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  • How much should I withhold from payments?

    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    The amount to withhold could be different if the payee has received a variation from us or if they do not quote you an Australian Business Number (ABN).

    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 to do when you receive a variation notice from a payee

    A foreign resident payee can ask us to vary the required rate of withholding.

    If the payee provides you with a variation notice issued by us, you need to do the following:

    • 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.
    • 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.

    If you receive more than one variation notice for a payee, the latest notice supersedes all previous notices.

    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 form. There is a different application form for each financial year.

    See also:

    What to do if you receive a variation withdrawal notice

    A variation notice can only be withdrawn by us.

    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.

    How much to withhold when a payee does not 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 do not need an ABN, you still need to consider whether you are required to withhold from the payment.

    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, then you do not also withhold under foreign resident withholding.

    What if the payment is made in a foreign currency?

    Calculate the equivalent Australian dollar value of the payment at the time you make the payment.

    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.

    Next steps:

    For more information on foreign resident withholding, you can:

      Last modified: 28 Oct 2016QC 17606