• How to make a voluntary agreement

    What a voluntary agreement includes

    A voluntary agreement is a written agreement between a payer and a payee that includes all of the following:

    • the start date of the agreement
    • what the payments are for (for example, plumbing services)
    • a statement that the payments made under the arrangement are subject to a voluntary agreement under section 12-55 of Schedule 1, Part 2-5 of the Taxation Administration Act 1953
    • the payer's ABN, name and address
    • the payee's ABN, name and address
    • the rate of withholding
    • the signatures of both the payer and the payee.

    Form of the agreement

    A Voluntary agreement for PAYG withholding (NAT 2772) form is available.

    The payer doesn't have to use this form, but any voluntary agreement must be a written agreement including all the information specified above.

    If preferred, the payer and payee can have an electronic voluntary agreement, provided that all the above items are included in the electronic agreement and the payer has adequate computer system controls in place to ensure the security and accuracy of the agreement.

    Note: Do not send a copy of the voluntary agreement to us. Each party should keep a copy for their records.

    How much to withhold

    The withholding rate under a voluntary agreement is either the payee's instalment rate as notified by us called the Commissioner's instalment rate (CIR) or a flat rate of 20%. If the payee:

    • has a CIR of more than 20%, the payer withholds at the CIR
    • has a CIR of 20% or less, the payer withholds at the flat rate of 20% unless both parties agree to use the CIR
    • does not know their CIR at the time of the agreement, the payer withholds at the flat rate of 20%.

    To work out how much to withhold, the payer subtracts any goods and services tax (GST) charged from the gross amount (invoiced amount) payable and multiplies the result by the withholding rate specified in the voluntary agreement.

    The payee is advised of their CIR after the lodgment of their most recent income tax return. For the purpose of voluntary agreements, the CIR used must be the rate notified by us.

    Note: The payee must disclose their CIR to the payer or state that they do not have one.

    How long the voluntary agreement lasts for

    A voluntary agreement can cover a specific task or apply to successive arrangements between the payer and the payee.

    When the payee is first advised of their CIR, or advised of a new CIR, the payer may need to enter into a new agreement after considering the rules applying to the rate of withholding.

    The payer and the payee can each end a voluntary agreement at any time by notifying the other party in writing. We do not need to be notified of the cancellation of the agreement or any changes made to the voluntary agreement.

      Last modified: 04 Feb 2016QC 16225