Withholding in business transactions - Tax basics for non-profit organisations

Note: This document forms part of our publication Tax basics for non-profit organisations. To view the full publication, click here. The information in this document has been updated for changes that have occurred since the publication was released in June 2007.

Introduction

Any business or other organisation carrying on an enterprise should quote their ABN in relation to goods or services they supply to another enterprise.

If they do not quote their ABN, the general rule is that the payer must withhold 46.5% from their payment and send the withheld amount to the Tax Office. Some payments are excluded from this rule.

Receive and keep a record of your supplier’s ABN

When your organisation acquires any goods or services, make sure your supplier quotes their ABN to you before you make any payment to them. Most suppliers quote their ABN on their invoice, and you need to keep this invoice in your business records.

A supplier may also quote their ABN to you on another document as long as it relates to the supply they are making. For example, they can quote their ABN on:

a quotation notice that relates to the supply
a renewal notice for insurance or subscriptions
an order form that you used to order the supply
a contract or lease document
a catalogue produced by the supplier, or
a voluntary withholding agreement.

A supplier should quote their ABN to you if they are carrying on an enterprise

For tax purposes, enterprise includes activities undertaken by a charitable institution or by a trustee of a charitable fund. It also includes such activities as:

a business
a service provided to you by an independent contractor
the rent of a commercial property, and
most other things in the nature of trade.

But enterprise does not include an activity carried on:

as an employee, director, office holder or a labour hire worker, or
as a private recreational pursuit or hobby (for example, where someone sells you handicrafts they make as a hobby).

Make sure the supply is excluded from the ABN rule

Your organisation should not withhold if:

the total payment to the supplier is $75 or less, excluding any GST
the supplier is an individual under 18 years of age, is not your employee, and the payments you make to that person do not exceed $120 per week, or
the supply is wholly input taxed under GST. This includes most financial supplies, supplies of residential rent, residential premises and some precious metals, and food supplies by school tuckshops and canteens that have chosen to be input taxed. Contact us if you’re not sure whether a supply is input taxed.

Also, your organisation should not withhold if it is satisfied that:

the supply is made in the supplier’s private capacity, or as their hobby
the payment is exempt income for the supplier (for example, the supplier is an income tax exempt charity)
the payment is to a non-resident who is not carrying on an enterprise in Australia or through an agent in Australia, or
the supplier is not an enterprise because they have no reasonable expectation of profit or gain.

If your organisation is unsure, ask the supplier to give your organisation a written statement that the supply is excluded for one of these reasons. You or your supplier can print Statement by a supplier (reason for not quoting an ABN to an enterprise) (NAT 3346), for this purpose.

Your organisation must keep this statement for five years.

For more information refer to taxation ruling TR 2002/9 Withholding from payments where recipient does not quote ABN.

To obtain this publication, see More information.

Withhold from the payment

If a supplier does not quote their ABN to your organisation and you are not satisfied that one of the exclusions applies, your organisation must withhold 46.5% of the total payment.

Your organisation should also withhold if it doubts that the ABN quoted is correct. If you are unsure, you can check the validity of a supplier’s ABN by using the Australian Business Register.

To check an ABN with the Australian Business Register:

phone the automated checking service on 13 72 26, or

visit www.abr.business.gov.au

If your organisation withholds from a payment, it needs to make sure it is registered for PAYG withholding.

Complete a payment summary form and give it to the supplier at the same time as your organisation pays them the net amount, or as soon as possible afterwards. The supplier will need this payment summary to claim the withheld amount as a credit when they lodge their income tax return.

There is a sample of the payment summary form on our website at www.ato.gov.au

If it is not yet registered, phone the Tax Office on 13 28 66.

What if the supplier has applied for an ABN?

Before you withhold, you could offer to hold back payment until the supplier has obtained and quoted their ABN. Delaying the payment is a matter for you and your supplier to work out.

You should not make full payment to the supplier on the understanding that an ABN will be quoted later. If you fail to withhold from the payment you can be held liable for the amount you did not withhold. You may also be prosecuted.

If your organisation is withholding from employee wages, it should already be registered for PAYG withholding. It may have done this when it applied for an ABN. If it did not, it can still register for PAYG withholding.

To register for PAYG withholding complete:

Add a new business account (NAT 2954) if your organisation has an ABN, or

Add a PAYG withholding account (and issue a withholding payer number) (NAT 3377) if your organisation is not required to have an ABN.

To obtain these publications, see More information.

You need to add together any amounts your organisation has withheld for PAYG withholding purposes and send the total to the Tax Office with its next activity statement.

Quote your ABN on your business stationery

It is a good idea to quote your organisation’s ABN on its invoices and other stationery to avoid having amounts withheld from payments for supplies your organisation has made. If your organisation is registered for GST, other organisations will also need your organisation’s ABN on the tax invoice to claim GST credits for the GST included in the price of goods and services your organisation supplies to them.

Last Modified: Tuesday, 11 September 2007

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