR) status.
Workplace giving is optional. Both you and your employee must agree to participate.
Employees who are made redundant
When an employee leaves, you may make payments to them that are:
- employment termination payments
- genuine redundancy payments
- early retirement scheme payments
- payments for time worked or leave already taken
- payments for unused leave.
Employment termination payments
An employment termination payment (ETP) is a lump sum payment you make to:
- an employee when their employment is terminated
- an employee's estate when the employee dies.
You must generally make a lump sum payment within 12 months of your employee's employment termination for the payment to qualify as an ETP. You must tax payments you make outside 12 months as ordinary income at marginal tax rates. A payment from a superannuation fund is not an ETP.
The types of ETPs subject to withholding include:
- payments in lieu of notice
- payments for unused sick leave
- 'golden handshake' payments, whether paid under contract, industrial award obligation or an employer's desire to recognise past service
- compensation for loss of job
- compensation for wrongful dismissal, as long as it is paid within 12 months of the actual termination of employment
- any redundancy payments you make that exceed the tax-free limit - for more information, refer to Pay as you go withholding on payments to employees made redundant
- payments made due to the employee's permanent disability, other than a compensation payment for personal injury
- payments you make under an early retirement scheme that exceed the tax-free limit
- lump sum payments you pay on the death of an employee.
Before making an ETP, you must work out:
- any tax-free components
- any taxable components
- whether an earlier ETP has been paid for the same termination.
If you have to withhold an amount from an ETP, or you are making the payment to a deceased employee's estate, you must complete a PAYG payment summary - employment termination payment within 14 days of making the payment. This shows the taxable and tax-free parts of the ETP.
Situations that may affect the amount to withhold
Paying employees that work overseas
If you make payments to Australian employees who are working for you overseas, you have the same tax obligations as if they were working in Australia.
Some payments for foreign services that relate to certain development projects, charitable activities or government activities are exempt from tax.
If you are satisfied that an employee's income is exempt from tax in Australia, you don't have to withhold amounts from payments you make to them.
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For more information on foreign employment income, refer to:
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Withholding for foreign resident employees
If your employee answered 'no' to the question 'Are you an Australian resident for taxation purposes?' on their Tax file number declaration, you must use foreign resident tax rates.
There are two ways to withhold from the earnings of a foreign resident:
- If the payee has not given you a valid TFN, you need to withhold at the top rate of tax for each $1 of earnings (ignoring any cents).
- If the payee has given you a valid TFN, withhold the amount calculated from 'foreign resident tax rates' in the tax tables.
Foreign resident employees generally cannot claim tax offsets. They may be entitled to claim a zone or overseas forces offset in limited circumstances. If a foreign resident employee has claimed any other tax offsets on the Tax file number declaration, do not make any adjustment to the amount withheld.
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To use the online calculator, refer to Tax withheld calculator.
To work out the amount to withhold from payments you make to foreign resident employees, refer to the foreign resident section within the applicable tax table.
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Withholding from other foreign resident payees
Payers are required to withhold prescribed amounts from specific payments made to foreign resident payees.
Foreign resident payees include all foreign individual and non-individual entities (for example, companies, partnerships, trusts, government organisations and superannuation funds).
Entertainment or sports activities
The foreign resident withholding arrangement applies to both individuals and groups in the entertainment and sporting industries. Entertainment or sports activities include the activities of a performing artist or sportsperson.
Construction or related activities
Construction and related activities include activities associated with the construction, installation and upgrading of buildings, plant and fixtures.
Casino gaming junket activities
The foreign resident withholding arrangement applies to payments for activities related to casino gaming junkets.
These special rules do not apply to payments made to foreign residents:
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For more information on withholding from specific payments made to foreign resident payees, refer to:
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Personal services income
Personal services income is income that is mainly a reward for personal efforts or skills.
If you operate a company, partnership or trust that does not meet the tests of a personal services business, some income your workers generate may be personal services income.
