The ATO has a few methods for making tax time easier each year, but one of the most commonly known is the Pay As You Go (PAYG) withholding system.
PAYG helps employees divide their tax liabilities into equal payments throughout the year rather than paying all at once. For employees and sub-contractors, facing a huge annual bill is potentially financially disastrous, so using PAYG is beneficial to both the government and taxpayer!
Who Uses PAYG Instalments?
As an employee, you probably don’t think about PAYG because your taxes are withheld from your paycheque automatically. As a business owner, though, you’ll need to be a little bit more involved with the PAYG system. If you have employees, withholding arrangements with your contractors, or make payments to businesses that don’t quote their ABN, you have withholding obligations.
How Do I Handle PAYG Instalments for Others?
If you are required to withhold taxes, you first need to register for PAYG withholding. You can do this online at the same time that you apply for your ABN or you can register later using your administrator AUSkey. Once you’ve registered, you must withhold from wages and other payments, lodge activity statements and pay what you withhold to the ATO, provide documentation of this to those your withholding for, and lodge a PAYG withholding payment summary annual report with the ATO. To make the process a little easier, accounting software like Xero can help with preparing these reports!
How Do I Handle PAYG Instalments for my Company?
Companies must pay toward their expected income tax liability throughout the year, just as individuals do. Fortunately, the ATO will calculate and notify you of your instalment rate based on your annual tax return. You’ll receive a notice if yo