Video transcript - Paying workers - PAYG withholding
If, like Mary, you are an employer, you will have withholding obligations. Pay as you go withholding is a system for withholding amounts from payments you make to employees and other businesses so they can meet their end-of-year tax liabilities.
If you are a sole trader or a partner in a partnership, you don't pay yourself a wage or salary, as such, and none of the PAYG (pay as you go) withholding rules apply. Instead, you draw money from the business to live on. You pay tax on your entitlement to your business's net profit, regardless of how much or how little you draw from it.
If your business is operated through a company or trust, it is likely you are an employee and or director of the company or an employee of the trust. The company or trust has the same responsibilities for or to you as it does to any other employee.
Directors should also be aware that, under the law, they may become personally liable for payment of a penalty equal to the unpaid pay as you go withholding debts of their company, if they are not paid in full by the due date.
If you make payments subject to withholding you must register for PAYG withholding. You must also withhold amounts from wages and other payments, as well as lodge activity statements and make payments to the ATO. You will need to provide payment summaries to your employees and provide the ATO with a PAYG withholding payment summary annual report.
The amount you withhold from an employee's wage depends on the amount you pay them. There are other factors that can also affect the amount withheld from wages such as if your employee is claiming the tax-free threshold, has Higher Education Loan Program or Financial Supplement debts, or has a reduced withholding due to their eligibility for tax offsets.
This information would be given to you in either a Tax file number declaration or a Withholding declaration.
As a small business, you generally report and pay the withheld amounts to the ATO quarterly when you lodge your activity statements.
At the end of each financial year, you must provide all employees with a payment summary showing how much you paid them and tax withheld. You’ll also need to send the ATO your PAYG payment summary annual report.
The ATO publishes pay as you go withholding tables that show the amounts to withhold from weekly, fortnightly and monthly payments. They also have a tax-withheld calculator to help you work out how much to withhold.
Some business accounting software packages will do the calculations and help you lodge online. If you use one of these packages, it is important to keep it up to date as tax rates and other withholding factors may change from year to year.
This video explains the PAYG withholding obligations you have as an employer.