Additional tax obligations arise where an entity is required to attribute income to an individual. Where this is the case an entity may need to pay an amount to the ATO based on the amount of income that is to be attributed. The amount will be equal to the amount that the entity would have withheld if the income had been paid as salary or wages. The income is included in the individual's taxable income.
Payments with special rules
Some payments have special rules which must be applied to calculate the correct amount of PAYG to withhold. These include payments made:
- to workers on Community Development Employment Projects (CDEP)
- to seasonal payees who work in any process associated with the production, cultivation or harvest of a horticultural crop
- for Indigenous artworks sold at art centres
- to individual payees employed in the shearing industry
- to household employees such as nannies, cleaners or gardeners
- to performing artists by their agents, advertising agencies and advertisers
- by religious institutions to a religious practitioner for an activity, or a series of activities, including allowances.
Payments to building and construction industry contractors
From 1 July 2012, businesses in the building and construction industry need to report to us the total payments made each year to each contractor for building and construction services.
Report these payments to us on the Taxable payments annual report (NAT 74109-05.2012). The report is due on 21 July each year.
Payments to contractors under a voluntary agreement
Your workers are not necessarily contractors simply because they quote an ABN. Whether a worker is an employee or a contractor depends on how you engage them and how the work is performed.
Your contractors must meet their own tax obligations because you usually don't have to withhold amounts from payments you make to them. However, if you enter into a voluntary agreement with any of your contractors, you must withhold an amount from each payment you make to them, as detailed in the agreement. This helps the worker pay their income tax.
You cannot enter into a voluntary agreement if a worker's payment is covered by another specific PAYG withholding category; for example, if the worker is being paid as an employee or under a labour hire arrangement.
A voluntary agreement can cover a specific task or apply to successive arrangements between you and the worker. Either you or the worker can end a voluntary agreement at any time by notifying the other in writing.
To make a voluntary agreement with a worker, you may choose to use the form Voluntary agreement for PAYG withholding.
The amount you must withhold under a voluntary agreement is either:
- the worker's PAYG instalment rate, as notified by us
- a flat rate of 20%, as shown in the following table.
If the worker's instalment rate is:
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use:
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more than 20%
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the worker's instalment rate
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less than 20%
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20% rate (unless you both agree to use the instalment rate)
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not known when agreement is made
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20% rate
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To work out how much to withhold, multiply the worker's invoiced amount by the withholding rate specified in the voluntary agreement.
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Both you and the worker must keep a copy of the voluntary agreement while it is in force and for five years after the last payment is made under the agreement. You don't have to send a copy to us.
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For more information about completing a voluntary agreement, refer to:
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Payments to labour hire workers
If you are a labour hire firm providing individual workers (as employees or contractors) under a labour hire arrangement, your workers are taxed at the same rate as employees. You work out how much to withhold using the relevant PAYG withholding tax table, together with information provided on your workers' tax file number and withholding declarations.
Where you provide labour hire workers who are operating as companies, partnerships or trusts, you do not have to withhold amounts from payments you make to them, unless they don't provide you with their ABN.
When a business doesn't quote its ABN
If a business supplies you with goods or services, that business should quote their ABN. If they don't, generally, you must withhold at the top rate plus Medicare levy (currently 46.5%) of the payment you make to them and send the withheld amount to us.
You do not have to withhold from payments if any of the following apply:
- the total payment you make to the supplier is $75 or less, excluding goods and services tax (GST)
- the supplier is an individual under 18 years of age and your payments to that person are $120 or less each week
- the goods or services are supplied through an agent who has quoted their ABN on an invoice or some other document relating to the supply
- the goods or services supplied are wholly input taxed under GST
- the entire payment you make is exempt income for the supplier
- the supplier is not entitled to an ABN as they are not carrying on an enterprise in Australia.
