Varying your rate or amount of withholding helps to make sure that the amount withheld during the income year meets your end-of-year tax liability.
If your circumstances warrant a withholding variation, you will need to work out if the variation is:
An upwards variation increases the amount of tax that is withheld from your payments.
You can ask your payer to increase the amount they withhold from your income. You may do this where you expect to have a tax amount to pay at the end of the income year.
Example: upward variation
Since retiring, Keith receives an annual superannuation pension income of $25,000. He also receives interest on his term deposit. Keith estimates his interest will be $1,000. So, he estimates taxable income will be $26,000 ($25,000 + $1,000 = $26,000).
Keith can apply for a withholding variation to have tax withheld at the rate he estimates his taxable income will be. In this case, $26,000.End of example
How to apply for an upward variation
You can arrange an upward variation by:
- entering into an agreement with your payer to vary the rate or amount of withholding. Your request should be in writing and can be in any format.
- completing a Withholding declaration online through ATO online services see, Access and complete employment forms in ATO online.
The Commissioner of Taxation may allow under tax law the variation of the amount a payer withholds from a withholding payment, to meet the special circumstances of a particular case or class of cases.
A downward variation reduces the amount of tax you would normally have withheld from your payments. For example, you may want to apply for a variation if the normal rate of withholding leads to a large credit at the end of the income year because your tax-deductible expenses are higher than normal.
The granting of a variation doesn't mean that we have accepted the tax treatment of the income and deductions in your application.
We assess your actual tax liability when you lodge your income tax return. You must keep records of your relevant income and expenses for a minimum of 5 years. We will issue a notice with the Starting and finishing dates of a downward variation. Your notice will also advise if you have been granted a Multi-year downward variations.
Your payer can't vary the withholding rate until they receive an official variation notice from us.
Example: downward variation for allowance
Sue is a salary and wage earner who uses her own vehicle for work purposes. Her payer pays her an annual motor vehicle allowance of $10,000.
Sue estimates that her annual tax deduction for car expenses will be $9,000.
Sue can apply for a downwards variation so that her payer will withhold tax from only $1,000 of her allowance.End of example
Example: downward variation for taxable income
John, a real estate salesperson receives his payments on a commission basis. He also owns a rental property and receives rental income.
John's annual gross income from his only payer is $45,000. He estimates that his rental property loss will be $15,000.
John estimates his taxable income will be $30,000 ($45,000 − $15,000 = $30,000).
John can apply for a downwards variation to have his payer calculate his withholding rate according to the taxable income of $30,000.End of example
The processing time for an application depends on the method you use to lodge your application.
If you lodge:
- online – within 28 days
- by paper – within 56 days.
You need to lodge a PAYG withholding variation application with us to request a downwards variation.
Before you lodge a varation
We will only process your application for a downwards variation if you:
- lodge all required tax returns and activity statements, or lodge a non-lodgment advice for tax returns in prior years
- did not receive a debit assessment on your last tax assessment (if you also had an approved withholding variation for that year)
- don't have any outstanding tax debt owning to the Australian Government
- don't have any outstanding debts under any other Acts we administer.
We may seek more information from you before or after your application is processed. If you fail to provide this, we may not be able to approve your application.
We process your application using the information you provide. It is your responsibility to make sure that you give us enough information to allow us to work out a withholding rate to meet your end-of-year tax liability.
If we approve your application, the varied rate or amount of withholding will start from the next available payday after your pay office receives the notice of withholding variation from us.
Your variation finishes on the date shown on the letter you receive from us. To continue to have varied or reduced tax withheld from payments after this date, you must lodge another variation application – at least 6 weeks before the expiry date.
We may issue a variation for allowances for more than one year. The date on the letter we send after we process your application will show if the variation is for more than one year.
You must complete a new application and advise us of any change in your circumstances during the income year. For example, when you sell a rental property, or your taxable income changes to the extent that you will receive a debit assessment of $500 or more.
If you and your work colleagues want an identical variation, your payer can apply for a class variation on your behalf. For example, you and your colleagues' withholding may be too high if you receive an allowance and reasonably expect that your expenses in relation to that allowance will be deductible.
Your payer can apply for a class variation if all of the following apply:
- the allowance can reasonably be expected to be spent for the intended purpose
- you can reasonably be expected to spend an amount at least equal to the amount of allowance paid
- the expenses relating to the allowance can reasonably be expected to be deductible on assessment at the end of the income year
- it is for 6 or more payees.
If there are fewer than 6 payees, each payee must apply for a variation by completing and sending to us either:
- a PAYG withholding variation application for allowances or study and training support loans
- a PAYG withholding variation application.