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  • When to withhold tax

    You are required to withhold amounts when making payments to foreign resident employees.

    It is not compulsory for foreign resident employees to have a tax file number (TFN). However, without a TFN, your payee can't:

    • lodge a PAYG foreign resident withholding variation (FRWV) application
    • lodge an Australian tax return
    • apply online for an Australian business number (ABN).

    Also, it will be more difficult for us to look up and discuss your employee's tax records with them.

    The employee may also be liable for more tax if they do not provide a TFN.

    Where the payment is to an individual foreign resident, withhold at the foreign resident rates in the weekly, fortnightly or monthly tax tables. However, special withholding rates apply if they are employed under any of the following:

    Withholding when a payee does not quote an ABN

    If a payee is required to supply you with an Australian business number (ABN), and they don't, you must withhold the top rate of tax from the payment.

    In limited circumstances they do not need to supply you with an ABN. These include when the:

    • income is exempt
    • payee is not required to pay tax due to a tax treaty
    • payee is a foreign resident and does not carry on an enterprise in Australia.

    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 foreign resident withholding requirements. Therefore, if you have withheld because an ABN was not quoted, you do not also withhold under foreign resident withholding rules.

    It is your responsibility to be satisfied that you do not need their ABN.

    Making a payment in a foreign currency

    To make a payment in a foreign currency, you need to calculate the equivalent Australian dollar value 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.

    For more information, visit Translation (conversion) rules.

      Last modified: 13 Dec 2022QC 18617