Department of Treasury

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Department of Treasury FinancePAYG
Presentation
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Agenda

• PAYG Overview What is the PAYG System?
• Application of the PAYG instalment and PAYG
  Withholding systems
• PAYG Withholding What payments are caught?
• Calculation of withholding amounts
• Remittances of Withholdings
• Payment Summaries and Reporting Obligations
• Penalty Regime
• ATO Interpretative Decisions and Fact Sheets

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PAYG Overview What is the PAYG System?

• PAYG is a single integrated system for reporting
  and paying
• Tax on business and investment income and
• Withholding amounts from payments and remittance
  to the ATO.
• The purpose of the PAYG system is to standardise
  and simplify the withholding tax and instalment
  laws.

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PAYG Overview What is the PAYG System? (Contd)

• The stated aims of the PAYG system is to
• align the payment dates for the various taxes
  that business taxpayers pay
• allow business taxpayers to pay one amount per
  quarter and
• combine the existing withholding tax systems into
  one system.

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PAYG Overview What is the PAYG System? (Contd)

• The PAYG system achieves this by replacing the 11
  previously existing systems including the Pay As
  You Earn system (PAYE), the prescribed payments
  system (PPS), the Reportable Payments System
  (RPS), other withholding systems and the
  provisional tax and company tax instalment
  system.
• The new PAYG system incorporates two separate
  systems under the one regime the PAYG
  instalment system and the PAYG withholding
  system.

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PAYG Instalments

• The PAYG Instalment system collects instalments
  of income from individuals who currently pay
  provisional tax and from companies,
  superannuation funds and certain trading trusts.
• Instalments of income an entitys actual
  ordinary income for a given period x instalment
  rate.
• Most Government Bodies and Agencies are exempt
  form income tax, therefore no need to pay PAYG
  instalments.

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PAYG Withholding

• The process by which the payer withholds amounts
  from payments to others and remits these to the
  ATO.
• Therefore it is important to understand
• when to withhold?
• how much to withhold?
• when to remit the withheld amounts to the ATO?
• how to report withheld amounts to the ATO?

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PAYG Withholding What Payments are Caught?

• 24 Withholding Payments, including
• A payment of salary etc. to an employee
• A payment of remuneration to the director of a
  company
• A payment of salary etc. to an office holder (eg.
  a member of the Defence Force)
• A return to work payment to an individual
• A payment of pension or annuity
• An eligible termination payment
• A payment for unused leave on an individuals
  retirement or termination of employment
• A Commonwealth education or training payment
• A compensation, sickness or accident payment

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PAYG Withholding- What payments are caught?

• Three New Payments
• Labour Hire
• Voluntary Agreements
• No ABN Withholding

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Labour Hire

• Labour hire arrangements involve the performance
  of work or services by an individual for a client
  of the labour hire company.
• Therefore it is the labour hire firm that
  contracts the worker and pays the worker.
• The employee is not an employee of the labour
  hire firm or the client.

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Labour Hire (contd)

• Applies to businesses involved (or partially
  involved) in arranging people to perform work for
  clients (ie. carrying on labour-hire businesses).
• This situation does not apply if an activity is
  incidental to your other business activities.
• It is the labour hire firm that must withhold
  from payments it makes to its workers.

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Voluntary Agreements

• A business and an individual can make a voluntary
  agreement to have amounts withheld from payments
  under PAYG if
• the payment is not covered by another withholding
  category and
• the individual has an ABN.

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No ABN Withholding

• A payer must withhold from a payment for a supply
  of goods or services to the recipient where an
  invoice or some other document relating to the
  supply does not quote the recipients ABN.
• The payer must withhold at the top marginal rate
  medicare levy (currently 48.5).
• Withholding does not apply to
• private or domestic payments
• payments less than 50
• the whole payment is exempt income of the
  recipient and
• payment not made in the furtherance of an
  enterprise carried on in Australia by the payer.

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Salary Packaging

• What is a salary sacrifice arrangement?
• an arrangement under which an employee agrees to
  forego part of his/her total remuneration, that
  would otherwise be received as salary or wages,
  in return for the employer, or an associate of
  the employer, providing benefits of similar
  value.
• TR 2001/10.

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Salary Packaging (Contd)

• Effective SSA
• Employee agrees to receive part of their
  remuneration as benefits before the employee has
  earned the entitlement to receive the amount as
  salary or wages.
• Ineffective SSA
• Employee directs that an entitlement to receive
  salary and wages that have been earned, to be
  paid in a form other than salary or wages.

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Calculation of Withholding Amounts

• The amount to be withheld is determined by
• Commissioners withholding schedules
• Withholding requirements and limits under the
  Income Tax Assessment Act (ie. Dividends,
  Interest, Royalties) and
• Amounts specified by Regulation.

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Calculation of Withholding Amounts (Contd)

• The amounts to be withheld from payments under
  the Commissioners schedules will have regard to
• marginal income tax rates
• rates of Medicare levy and HECS contributions,
  and
• effect of residency, the general exemption,
  various tax offsets and family tax benefit
  entitlements.

