Withhold amounts from payments
Under PAYG withholding, payers must withhold amounts from payments made to others and send these amounts to us. As a payer, you withhold amounts from:
- payments to payees
- payments to a supplier carrying on an enterprise in Australia who doesn't quote an ABN.
How much to withhold from payments to foreign residents for construction and related activities
You have to withhold 5% of the total payment made to foreign residents for construction and related activities.
The amount to withhold could be different if the payee has received a variation from us. Where a variation has been granted, we send you a written notice confirming how much you should withhold from payments to that payee. Unless we notify you, you should withhold 5% from payments.
What if the payment is made in a foreign currency?
If you have to pay a payee in a foreign currency, you need to calculate the equivalent Australian dollar value of the payment at the time you make the payment.
After converting the foreign currency payment to Australian dollars, you then calculate the amount to withhold at the required rate. The amount you report and pay to us will always be the Australian dollar value.
Why does a payee apply for a variation?
A foreign resident payee may seek a variation where the required rate of withholding is lower or higher than the expected actual tax payable on their Australian taxable income. If a payee claims that the prescribed rate is too low or high, tell them to apply for a variation.
The payee will need to apply for a variation if they believe they are not required to pay tax in Australia either:
- due to the operation of a double tax agreement
- where the income is exempt under Australian law.
How does a payee apply for a variation?
A foreign resident payee will need to complete a PAYG foreign resident withholding variation (NAT 11097) form. There is a different application form for each financial year, so payees will need to use the correct one. For instance, if a payee is applying for a variation for payments they expect to receive in 2012-13, they should use the 2013 form. This application is available in electronic or paper format:
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To obtain a copy of this form:
phone us on 1300 306 105 between 8.00am and 6.00pm, Monday to Friday.
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The payee should read the instructions on how to complete this application form carefully as incomplete applications take longer to process. Lodging electronically may reduce the time it takes to process the application.
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What to do when you receive a variation notice from a payee
When a payee has been granted a variation, we will send you (the payer) a written variation notice confirming the new rate. Until you receive this notice, you must not vary the rate of withholding.
When you receive a variation notice for the payee:
- match the payee identity details on the notice with the payee identity details you have in your records
- if you cannot match the details, contact us on the phone number provided on the notice
- if you can match the details, you must use the varied rate to calculate how much to withhold from any future payments you make to the payee that are covered by the variation. You continue to do so until the expiry date shown on the notice or until we advise you otherwise
- keep a copy of the variation notice with your business records for at least five years.
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If you receive more than one variation notice for a payee, the latest notice supersedes all previous notices.
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What to do if you receive a variation withdrawal notice
If you receive a variation withdrawal notice for a payee from us:
- match the payee identity details on the notice with the payee identity details you have in your records
- if you cannot match the details, contact us on the phone number provided on the notice
- if you can match the details, you should withhold at 5%, unless we notify you otherwise
- keep a copy of the variation withdrawal notice with your business records for at least five years.
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For more information on foreign resident withholding, you can:
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How much to withhold when a payee doesn't quote an ABN
In general, a payee carrying on an enterprise in Australia must supply you with an ABN. If they don't, you must withhold 46.5% from any payments to them.
There are some limited circumstances where a payee is not required to supply an ABN, including where the income is exempt income for the payee.
Where the foreign resident payee believes they don't need an ABN, you still need to consider whether you are required to withhold from the payment and the payee may need to apply for a variation.
The withholding requirements where an ABN is not quoted take precedence over the foreign resident withholding requirements. If you have withheld because an ABN was not quoted, you do not also withhold under foreign resident withholding.
Sections within Your obligations as a payer
Last Modified: Thursday, 8 November 2012