Why do you need to withhold from payments?


When you make payments to employees, certain contractors and other businesses, you need to withhold an amount from the payment and send it to the Australian Taxation Office (ATO). This is called PAYG withholding, and works to prevent workers from having a large amount of tax to pay at the end of the financial year.

What you need to do


If you need to withhold payment from your employees, contractors or other businesses, you’ll need to:

The most common payments you will need to withhold amounts from are the ones you make to:

The ATO has calculators to help you work out how much you need to withhold from payments:

You can also use the Tax tables to work out how much you need to withhold from payments.

Did you know?

If you operate your business as a sole trader or partnership and you take out amounts from the business for personal use, this is not a wage and you don't have to withhold from these amounts. However, this income will need to be included in your tax return.

You can still make payments towards your income tax liability through PAYG instalments.

Find out more:

Visit the ATO website for information on the different types of payments you need to withhold from, including:

If you’re unsure, it’s also important to work out whether your worker is an employee or contractor.

Paying and reporting withheld amounts


If you withhold an amount from a payment, you’ll need to:

  • pay the amount to the ATO
  • report the amounts on your activity statements
  • lodge an annual report.

When to pay

The due date for paying amounts you withhold depends on whether you're a small or medium withholder.

  • Small withholders withhold less than $25,000 per year, and are required to pay quarterly to the ATO.
  • Medium withholders withhold more than $25,000 to $1 million per year, and are required to pay monthly.
  • If you withhold more than $1 million per year, you are a large withholder and will need to pay within six to eight days of when you’ve withheld the payment.

How to pay

You can easily pay through a number of methods, including:

  • online
  • BPay
  • credit card and phone.

Find out more about how to pay the ATO.

How to report

You report PAYG withholding on your Business Activity Statement (BAS).

Annual reporting

At the end of each financial year, you need to give each of your payees (i.e. your employees and anyone else you’ve withheld payment from) a payment summary. You must also provide an annual report to the ATO.

Payment summaries

A payment summary should be provided to your payees by no later than 14 July each year, and needs to specify:

  • how much you paid them in the financial year
  • how much you withheld from the payments.

If you lodge your PAYG withholding reports online you can provide your workers with electronic payment summaries as long as these meet the formatting requirements.

For assistance on what to include in a payment summary, and guidelines for each different type of payment summary, read the ATO’s information on PAYG payment summaries: forms and guidelines.

Annual report

If you’ve withheld from payments, you will also need to lodge a PAYG withholding annual report at the end of each financial year. The report must include:

  • all payments you made to employees, workers or businesses during the financial year
  • the amounts you withheld from those payments.

To find out more about payment summaries and annual reports, visit the ATO’s information on payment summaries and annual reports.

Records you need to keep


Records that explain your PAYG withholding transactions must be:

  • kept for at least five years
  • in English or in a format that can be easily converted into English.

Records kept in an electronic format must be a true and clear reproduction of the original paper records, and be readily accessible.

The PAYG withholding records you need to keep, include:

  • wages records and payment records
  • tax file number declarations and withholding declarations
  • copies of payment summaries, payment summary statements and annual reports
  • employment termination payment records
  • records of Personal Services Income (PSI) you have attributed
  • voluntary agreements
  • statements by a supplier where no ABN was quoted
  • records of amounts you withheld where no ABN was quoted
  • annual reports of PAYG withholding where no ABN was quoted.

When a worker leaves or retires


There are different steps to take when a worker leaves your business, depending on whether they were an employee or contractor.

Employees

When an employee leaves or retires you’ll need to:

  • make final PAYG withholding payments on the worker's behalf
  • complete a PAYG payment summary - employment termination payment (ETP)
  • send the payment summary to the worker by 14 July, or earlier if requested
  • retain the employee's TFN declaration until the end of the next financial year
  • include the details of any final payments to the employee in your PAYG payment summary statement
  • keep all necessary PAYG withholding records for at least five years

Did you know?

You may also have superannuation and fringe benefit tax (FBT) obligations when an employee leaves.

Find out more at the ATO website about:

Contractors

When a contractor ceases their contract with you, you must withhold amounts from any final payments at the appropriate rate and keep the necessary PAYG withholding records.

For contractors under a voluntary agreement:

  • provide a PAYG payment summary – business and personal services income to them by 14 July, or earlier if requested
  • include the details of any final payments made to them in your PAYG payment summary statement.

Find out more:

When you are no longer required to withhold


If you cease having employees you should cancel your registration for PAYG withholding. Before you do you need to ensure you have:

  • lodged all outstanding activity statements
  • met all your PAYG withholding obligations
  • met all your payment obligations

Find out more:

Read No longer need to withhold from the ATO website.