You can ask us for a variation to your Australian pay as you go (PAYG) withholding amounts. The main reason you'd apply for a variation is to ensure the amounts withheld best meet your end of year tax liability.
If your variation is approved by us, we send a withholding variation notice to your employer. Your employer can then reduce the amount they withhold from payments to you. We can't provide a withholding variation notice for any foreign tax withheld on the same payment in the other country.
Your employer can use a class variation to reduce the amount of Australian tax they withhold on payments made to you and their other employees working overseas. The reduction is based on the amount of foreign tax your employer has withheld and paid to a foreign government. You can discuss a class variation with your employer.
From the 2009–10 income year, there's a separate PAYG payment summary for employees who have had amounts withheld from their foreign employment income.
Your PAYG payment summary – foreign employment shows:
- your gross foreign employment income
- the total amount withheld for Australian PAYG withholding purposes
Your payment summary may also include the total amount of foreign tax that your employer has withheld and paid to a foreign government.
If you earn both foreign employment income and Australian employment income, and your employer is registered for the Australian PAYG withholding system, you'll receive 2 payment summaries:
- PAYG payment summary - foreign employment income
- your regular PAYG payment summary – individuals non-business to advise you of your gross Australian employment income and the total amount withheld for Australian PAYG withholding purposes.
You need to include all of your income in your tax return. This includes foreign employment income that isn't reported on your income statement.
Foreign employment income subject to PAYG withholding in Australia and shown on an income statement doesn't form part of your PAYG instalment income.
Foreign employment income not shown on a payment summary may form part of your PAYG instalment income. The value of non-cash benefits that you receive from your employer may also form part of your PAYG instalment income.
Exempt foreign employment income will not form part of your PAYG instalment income.
The PAYG instalment system is a system for paying instalments towards your expected income tax liability.
Australia's PAYG withholding system doesn't apply to foreign employers that don't have 'a sufficient connection with Australia.' Even if your foreign employer isn't taking PAYG withholding amounts out of your pay, you'll need to include your foreign employment income in your annual tax return as assessable income. You can do this by declaring it at the foreign employment income label.
If your foreign employer isn't subject to Australia's PAYG withholding system and therefore doesn't withhold Australian tax on your foreign employment income, it will be subject to the PAYG instalment system. We'll advise you how much to pay in instalments in the following income tax year.
If your foreign employer provides you with a non-cash benefit and they're not subject to Australia's PAYG withholding system, you'll need to include the value of the non-cash benefit in your assessable income.
If your foreign employer isn't subject to Australia's PAYG withholding regime, they won't be subject to our fringe benefits tax regime either. If they give you a non-cash benefit in respect of your employment, you need to include the value of that benefit in your assessable income.
Whether or not a non-cash benefit is convertible to cash determines what type of income we take it to be (ordinary or statutory). The value of convertible non-cash benefits (ordinary income) is generally subject to the PAYG instalment system. The value of non-convertible benefits (statutory income) is not.Make sure your pay as you go withholding meets your end-of-year tax liability if you have exempt foreign income.