Pay As You Go Withholding (PAYG)
In accordance with the Taxation Administration Act 1953, the University is required to withhold tax from payments of salary and wages to an employee.
Section 12-35 provides that:
"An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity)".
An employee for PAYG purposes is an individual who contracts to provide their labour to an employer. The relationship is often referred to as a contract of service.
If a contract is to produce a given result (and not for their labour as such), the relationship would not be considered one of employee/employer, but as an independent contractor. A cash payment to a contractor does not require any tax to be withheld from the payment provided the contractor quotes their ABN.
Payments when ABN is quoted
Under the PAYG withholding system, taxpayers who carry on an enterprise and have an Australian Business Number (ABN) are not required to have tax deducted from the payments they receive.
Payments when an ABN is not quoted
Under PAYG withholding, if a business supplies goods or services to another and does not quote an ABN on their invoice, the business that receives the goods or services is required to withhold 46.5% from the payment to the supplier and remit this amount to the ATO.
Withholding of 46.5% does not apply when ABN is not quoted in the following:
- The payment does not exceed $75 GST exclusive
- The supply is made in the supplier's private capacity, or as their hobby
- The payment is exempt income for the supplier
- The payment is to a non-resident who is not carrying on a business in Australia or through an agent in Australia
Payments to Foreign Residents
Where the University engages a foreign resident as an employee PAYG must be withheld from payments made. The marginal tax rates which apply to foreign residents differ to those which apply to resident employees.
When is PAYG Withholding Payable to ATO
PAYG withholding is to be remitted to the ATO every 2nd Thursday from payment of fortnightly salaries. The University for PAYG withholding purposes is a large withholder as it withholds over $1 million during an income year.