Also, you should not withhold from the payment you make if the supplier states in writing that the supply is either of the following:
- made in the course of an activity done as a private recreational pursuit or hobby
- wholly of a private or domestic nature.
If you are aware that any one of the above conditions applies, you do not have to withhold, even where they have not quoted an ABN. However, you must have sufficient records to show the reason for not withholding.
If you are unsure, ask the supplier to give you a written statement that the supply of goods or services is excluded for one of these reasons. The supplier may use the Statement by a supplier (reason for not quoting an ABN to an enterprise), or create their own statement containing the same information. You must keep their statement for five years.
If you have reason to believe the statement is false or misleading, you must withhold 46.5% of the total payment.
If a supplier has applied for an ABN, you can offer to hold payment until the supplier has obtained and quoted their ABN. This is a matter for you and your supplier to work out. However, you must not make full payment to the supplier on the understanding that an ABN will be quoted later. If you do, you may be subject to penalties for the amount you did not withhold.
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To check an ABN on the Australian Business Register:
- visit www.abr.gov.au
- phone the automated checking service on 13 72 26.
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If you withhold 46.5% of the payment, you must complete a payment summary and give it to the supplier at the same time you pay them the net amount or as soon as practicable thereafter.
Reporting and paying the withheld amount
You need to report and pay amounts you withhold to us and to lodge an annual report.
PAYG withholding records you need to keep
Under tax law, you must keep all records that explain your PAYG withholding transactions.
Reporting and paying on activity statements
You report and pay PAYG withholding amounts to us by completing a business activity statement (BAS). The payment arrangements for PAYG withholding vary depending on whether you are a small, medium or large withholder. You can pay the amounts you withhold to us using a range of methods, including BPAY®, direct credit, cheque or money order.
® Registered to BPAY Pty Ltd ABN 69 079 137 518
PAYG withholding records you need to keep
Under tax law, you must keep all records that explain your PAYG withholding transactions. Records must be in English or in a format that can be converted into English.
If your records are not in writing (for example, you keep them in an electronic format on a computer) they must be in a format that is readily accessible.
You may choose to store electronic images of your business paper records, as long as the electronic copies:
- are a true and clear reproduction of the original paper records
- can be retrieved and read by tax officers at all times.
You don't have to keep original paper records once you have stored an electronic copy of them.
The PAYG withholding records you must keep include:
- wages records, including payment records
- voluntary agreements
- employment declarations (for employees working for you before 1 July 2000), tax file number declarations and withholding declarations
- copies of payment summaries and payment summary statements, or electronic annual reports
- employment termination payment records (or eligible termination payment records)
- records of personal services income you have attributed
- statements by a supplier where no ABN was quoted
- records of amounts you withheld where no ABN was quoted
- annual reports of PAYG withholding where no ABN was quoted.
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You must keep your business records for at least five years.
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Storing and disposing of TFN declarations
Under the TFN guidelines in the Privacy Act 1988, you must use secure methods when storing and disposing of TFN information. You may store electronic copies of scanned forms as an alternative to storing paper forms. Scanned forms must be clear and not altered in any way.
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Reporting and paying on activity statements
How to report amounts you withhold
You report and pay by completing an activity statement.
When to pay withheld amounts to us
The due date for paying amounts you withhold to us depends on whether you are a small, medium or large withholder.
How to pay withheld amounts to us
You can pay the amounts you withhold to us through direct debit or credit or by BPAY®, or by mailing a cheque or money order.
® Registered to BPAY Pty Ltd ABN 69 079 137 518
How to report amounts you withhold
You report and pay by completing an activity statement. We will send you an activity statement: you report your PAYG withholding obligations at the applicable W label on your activity statement.
If you have not withheld any amount for a reporting period, you don't have to report amounts on your activity statement at labels W2 to W5.
However, you must still report any other obligations you have, sign and date your activity statement, and return it to us at the address provided by the due date printed in the top right-hand corner.
