1. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 1 PAYG Withholdings Chapter 3

2. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 2 PAYG SYSTEM OVERVIEW PAYG is a system for regularly collecting income tax from earnings during the income year. (Pay As You Go) There are two limbs of PAYG: 1. PAYG Withholdings 2. PAYG Instalments

3. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 3 PAYG System PAYG withholding PAYG instalments Means paying tax you withhold from payments to others Means paying tax on your own income Regular reporting and remitting of tax to ATO

4. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 4 From the payees point of view, PAYG taxes are prepayments of expected annual income tax payable. Payees claim any PAYG tax paid during the income year as a tax credit on their annual income tax returns for the year. PAYG A prepayment system

5. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 5 Payments of remuneration to employees. Payments of directors’ fees to company directors. Payments to contractors under voluntary agreements. Payments for labour services under labour hire arrangements. Payments for the supply of goods or services where the payee does not quote an ABN. Compensation,sickness or accident payments to individuals. PAYMENTS COVERED Some of the payments by business payers to payees subject to PAYG withholding include:

6. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 6 Employee remuneration includes: Wages Salaries Allowances Bonuses Commissions Leave entitlements Eligible termination payments. PAYMENTS OF REMUNERATION TO EMPLOYEES Employees are generally individuals whose work tasks are controlled by the employer paying them.

7. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 7 PAYMENT UNDER VOLUNTARY AGREEMENT PAYER PAYEE SUPPLY OF SERVICES NET PAYMENT BUSINESSINDIVIDUAL CONTRACTOR (after PAYG tax withheld)

8. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 8 The contractor must be an individual. The contractor must have have an ABN. The agreement must be in writing and in an approved form. The agreement must quote the individual contractors ABN. PAYMENTS TO CONTRACTORS UNDER VOLUNTARY AGREEMENTS Voluntary agreements allow payments to contractors to come under the PAYG withholding system. Requirements for a voluntary agreement to apply:

9. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 9 The period of agreement may be up to five years. Either party may terminate the agreement in writing at any time. The effect of the agreement is that payments to the contractor come under the PAYG withholding system. THE AGREEMENT

10. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 10 The contractor does not have to charge GST. The contractor does not pay PAYG income tax instalments when dealing with that contractor. Instead, the payer withholds income tax from payments to the contractor at agreed rates. ADVANTAGES OF VOLUNTARY AGREEMENTS

11. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 11 In typical labour hire arrangements, the worker is neither an employee of the labour hire firm, nor the business payer. The business payer pays the labour hire firm, which subsequently pays the worker. Under the PAYG withholding system, the labour hire firm must withhold tax from payments to workers who provide labour services for its clients. PAYMENTS FOR LABOUR SERVICES UNDER LABOUR HIRE ARRANGEMENTS Labour hire arrangements occur when businesses contract with labour hire firms which provide labour services to the business.

12. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 12 LABOUR HIRE ARRANGEMENT Business Payer Pays Labour Hire firm Worker Pays (works for)

13. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 13 These payments must be made because of incapacity for work and are based on periodic rates. COMPENSATION, SICKNESS OR ACCIDENT PAYMENTS TO INDIVIDUALS Businesses may have to withhold tax from any compensation, sickness or accident payments made to individuals.

14. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 14 The goods or services were bought by an individual for private or domestic purposes. The payment does not exceed $50. The supplier was an individual engaged in a hobby activity. PAYMENTS FOR THE SUPPLY OF GOODS OR SERVICES WHERE THE PAYEE DOES NOT QUOTE AN ABN These situations involve business to business payments, where no ABN is quoted by payees on their invoices for the supply of goods or services. Businesses who pay other businesses who do not quote an ABN on invoices for goods or services supplied must withhold tax at 48.5% No withholding is required from payments where no ABN is quoted if:

15. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 15 Investment bodies such as banks must withhold tax at the highest personal tax rate from any income paid to investors who do not quote their ABN. INVESTMENT INCOME PAYMENTS BY INVESTMENT BODIES TO INVESTORS WHO DO NOT QUOTE AN ABN

16. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 16 The PAYG withholding system also extends to payments of dividends, interest or royalties by businesses to non-residents with addresses outside Australia. Tax is withheld at flat rates prescribed by the regulations. DIVIDEND, INTEREST OR ROYALTY PAYMENTS TO NON-RESIDENTS

17. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 17 PAYERS OBLIGATIONS Register as a payer (once only) Receive TFN declarations From payees (and sent to ATO) Withhold PAYG tax from eligible payments to payees Send PAYG tax withheld with activity statement to ATO at regular intervals Issue payment summaries to payees at end of income year Send annual report to ATO at the end of the income year

18. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 18 TFN declarations Withholding schedules Activity statements Payment summaries Annual reports. DOCUMENTS Used by payers in the PAYG withholding system

19. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 19 Registering is a once-only requirement by mail or via the ATO site, www.business.gov.au.www.business.gov.au New payers register when they apply for an ABN. REGISTERING FOR PAYG WITHHOLDINGS

20. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 20 It is not compulsory for individual payees to submit a TFN declaration to their payers. Payees may elect to disclose their TFN and indicate whether they want to claim the tax-free threshold. TFN DECLARATION An authority for the payer to withhold tax at prescribed rates

21. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 21 These declarations disclose any tax offsets the payee is entitled to. They are used to request a reduced rate of withholding. WITHHOLDING DECLARATION FORM

22. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 22 Wages, salaries, allowances, bonuses, commissions, leave paid to continuing employees. Directors’ fees paid to company directors. Payments under labour hire arrangements. Compensation, sickness and accident payments to individuals. WITHHOLDING PAYG TAX Type of withholding payment Withholding rate to apply Rates under the withholding schedules base on progressive personal tax rates.

23. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 23 Unused leave paid to employees on termination of employment. WITHHOLDING PAYG TAX Type of withholding payment Withholding rate to apply Rates under PAYG withholding tax tables.

24. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 24 Payments to individual contractors under voluntary agreements. WITHHOLDING PAYG TAX Type of withholding payment Withholding rate to apply The ATO notified instalment rate per cent or 20 per cent, whichever is greater.

25. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 25 Payments for supplies where no ABN is quoted by suppliers. Payments from investments where the investor does not quote a TFN. WITHHOLDING PAYG TAX Type of withholding payment Withholding rate to apply 48.5 per cent of payment.

26. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 26 Electronically transferring funds. Posting payments to the ATO. Paying personally at any Australian Post Office. SENDING PAYG WITHHOLDINGS TO THE ATO Business payers regularly report and remit PAYG tax withheld to the ATO. The tax is reported on either a BAS or IAS and sent to the ATO Ways to make tax payments:

27. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 27 The total gross payment. The total tax withheld from the payment for the income year. Any allowances and lump sum payments. ISSUE PAYMENT SUMMARIES TO PAYEES Payment summaries are issued to employees after the end of the income year. Payment summaries must be issued by employers within 14 days after the end of the income year. A payment summary shows:

28. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 28 PENALTIES FOR NON-COMPLIANCE OffencePenalty Failure to withhold Penalty up to $1100 and liability for amount that should have been withheld. Failure to registerPenalty up to $550 Failure to remit tax by due date General interest charge for overdue period Failure to provide payment summaries to employees Penalty up to $2200 Failure to provide annual reportPenalty up to $1100

29. Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt, Slides prepared by Peter Miller 29 Discusses PAYG Instalments Chapter 4