Tax basics for small business

Working out your PAYG withholding obligations

You may have to withhold amounts from payments you make to employees and other workers, and send the withheld amounts to us. This process is called withholding and is done using the PAYG withholding system.

The following table summarises the PAYG withholding obligations you have to yourself, your employees and contractors, depending on your business structure.

Yourself

Sole trader or partnership

If you are a sole trader or a partner in a partnership, you don't pay yourself a wage or salary, as such, and none of the PAYG withholding rules apply. Instead, you draw money from the business to live on. You pay tax on your entitlement to your business's net profit, regardless of how much or how little you draw from it.

Company or trust

If your business is operated through a company or trust, it is likely you are an employee (and/or director) of the company or trust. The company or trust has the same responsibilities to you as it does to any other employee.

Employees

Sole trader, partnership, company or trust

Regardless of your business structure, you must withhold amounts from most payments you make to employees and send the withheld amounts to us. This includes workers you pay on commission, 'piece rates', hourly rates or salary.

Contractors

Sole trader, partnership, company or trust

Under the PAYG withholding system, contractors can do either of the following:

provide for the income tax they are liable to pay by paying PAYG instalments

enter into a voluntary agreement with you to withhold from their payments.

Unless a contractor seeks a voluntary agreement or does not quote an ABN, you don't have to withhold from payments you make to them.

PSI

If the PSI rules apply to your company, partnership or trust, you may have extra PAYG obligations (see PSI).

Sections within Employer obligations

Last Modified: Thursday, 8 September 2011