When to pay withheld amounts to us
The due date for paying amounts you withhold to us depends on whether you are a small, medium or large withholder.
Small withholders
You are a small withholder if you are an individual or business that withholds $25,000 or less a year. You must pay the amount you withhold to us quarterly. We will send you an activity statement each quarter that shows when your withholding payment is due.
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If you are a small withholder, you can choose to pay the amounts you withhold to us monthly. To arrange this, phone us on 13 28 66. You can still choose to pay other tax amounts, such as GST and fringe benefits tax, quarterly.
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Medium withholders
You are a medium withholder if you are an individual or business that withholds $25,001 to $1 million a year. You must generally pay any amount you withhold to us monthly. We will send you an activity statement each month that shows when your withholding payment is due.
Large withholders
You are a large withholder if you have withheld amounts totalling more than $1 million in a previous income year or are part of a company group that has withheld more than $1 million in a previous income year. If you are a large withholder, you must pay the amounts you withhold to us electronically, twice a week.
How to pay withheld amounts to us
You can pay the amounts you withhold to us using any of the following methods:
- BPAY®
- direct credit
- direct debit
- mail (cheque or money order).
® Registered to BPAY Pty Ltd ABN 69 079 137 518
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For more information about making payments, read How to pay.
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Payment summaries and annual reports
You need to provide your payees (workers and businesses that did not quote their ABN) with a payment summary specifying how much you paid them in the financial year, and how much you withheld from those payments.
Types of payment summaries
Payment summaries show how much you paid a worker or supplier for the financial year ended 30 June, and how much you withheld form those payments. You may have to complete different types of payment summaries, depending on the types of payments you have made throughout the financial year. If you report using paper forms we will send them to you.
Part-year payment summaries
Workers may request a part-year payment summary. Generally, you must provide it within 14 days of the request.
Electronic payment summaries
You have the option of providing your payees with electronic payment summaries if you lodge your PAYG withholding payment summary annual report electronically.
Annual reporting
You must lodge PAYG withholding annual reports at the end of each financial year. You can do this electronically or on paper.
Authorised signatories
Only certain people are authorised to sign documents required under PAYG withholding. These vary depending on the structure of your business entity.
Types of payment summaries
Payment summaries show the total payments you made and the amount you withheld during the financial year.
You may have to complete various types of payment summaries, depending on the types of payments you have made throughout the financial year.
Examples of types of payment summaries include:
Type of payment summary
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Who this payment summary is for
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When to give this payment summary
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PAYG payment summary - individual non-business (NAT 0046)
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Employees, company directors and office holders who you pay salary and wages, pension payments, compensation, allowances or other payments to.
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By 14 July.
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PAYG payment summary - business and personal services income (NAT 72545)
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Workers, other than employees, who have a voluntary agreement with you to withhold amounts from payments you make to them.
Workers you employed under a labour hire arrangement.
Certain other workers, such as performing artists, who you paid specified payments to.
Individuals from whose personal services income you have to withhold amounts from.
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By 14 July.
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PAYG payment summary - foreign employment (NAT 73297)
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Employees who have amounts withheld from:
- foreign employment income
- income earned for work in the Joint Petroleum Development Area (JPDA).
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PAYG payment summary -employment termination payment (NAT 70868)
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Employees who you have made an employee termination payment to.
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Within 14 days of making the payment.
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PAYG payment summary - withholding where ABN not quoted (NAT 3283)
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Businesses that don't quote their ABN to you.
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At the same time you pay them the net amount or as soon as practicable thereafter.
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PAYG payment summary - superannuation lump sum (NAT 70947)
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Employees who you have paid a super lump sum payment to.
You can only pay a super lump sum if you are a retirement savings account (RSA) provider or you operate:
- a super fund
- an approved deposit fund
- a life insurance company and you pay an annuity purchased with any of the following
- an eligible termination payment rolled over prior to 1 July 2007
- a roll-over super benefit paid after June 2007
- a directed termination payment.
