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  • Variations

    Each payee's circumstances are different, and some payees may find that the amount withheld using the tax tables is either too much or too little when compared to their actual end-of-year tax liability.

    Your payee, including overseas employees and foreign residents, may want to vary the rate of withholding so that they do not:

    • have too much tax withheld
    • receive a large tax bill at the end of the year.

    On this page:

    Upward variation

    A payee may ask you to increase the amount you withhold from payments to them, for example, to cover tax they will be liable to pay on investment income.

    If you agree to this, both you and your payee will enter into a written agreement (in any form that suits your business) to have additional tax withheld. No additional records are required.

    Where your payee has an upward variation in place and it applies to payments that become non-assessable, the variation ceases to have effect.

    Next step:

    Downward variation

    Your payee must get our approval to reduce the amount you would normally withhold by completing a PAYG Withholding variation application.

    This usually happens only in special circumstances where your employee can show that the withholding rate will result in them having more tax withheld than is required to cover the total tax they will need to pay in the year. For example, they expect to have tax deductible expenses which will reduce their taxable income.

    You cannot vary the withholding rate until you receive official notice from us.

    A variation notice can only be withdrawn by us. If your payee wants their variation notice withdrawn before the expiry date, tell them to write to us at the address on their approval letter.

    See also:

    Lodging an application for downward variation

    Australian residents – lodge a variation application online using the PAYG withholding variation application (e-variation).

    If the payee is unable to lodge online, they will need to order and complete a paper application and return it to us at the address on the form.

    We issue a new version of the form each financial year, so make sure your payee uses the correct version.

    Foreign residents – lodge a variation application using the PAYG foreign resident withholding variation application (printable).

    This application form is non-year specific and valid for one financial year.

    If we approve a downwards variation, we'll send an approval letter to the employee and a variation notice to you, outlining the new rate or reduced amount to be withheld. Both the notice and the letter will clearly specify the expiry date of the notice. A new application will need to be lodged at least 6 weeks before the expiry date for the decreased withholding to continue.

    If you receive more than one variation notice for an employee, the most recent notice supersedes all previous notices. Keep a copy of the variation notice with your business records for five years.

    Note: Salary sacrifice amounts are not subject to the varied tax rate.

    Next steps:

    See also:

    Class variations

    If a group of your payees want an identical variation, you can apply for a class variation on behalf of them. For example, your payees' withholding may be too high if they are paid an allowance and it is reasonably expected that their expenses in relation to that allowance will be deductible in their tax returns.

    You may apply for a class variation if all of the following apply:

    • the allowance can reasonably be expected to be spent for the intended purpose
    • the payees can reasonably be expected to spend an amount at least equal to the amount of allowance paid
    • the expenses relating to the allowance can reasonably be expected to be deductible on assessment at the end of the financial year
    • it is for six or more employees.

    You need to ensure that the information you give us is correct on behalf of all the payees included in the request.

    If there are fewer than six payees, each payee can apply for the variation on their own behalf using the PAYG withholding variation application.

    What to do when you receive a notice

    If you receive a notice from us, you need to ensure the notice is correctly addressed to you and correctly identifies the payee.

    You may receive one of the following and will need to act accordingly:

    • Notice approving the downward variation
      • from the effective start date, apply the varied rate of tax to the correct payment type until the expiry date, unless you receive a renewal.
    • Withdrawal notice
      • stop applying the varied rate of tax from the date of effect on the withdrawal notice and revert to withholding in accordance with the relevant tax tables.

    Example 1

    You receive a class variation notice for all the workers of ABC Pty Ltd, and the prescribed rate of withholding has been varied to 15% of the gross payments listed as salary and wages.

    John, one of your payees, is paid a salary of $1,500 fortnightly.

    Applying the varied rate on the notice would result in a fortnightly withholding of $225 ($1,500 × 0.15 = $225).

    Example 2

    You receive a variation notice for Tim, one of your payees. The prescribed rate of withholding has been varied to 18% of the gross payments listed as salary and overtime. He is paid on a fortnightly basis.

    In a single pay period, Tim received a bonus payment of $1,000, salary of $5,000 and overtime of $189. The bonus payment is not covered by the variation notice (only salary and overtime), so you will need to calculate the amount to withhold from the bonus payment separately using the Tax table for back payments, commissions, bonuses and similar payments.

    Calculation of withholding:

    • Salary: $5,000 × 18% = $900 (prescribed rate used)
    • Overtime: $189 × 18% = $34 (prescribed rate used)
    • Bonus: $1,000 × 38.5% = $384 (scheduled rate used)
    • Total withholding = $1,318
    End of example

    See also:

    Medicare adjustments

    If your employee advises you that they are liable for Medicare levy surcharge or entitled to a reduction in or exemption from the Medicare levy, they will need to complete the Medicare levy variation declaration. You will then need to adjust the amount you withhold from payments to the employee to take into account this change.

    See also:

    Increased number of pay periods in a year

    In some financial years, payees who are paid:

    • fortnightly will have 27 paydays for the year instead of the usual 26
    • weekly will have 53 paydays for the year instead of the usual 52.

    As the calculations for withholding tax are based on the normal number of pays in a year, the extra pay may result in insufficient amounts being withheld. You should let your payees know when this happens so they can ask you to withhold an additional amount. Such a request should be in writing, in any format that suits your business.

    If any of your payees want to further increase the amounts withheld, they will need to request an upward variation.

    Details of the additional amounts to withhold are included in the tax tables.

    See also:

    Last modified: 23 Apr 2018QC 27068