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Payments you need to withhold from

Withholding amounts may be required for your workers, other businesses and other payees, and subsequently sent to us.

16 October 2022

Withholding by employers

Your withholding obligations depend on whether your worker is an employee or contractor. If your worker is:

  • an employee, you generally have to withhold amounts from payments you make to them
  • a contractor, you generally do not withhold amounts from payments you make to them (unless they request withholding by entering into a voluntary agreement with you).

To check if your worker is an employee or contractor, you need to review the whole working arrangement. Our employee or contractor pages can help you determine the status of your worker.

The most common payments you withhold amounts from are those to:

  • your employees
  • your directors
  • businesses that don't quote their ABN to you
  • contractors who have a voluntary agreement with you.

If you operate your business as a sole trader or partnership and you draw amounts from the business, this is not a wage and you don't have to withhold from these drawings. You make some provision for your income tax liability through PAYG instalments.

Other payments that may need tax withheld

Payments, other than income from employment, may also need tax withheld, including:

  • investment income to someone who does not provide their TFN
  • dividends, interest and royalties paid to non-residents of Australia
  • payments to certain foreign residents for activities related to gaming, entertainment and sports, and construction
  • payments to Australian residents working overseas
  • super income streams and annuities
  • payments made to beneficiaries of closely held trusts.

Tax file number declarations and withholding declarations help you work out the tax to withhold when paying employees.

Special rules apply when calculating the amount of tax to withhold for certain employees.

Your contractors must meet their own tax obligations unless you enter into a voluntary agreement to withhold tax.

Labour-hire firms must withhold tax from payments to workers, regardless of whether they're an employee or contractor.

You may need to withhold tax from compensation, sickness or accident payments you make to an individual.

Amounts must be withheld from investment income if a tax file number or Australian business number has not been quoted.

If a business supplies you with goods or services, it should quote its Australian business number to you.