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Within 14 days of making the payment.
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PAYG payment summary - superannuation income stream (NAT 70987)
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Payees who you pay super income streams such as pensions or annuities to.
You can only pay a super income stream if you operate one of the following:
- a super fund
- an approved deposit fund
- a life insurance company and you pay an annuity purchased with a rolled over employment termination payment.
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By 14 July.
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You can provide some of these payment summaries electronically, as long as you send your annual PAYG withholding annual report to us electronically.
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We publish sample forms and guidelines to help you complete the different payment summaries. For a complete list of payment summaries and their guidelines, refer to PAYG payment summaries and guidelines.
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Payment summaries for workers
Generally, you must give each of your workers a payment summary by 14 July each year, even if the withheld amount is nil.
If you have made an employment termination payment to an employee, you must give them an ETP payment summary within 14 days of making the payment.
If you lodge your PAYG withholding reports electronically, you can give your workers their payment summaries printed on plain paper. The payment summaries must be in a format acceptable to us.
Otherwise you use the triplicate forms we provide, giving one copy to each worker, keeping a copy for your records and sending the original to us as part of your annual reporting
We will send you payment summaries and a personalised payment summary statement around May each year.
If you need extra payment summaries you can order them by phoning our automated ordering service on 13 72 26 at any time. You will need your ABN or withholding payer number to order. If we send you more than you need, you can keep them for future use.
Payment summaries where no ABN was quoted
Where another business doesn't quote an ABN to you, you must give them a payment summary showing details of the payment.
You can use our form PAYG payment summary - withholding where ABN not quoted (NAT 3283) or prepare your own, as long as you include all the necessary details. You need to provide this payment summary at the time you make the payment or as soon as practicable thereafter. Do not use this form to report amounts included in a Taxable payments annual report.
Part-year payment summaries
Workers may request a part-year payment summary. The request must be made in writing, no later than 21 days before the end of the financial year.
You must provide the worker with a copy of their payment summary within 14 days of their request.
If the worker is an individual with a reportable fringe benefits tax amount a part-year summary may not be issued. Otherwise, you must provide the worker with a copy of their payment summary within 14 days of their request.
Part-year payment summaries provide details of withholding payments made from:
- 1 July of that financial year to the date of issue of the payment summary
- the date of issue of any previous part-year payment summary to the date of issue of the current one.
The end of financial year payment summary you provide to a worker who has previously been issued with a part-year payment summary will only include details relevant to the period from the date of issue of the last part-year payment summary, to 30 June.
Workers and other payees no longer have to include copies of payment summaries issued to them with their tax return.
Electronic payment summaries
Payment summaries may be provided to payees electronically.
If you lodge your PAYG withholding payment summary annual report electronically, you can provide electronic payment summaries to your payees.
All electronic payment summaries you provide must:
- be non-editable
- use letter quality print so that it is easy to read.
Where you are intending to provide payment summaries electronically, you need to contact your payees and advise them that they have the option of receiving their payment summaries either electronically or on paper.
You can consider that a payee has agreed to receive their payment summary electronically if they do not respond to you by the date you specify.
You will also need to:
- tell your payees when the payment summaries are available and ensure they know how to access and print them, and
- ensure the method you choose to distribute electronic payment summaries is secure enough to protect payees' tax file numbers and other personal information.
Annual reporting
At the end of each financial year, you must lodge your PAYG withholding annual reports, either electronically or on paper. These reports must include:
- all payments you have made to employees, workers or businesses during the financial year
- the amounts you withheld.
This table shows what and when to report.
Reporting electronically
Reporting your PAYG withholding information electronically is quicker and easier than using paper forms because you can:
- lodge online or send your information via magnetic media such as CD-ROMs, DVDs or disks
- provide your payees with an electronic payment summary
- give your payees their payment summaries printed on plain paper
- avoid the work of completing a PAYG payment summary statement or sending copies of paper payment summaries to us.
