• Method two: percentage from previous income year

    Under this method, you report and pay PAYG withholding on:

    net PSI percentage from previous income year

         X     

    gross PSI (excluding GST) received for the period

    The net PSI percentage equals:

    individual's gross PSI (excluding GST) for previous income year
    minus
      deductions that reduced gross PSI for previous income year  
    business' gross PSI (excluding GST) for previous income

     
     
    X

     
    100
    1

    Using the same example as in method 1

    For the period
    1 July - 30 Sept ($)

    For the previous income year (for the net PSI percentage method) ($)

    Income (excluding GST) received by Smith Pty Ltd as payment for Kieran's services - this is Kieran's PSI



    16,000



    60,000

    Investment income received by Smith Pty Ltd

    2,500

    10,000

    Salary paid to Kieran by Smith Pty Ltd for the work he did for the bank


    9,000


    35,000

    Tax withheld from the salary paid to Kieran

    1,222

     

    Salary paid to Jackie by Smith Pty Ltd for paying the company's bills and answering telephone calls



    3,000



    10,000

    Other expenses incurred by Smith Pty Ltd to generate the income paid for Kieran's services


    4,000


    20,000

    Entity maintenance expenses

    1,000

    3,000

     

    Add the PSI attributed to Kieran to the salary Smith Pty Ltd paid him ($9,000 + $3,000 = $12,000). Applying the PAYG withholding tax tables (quarterly) the amount of tax Smith Pty Ltd must withhold from $12,000 is $2,444.

    The amount withheld from Kieran's salary was $1,222.

    The attributed PSI withholding amount is: $2,444 - $1,222 = $1,222.

    Smith Pty Ltd must report and pay an amount of $2,444 to us in its activity statement. This amount is made up of:

    • tax withheld from the salary paid to Kieran of $1,222
    • the PAYG withholding on the attributed income of $1,222.

    Because Smith Pty Ltd received income other than PSI and incurred entity maintenance deductions, it will need to consider whether it has any entity maintenance deductions not applied during the year that can be deducted in the last PAYG period of the year.

      Last modified: 14 Sep 2016QC 17515