Method one: 70% of income
The simplest method is to report and pay PAYG withholding on 70% of PSI (excluding GST) received by your business for the PAYG payment period.
Kieran and Jackie are directors of Smith Pty Ltd, which reports GST and PAYG quarterly. Smith Pty Ltd provides Kieran's services as a computer consultant to a bank.
For the period 1 July 2008 to 30 September 2008, Smith Pty Ltd received income of $16,000 (excluding GST) as payment for Kieran's services - this is Kieran's PSI. Smith Pty Ltd has paid Kieran $9,000 salary for the work he did for the bank. Smith Pty Ltd withheld $1,222 from his salary.
Under method one, the amount subject to PAYG withholding for the period is 70% of $16,000 = $11,200.
PAYG withholding applies to the salary or wages amount of $9,000 and additional PAYG withholding applies to the attributed income amount ($11,200 - $9,000 = $2,200).
Kieran has provided a tax file number declaration and has claimed the tax-free threshold. Using the tax withheld calculator (quarterly), the amount of PAYG withholding payable is $1,963. This is made up of the:
- tax withheld from the salary paid to Kieran of $1,222
- PAYG withholding on the attributed income of $741.
That is, the $741 is the total PAYG withholding applicable to all the PSI - $1,963 - less the $1,222 Smith Pty Ltd already withheld from the salary paid to Kieran.
End of example