Withholding declarations

A payee may use a Withholding declaration to advise you of a tax offset they choose to claim through reduced withholding from you. For more information, see Claiming tax offsets.

Payees can also use a Withholding declaration to advise you of any changes to their situation that may affect the amount you need to withhold from their payments.

Changes that may affect the amount you need to withhold include:

• becoming or ceasing to be an Australian resident for tax purposes
• claiming or discontinuing a claim for the tax-free threshold
• advising of a HELP, VSL, FS, SSL or TSL debt, or changes to them.

When your payee provides you with a Withholding declaration it will take effect from the next payment you make. If you receive an updated declaration from a payee, it will replace the previous one.

A payee must have provided you with a valid Tax file number declaration before your payee can provide you with a Withholding declaration.

What if your payee is a foreign resident?

If your payee has answered no to the question ‘Are you an Australian resident for tax purposes?’ on their Tax file number declaration, you will need to use the foreign resident tax rates.

There are two ways you can withhold from a foreign resident’s earnings:

• If they have not given you a valid TFN, you need to withhold 45% for each $1 of earnings (ignoring any cents).
• If they have given you a valid TFN, you need to withhold the amount calculated in the foreign resident tax rates below, rounding any cents to the nearest dollar.

Foreign resident tax rates

Foreign residents cannot claim tax offsets to reduce withholding. If your foreign resident employee has claimed a tax offset on the Withholding declaration, don’t make any adjustments to the amount you withhold.