As an employer, you have a role to play in helping your payees meet their end-of-year tax liabilities. You do this by collecting pay as you go (PAYG) withholding amounts from payments you make to:
- Your employees
- Other workers, such as contractors, that you have voluntary agreements with
- Businesses that don’t quote their Australian business number (ABN).
A few things to remember:
- You must register for PAYG withholding before you are first required to withhold an amount from a payment.
- If you cease to be an employer you should cancel your PAYG withholding registration.
- Before you enter into a work agreement or contract, you need to check that the worker is legally allowed to work in Australia.
- PAYG withholding is different to payroll tax. Payroll tax is a state tax.
It’s important you keep the right records.
Payments you need to withhold from
As a payer, you may need to withhold amounts from payments you make to your workers, other businesses and other payees, and send the withheld amount to us.
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).
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 installments.
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 trust