Tax basics for small business

Working out if you need to register for PAYG withholding

You need to register for PAYG withholding if your business makes payments you must withhold amounts from. For example, if your business:

makes payments of salary, wages, commissions, bonuses or allowances to an individual as an employee (including yourself if you operate your business through a company or trust)
makes payments to you as a director
makes payments to contractors under a voluntary agreement or labour hire arrangement, or payments that are specified - for example, performing artists performing in promotional work
withholds 46.5% from payments to suppliers because they have not quoted their ABN or shown they do not have to quote it
makes payments of dividends, interest or royalties to foreign residents, where foreign resident withholding tax applies. For example, royalty payments to a franchisor who is a foreign resident.

As a sole trader or partner, you are not an employee of the business structure. You get money from the business through drawings, not wages. There is no need to withhold from these drawings or register for PAYG withholding unless you must do so for other reasons, including those already stated.

If you don't withhold from a payment to a supplier who doesn't quote an ABN (but is required to do so), you may have to pay a penalty to us equal to the amount you didn't withhold.

You can register for PAYG withholding when you apply for an ABN or at any later time.

For more information, refer to:

PAYG withholding (NAT 8075)

No ABN withholding - questions and answers (NAT 5931)

Statement by a supplier (reason for not quoting an ABN to an enterprise) (NAT 3346) - this includes a statement that a supplier can complete to show why they don't need to quote an ABN

PAYG withholding from interest, dividends and royalties paid to foreign residents (NAT 12564).

Sections within Registering your business for tax purposes

Last Modified: Thursday, 8 September 2011