To report electronically, you need payroll software that meets our specifications. You can purchase compatible commercial software or develop your own.
You can lodge online using either our electronic commerce interface (ECI) or the standard business reporting (SBR) portal.
For ECI you need your:
- Australian business number (ABN)
- AUSkey.
For SBR you need:
- your ABN
- SBR-enabled software.
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For more information about:
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Reporting using paper forms
Your PAYG withholding annual report is made up of:
- the PAYG payment summary statement, and
- the originals of all the payment summaries you issued for the financial year.
You need to use stationery we provide for both the PAYG payment summary statement and the payment summaries. We send this stationery to you around May each year.
Your payment summary statement must include the total amount of all payments made and all amounts withheld for all your workers, including:
- employees
- contractors under voluntary agreements
- workers under labour hire arrangements.
Also include employment termination payments and personal services income you have attributed.
Your completed PAYG withholding annual report for the financial year ending 30 June generally needs to reach us by the following 14 August. Remember to keep a copy of the statement and all the payment summaries for your records.
If you have withheld from businesses that did not quote their ABN to you, complete a PAYG withholding where ABN not quoted - annual report (NAT 3448).
You must send this report to us by 31 October each year.
You don't have to send us copies of payment summaries you give to suppliers, but you must keep copies for your records.
Lodging early helps your employees
Pre-filling of income tax returns is a service we provide so that people can access information we have, to help them prepare and lodge their individual tax returns.
The pre-filling service is available to:
- people who prepare their tax returns online using e-tax
- tax agents.
You can make it easier for your employees to lodge their tax returns by lodging your pay as you go (PAYG) withholding payment summary annual report as soon as you provide payment summaries to your employees.
Authorised signatories
Documents required under PAYG withholding must be signed by an authorised signatory. These documents include payment summaries, payment summary statements and withholding-where-ABN-not-quoted annual reports.
When a worker leaves or retires
When a worker (an employee or a contractor working under a voluntary agreement) leaves or retires, you have a number of PAYG withholding obligations. If an employee receives an employment termination payment (ETP), there are additional PAYG withholding implications.
When an employee ceases employment with you, you must:
- make any final PAYG withholding payments on the employee's behalf - refer to the Tax withheld calculator if there is no employment termination component to the final payment, or Tax tables
- complete an employment termination payment form if required
- send a payment summary to the employee by 14 July, or earlier if requested
- retain the employee's TFN declaration (NAT 3092) until the end of the next financial year
- include the details of any final payments made to the employee in your PAYG payment summary statement
- keep the necessary PAYG withholding records.
When a contractor ceases their contract with you, you must withhold from any final payments at the appropriate rate and keep the necessary PAYG withholding records.
For contractors under a voluntary agreement:
For contractors who have not quoted their ABN:
For more information on making final withholding payments and completing payment summaries and annual reports, see:
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You may also have superannuation and FBT obligations when an employee leaves. For more information on these obligations, refer to:
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No longer need to withhold
If you no longer need to withhold from payments to employees or contractors, you should cancel your registration for PAYG withholding.
If you are no longer going to operate as a business, you may cancel your ABN. Before doing so, you need to ensure you have lodged all outstanding activity statements, met all your PAYG withholding obligations and met all your payment obligations.
You can cancel your registration for PAYG withholding:
- online through the Business Portal (or Tax Agent Portal)
- by phoning us on 13 28 66 between 8.00am and 6.00pm, Monday to Friday - you must be on our records as an authorised contact for the entity
- by completing the paper form Application to cancel registration (NAT 2955) - you can order a paper copy of this form
You can view a sample version of the Application to cancel registration form, Don't print and submit this form as it can not be processed by our systems. You must order and complete the paper copy provided by us.
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For more information on the tax and super implications of ceasing to be an employer, refer to:
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Last Modified: Tuesday, 19 March 2013
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