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Calculation of Withholding Amounts (Contd)

• In cases where the recipient has not provided an
  effective TFN declaration, the ATO requires that
  an amount equal to 48.5 of the payment be
  withheld.

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Variation of Withholding

• The variation must be made in writing and state
  which entity or class of entity it applies to.
• The Commissioner can vary the amount to be
  withheld. Examples
• payments to individuals under the age of 18 where
  amounts paid do not exceed 112 weekly, 225
  fortnightly or 489 monthly vary to nil and
• reimbursement of actual expenses incurred by the
  payee varied to nil.

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Remittances of Withholdings When?

• The period within which amounts withheld by
  payers will be required to be remitted to the ATO
  will depend on the status of the withholder.
  That is
• Large Withholders
• Medium Withholders
• Small Withholders
• All Withholders must be registered with the ATO
  and
• Branches may be registered separately from an
  entity.

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Large Withholders

• Total amount of withholding remittances for a
  year exceed 1 million.
• Part of a company group for which the total
  amount of withholding remittances for a year
  exceed 1 million.
• The Commissioner varies the status of the
  withholder to large withholder.

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Large Withholders - Remittance

• Large withholders must remit electronically.

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Medium Withholders

• Total amount of withholding remittances for a
  year are between 25,001 and 1 million.
• The Commissioner varies the status of the
  withholder to medium withholder.
• Remittances are to be made electronically by the
  21st day after the end of the month in which the
  amount was withheld.

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Small Withholders

• Total amount of withholding remittances for a
  year are up to 25,000.
• The withholder is neither a large nor medium
  withholder.
• Remittances are to be made by the 21st day after
  the end of the quarter in which the amount was
  withheld.

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Payment Summaries Reporting Obligations

• Payment Summaries
• Entities are required to provide a payment
  summary and a copy of the payment summary to the
  payee by 14 July.
• The Commissioner may exempt an entity from
  payment summary requirements in writing.
• The major features of the payment summary
  include
• Name of payer and recipient
• The recipients TFN or ABN
• The total of the withholding payments
• The total of the amounts withheld
• The financial year and
• Reportable fringe benefits amount.

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Payment Summaries (Contd)

• Part Year Payment Summaries
• If a recipient asks (in writing) for a payment
  summary from a payer during the year (more than
  21 days before year end), the payer must provide
  the payment summary within 14 days.
• No ABN Payment Summaries
• The payer must give the recipient a payment
  summary when making the payment, or as soon as
  practical.

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Payment Summaries (Contd)

• Documentation requirements necessitate that an
  entity must keep records that explain all
  transactions and other acts engaged in by the
  entity in relation to PAYG withholding.
• The documentation should be kept for 5 years.

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TFN Declaration

• If the payer receives a valid TFN declaration
  from a recipient, the entity must withhold from
  the payee according to the rates in the tax
  tables, otherwise the entity must withhold at the
  top marginal rate (i.e. 48.5)
• The TFN declaration must then be sent to the ATO
  within 14 days.

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Payment Summaries and Reporting Obligations -
Annual Reporting

• An entity, that has made withholdings, must
  provide an annual report to the ATO.
• The report must be provided by 14 August after
  the end of the financial year for the majority of
  payments.
• For some withholding payments you must report by
  31 October after financial years end including
• No ABN withholding events
• Dividend payments to non-residents
• Interest payments to non-residents
• Royalty payments to non-residents and
• Non-cash benefits.

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Penalty Regime - General

• Failure to withhold penalty - 10 penalty units
  (1,100).
• A penalty unit is 110.
• Failure to remit penalty - 10 penalty units
  (1,100).
• Commissioner may remit all or part of a penalty.
• An entity that fails to withhold an amount is
  also liable to pay the Commissioner a penalty
  equal to the amount that was meant to be withheld

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Penalty Regime Exempt Government Agencies

• Separate penalties apply to exempt Australian
  government agencies for
• Failure to withhold 20 penalty units (2200).
• If payment of a dividend, interest or royalty -
  failure to withhold 10 penalty units (1,100).
• If the failure to withhold is by a non exempt
  government agency, or relates to a dividend,
  interest or royalty payment and remains unpaid
  after its due date the entity is liable to pay a
  general interest charge (GIC) on the unpaid
  amount.
• The GIC for the period July September 2002 is
  11.84 p/a.
• The Commissioner may remit all or part of a
  penalty

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ATO Interpretative Decisions and Fact Sheets

• Taxing of allowances
• Taxing of reimbursements paid to workers under
  labour hire arrangements
• Withholding and Labour Hire Firms
• Lump sum payments in arrears of salary wages and
  other payments subject to PAYG withholding
• Bonuses
• Commissions
• Overpaid amounts
• What types of arrangements are suitable for a
  voluntary agreements

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Questions, Issues and Experiences

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