PAYG withholding - varying your PAYG withholding
PAYG withholding - varying your PAYG withholding
This guide explains when and how you can vary your rate of pay as you go (PAYG) withholding.
What is a withholding variation?
Under tax law, the Commissioner of Taxation may, to meet the special circumstances of a particular case or class of cases, vary the amount a payer is required to withhold from a withholding payment. The main purpose of varying your rate or amount of withholding is to ensure that the amounts withheld during the income year best meet your end-of-year tax liability. An example is where the normal rate or amount of withholding would lead to a large credit at the end of the income year because your tax deductible expenses are higher than normal.
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You can request an increase or decrease in the rate or amount of withholding.
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If you believe your circumstances warrant a variation of the rate or amount of withholding, you will need to determine whether the variation is upwards or downwards.
The granting of a variation does not mean that we have accepted the tax treatment of the income and deductions in your application. Your actual tax liability will be determined when you lodge your income tax return. Under tax law, you must keep records of your relevant income and expenditure for a minimum of five years.
Upwards variations
Example
Keith is retired and receives an annual superannuation pension income of $25,000. He also receives interest on his term deposit. Keith estimates his interest will be $1,000. Therefore, his estimated taxable income will be $26,000 ($25,000 + $1,000). Keith can apply for a variation to have his withholding rate calculated based on his estimated taxable income of $26,000.
How to apply for an upwards variation
You can arrange an upwards variation by entering into an agreement with your payer to vary the rate or amount of withholding. You and your payer will need to complete a Withholding declaration - upwards variation (NAT 5367). Once completed, your payer will return the agreement to you and keep the declaration for their records.
You can get a Withholding declaration - upwards variation (NAT 5367) form by downloading a copy (using the link above) or by phoning 13 28 61.
Downwards variations
Examples
Sue is a salary and wage earner who uses her own vehicle for work purposes. Her payer pays her an annual motor vehicle allowance of $10,000. Sue estimates that her annual tax deductible car expenses will be $9,000. She can apply for a variation so that her payer will withhold tax from only $1,000 of her allowance.
John is a real estate salesperson who is paid on a commission basis. He owns a rental property. John's annual gross income from his only payer is $45,000. He estimates that his rental property loss will be $15,000. Therefore, his estimated taxable income will be $30,000 ($45,000 - $15,000). John can apply for a variation to have his withholding rate calculated based on his estimated taxable income of $30,000.
Allan is a 19-year-old student who works part time for two payers. The average number of hours Allan works is 20 hours a week. He is paying a higher rate of tax on his second job because he could not claim the tax-free threshold on the tax file number declaration he lodged with this payer. Allan can estimate the total income he is likely to receive for the financial year with a reasonable degree of accuracy. He can apply for a variation to have his withholding rate averaged for both payers.
If you want to vary your withholding amount downwards, you need to lodge a PAYG withholding variation application form with the Australian Taxation Office (ATO). Applications must be lodged using the correct version of the ATO approved form. We issue a new version of the form each financial year, which is usually available from early May. Old versions of the form will not be accepted.
You can lodge your application on a paper form or electronically over the internet. Applications lodged electronically may be processed faster than paper forms.
You can access the electronic e-variation form at PAYG withholding variation application (E-variation).
If you have difficulty downloading, completing or transmitting the electronic application, phone 1300 360 221 for assistance.
You can download a paper application form at PAYG withholding variation application (NAT 2036), or phone 1300 360 221 and ask us to send you a copy.
Send your paper application to:
If you send your application to an ATO address other than the one above, processing of your application may be delayed.
- We will process your application only if you
- have lodged all required tax returns and activity statements, or notified us in writing if you were not required to lodge tax returns in prior years
- did not receive a debit assessment on your last tax assessment (if you also had an approved withholding variation for that year)
- do not have any outstanding tax debt owning to the Australian Government
- do not have any outstanding debts under any other Acts administered by us.
- We may seek more information from you before or after your application is processed. If you fail to provide more information as requested, your application may not be approved.
- If you are granted a variation, this does not mean we have accepted the tax treatment of the income and deductions on your application. Your actual tax liability will be determined after you lodge your tax return. You must keep records of your income and expenses in accordance with the requirements of the Income Tax Assessment Act 1936.
- We process your application based on the information you provide. It is your responsibility to make sure that this information is adequate to enable us to calculate a withholding rate to meet your end-of-year tax liability.
- If your application is not approved, you can apply for a review of the decision. You must apply in writing, explain why the decision should be overturned and include information to support your claims.
If you need help to complete the application, phone us on 1300 360 221.
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False or misleading information could result in prosecution and penalties.
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If you lodged an e-variation, you should anticipate a 28 day processing time. When your e-variation is received, we will send you a message containing your trace identity number. If you do not receive this message within three days of sending your application, phone 1300 360 221 for help.
If you lodged a paper application, you should anticipate a 56 day processing time.
We will endeavour to process all applications as quickly as possible, which may be earlier than indicated.
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Processing of your application will be delayed if we need additional information.
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If your application is approved, the varied rate or amount of withholding will start from the next available payday after your pay office receives the notice of withholding variation from us. The letter we send to you is not the official notice. Your pay officer cannot implement a variation using your letter.
The implementation of your variation may be delayed if you do not provide a correct Australian business number (ABN) and your pay office's direct postal address (for example, if you give us your work location rather than the pay office postal address).
Your variation finishes on the expiry date shown on the notice of withholding variation from us. To continue to have reduced tax withheld from payments after this date, you must lodge another withholding variation application - at least six weeks before the expiry date.
Multi-year variations
Variations for allowances may now be issued for more than one year. The expiry date on the notice of withholding variation we send you after we process your application will show whether your variation has been issued for more than one year.
If you require a downwards variation to be in place before the first pay of the next financial year, we recommend you lodge a new application by no later than the middle of May each year.
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Make sure you use the correct version of the form, as it changes each year.
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You must complete a new application and advise us of any change in your circumstances during the year - for example, when you sell a rental property or your taxable income changes to the extent that you will receive a debit assessment of $500 or more.
Class variations
If you and your work colleagues are seeking an identical variation, your payer may apply for a class variation on your behalf. For example, you and your colleagues may wish to vary your withholding amount to better reflect the deductible expenditure you would incur in relation to an allowance. In this case, your payer may apply for a class variation on your behalf.
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An application for a class variation may be lodged only on behalf of six or more payees. If there are less than six payees, the payees must apply on their own behalf using the PAYG withholding variation short application (NAT 5425).
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In making a request for a class variation, the payer makes a declaration on behalf of their payees. The declaration states that the expenditure to which the allowance relates can reasonably be expected to be deductible on assessment. The payer should ensure that they are able to correctly make this declaration on behalf of all payees included in their request. Payees for whom the payer is unable to make this declaration can apply individually for a variation using the PAYG withholding variation short application (NAT 5425).
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- Phone 1300 360 221 - our phone services are available from 8.00am to 6.00pm, Monday to Friday.
- Email ITWvariation@ato.gov.au
- If you are a tax agent, phone 13 72 86 FKC 1 2 3.
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Last Modified: Friday, 3 June 2011
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