Tax file number (TFN) declarations
The answers your payees provide on their Tax file number (TFN) declaration help determine the amount you need to withhold from their payments. A Tax file number declaration applies to any payments made after you receive the declaration. If you receive an updated declaration from a payee, it will override the previous one.
If a payee does not give you a valid Tax file number declaration within 14 days of starting a payer-payee relationship, you must tell us by:
- providing employment and tax information about your payee in your STP Phase 2 reporting and including the applicable tax treatment code beginning in ‘N’, or
- completing a Tax file number declaration form with all available details of the payee and sending it to us.
When a TFN hasn't been provided
You must withhold 47% from any payment you make to a resident payee and 45% from a foreign resident payee (ignoring any cents), if all of the following apply:
- They have not quoted their TFN.
- They have not claimed an exemption from quoting their TFN.
- They have not advised you that they have applied for a TFN or have made an enquiry with us.
If a payee states at question 1 of the Tax file number declaration they have lodged a Tax file number – application or enquiry for individuals with us, they have 28 days to provide you with their TFN.
If a payee hasn't given you their TFN within 28 days, you must withhold 47% from any payment you make to a resident payee and 45% from a foreign resident payee (ignoring any cents) unless we tell you not to.
Don't allow for any tax offsets or Medicare levy adjustments. Don't withhold any amount for study and training support loans.
When 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 2 ways you can withhold from a foreign resident’s earnings:
- If the payee has given you a valid TFN, use scale 3.
- If the payee has not given you a valid TFN, use scale 4.
Foreign residents can't claim tax offsets to reduce withholding. If your foreign resident payee has claimed a tax offset on the Withholding declaration, don’t make any adjustments to the amount you withhold.
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.
Payees can also use a Withholding declaration to advise you of any changes to their circumstances that may affect the amount you need to withhold from their payments.
Changes that may affect the amount you need to withhold include the payee:
- becoming or ceasing to be an Australian resident for tax purposes
- claiming or discontinuing a claim for the tax-free threshold
- advising of a Higher Education Loan Program (HELP), VET Student Loans (VSL), Financial Supplement (FS), Student Start-up Loan (SSL) or Australian Apprenticeship Support Loan (AASL) debt, or changes to them
- claiming an entitlement to a seniors and pensioners tax offset.
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 they can provide you with a Withholding declaration.
Claiming tax offsets
If your payee chooses to claim their entitlement to a tax offset through reduced withholding, they must provide you with a Withholding declaration.
To work out a payee’s annual tax offset entitlement into a weekly, fortnightly, monthly or quarterly amount, refer to Tax offsets.
Don't allow for any tax offsets if any of the following apply:
- No tax-free threshold is claimed.
- You are using foreign resident rates.
- When a payee does not provide you with their TFN.
When your payee has a study and training support loan debt
If your payee has a HELP, VSL, FS, SSL or AASL debt, you may need to withhold additional amounts from their payments. Your payee will need to notify you of this on their Tax file number declaration or Withholding declaration.
Calculating additional withholding amounts
To calculate additional withholding amounts for:
- HELP, VSL, FS, SSL or AASL debts, refer to either
- Statement of formulas, refer to Schedule 8 – Statement of formulas for calculating study and training support loans components.
Payees who are entitled to a reduction of Medicare levy, or don't have to pay the Medicare levy because of low family income, won't have to make a compulsory HELP, VSL, FS, SSL or AASL repayment for that year. The exemption from making a compulsory study and training support loans repayment may be claimed on the Medicare levy variation declaration.