• How do I calculate the varied withholding rate?

    If you are applying for a variation because of tax deductible expenses, and your estimated Australian taxable income is more than zero, you need to calculate the required rate of withholding.

    To calculate the varied withholding rate, follow the three steps below.

    Steps

    Step 1

    Calculate your expected Australian taxable income for the income year:

    (a)

    Work out the total of all Australian payments you will receive in the income year

    (b)

    Work out the amounts of these payments that are non-taxable or exempt

    (c)

    Subtract (b) from (a) – this is the amount of taxable Australian payments

    (d)

    Work out the amount of any allowable deductions

    (e)

    Subtract (d) from the answer to step (c).

    Step 2

    Calculate the tax payable on your Australian taxable income. Multiply the Australian taxable income by 30% (Australian company tax rate).

    Step 3

    Calculate the varied withholding rate. Divide the tax payable (from step 2) into the total Australian payments (from step 1(a)) and multiply this by 100.

    Examples

    The examples below show how to use the steps shown above. In both examples, it is assumed that foreign resident withholding payments will be the only type of payments the payees will receive for the income year.

    Example 1

    Entertainment and sports activities

    The Norwegian band Xotik Rivalry is touring Australia from February to April. The payee entity type for the band is a company. Xotik Rivalry will play seven concerts across Australia and the Australian events organiser Huge Events Unlimited Pty Ltd will pay them $2 million for each appearance a total of $14 million in payments. The company Xotik Rivalry has allowable deductions of $8 million.

    Step 1

    $14,000,000 x 30% = $4,200,000

    Step 2

    (a)

    $14,000,000

    (total Australian payments)

    (b)

    $0

    (non-taxable or exempt payments)

    (c)

    $14,000,000

    (taxable Australian payments)

    (d)

    $8,000,000

    (allowable deductions)

    (e)

    $6,000,000

    (taxable income)

    Step 3

    $6,000,000 x 30% = $1,800,000

    Step 4

    Step 1 result

    = $4,200,000

    Step 3 result

    = $1,800,000

    Difference

    = $2,400,000

    The end-of-year tax liability (step 3 result) is less than the amount of PAYG withholding (step 1 result). Xotik Rivalry can either:

    • apply for a FRWV to reduce their PAYG withholding, or
    • wait until the end of the income year and lodge a tax return to get a refund.

    Step 5

    ($1,800,000 ÷ $14,000,000) x 100 = 12.85%

    If Xotik Rivalry decides to apply for a FRWV, the required rate of withholding on the FRWV application will be 12.85%.

    Example 2

    Construction and related activities

    Amazing Structures Pty Ltd is an architectural company from Austria. They have signed a contract with an Australian company, Arc Developments Pty Ltd on 30 July to design a multi-story office complex in Melbourne. Arc Developments Pty Ltd will pay Amazing Structures Pty Ltd $17 million split into four payments during the period 1 September to 28 February. Amazing Structures Pty Ltd has allowable deductions of $9,000,000.

    Step 1

    $17,000,000 x 5% = $850,000

    Step 2

    (a)

    $17,000,000

    (total Australian payments)

    (b)

    $0

    (non-taxable or exempt payments)

    (c)

    $17,000,000

    (taxable Australian payments)

    (d)

    $9,000,000

    (allowable deductions)

    (e)

    $8,000,000

    (taxable income)

    Step 3

    $8,000,000 x 5% = $400,000

    Step 4

    Step 1 result

    = $850,000

    Step 3 result

    = $400,000

    Difference

    = $450,000

    The end-of-year tax liability (step 3 result) is less than the amount of PAYG withholding (step 1 result). Enterprise Constructions Pty Ltd can either:

    • apply for a FRWV to reduce their PAYG withholding, or
    • wait until the end of the income year and lodge a tax return to get a refund.

    Step 5

    ($400,000 &divide $17,000,000) x 100 = 2.35%

    If Amazing Structures Pty Ltd decides to apply for a FRWV, the required rate of withholding on the FRWV application will be 2.35%.

      Last modified: 08 Nov 2016QC 18617