• PAYG withholding – voluntary agreements

    You may find this information useful if you either:

    • make payments to an individual who performs work or services as an independent contractor and they want to enter into a voluntary agreement with you
    • are paid to perform work or services as an independent contractor.

    When entering into a pay as you go (PAYG) withholding voluntary agreement, you need to know:

    What a voluntary agreement is

    A voluntary agreement is an agreement between a payer and a payee (independent contractor) to bring the payee's work payments into PAYG withholding system.

    Payers can only enter into a voluntary agreement if the payee is being paid as an independent contractor. They cannot enter into a voluntary agreement if the payee is an employee or being paid under a labour hire agreement.

    Building and construction services

    If your business makes payments to contractors for building and construction services under a voluntary agreement, you do not report these payments in the Taxable payments annual report. See Taxable payments reporting - building and construction industry.

    Benefits of a voluntary agreement

    Voluntary agreements are a good way to help independent contractors meet their tax obligations. By having an amount withheld by the payer, independent contractors can make regular contributions towards their expected income tax liability. We encourage payees who are having difficulties meeting their tax obligations to enter into voluntary agreements with their payers.

    When to use a voluntary agreement

    Voluntary agreements to withhold may only be used where no other PAYG withholding applies and the payment is partly or wholly for the performance of work or services, For example, if:

    • a computer consultant is working as an independent contractor for a manufacturing company to develop an electronic reporting system
    • an electrician is working as an independent contractor for a building company to undertake electrical work on new units
    • a marketing consultant is working as an independent contractor for a large retailing firm to undertake market research.

    See diagram below for an outline of the circumstances where a payer can enter into a voluntary agreement with a payee.

    
If the following is correct in your situation the payer can enter into a PAYG voluntary agreement with the payee:
- the payment is under an arrangement, in whole or in part, for the performance of work or services
- the payee is an individual
- the pament is not subject to any other PAYG withholding, and
- the payee does have an ABN and the payer and the payee agree to enter into a voluntary agreement and to record that agreement in the approved form.

      Last modified: 04 Feb 2016QC 16225