Transcript No Slide Title

Chapter 3
PAYG Withholdings
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 SYSTEM OVERVIEW
(Pay As You Go)
PAYG is a system for regularly collecting
income tax from earnings
during the income year.
There are two limbs of PAYG:
1. PAYG Withholdings
2. PAYG Instalments
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
PAYG
PAYG
PAYG
withholding
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
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
A prepayment system
• 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.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
4
PAYMENTS COVERED
Some of the payments by business payers to
payees subject to PAYG withholding include:
• 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.
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
Employees are generally individuals whose work tasks are
controlled by the employer paying them.
Employee remuneration includes:
• Wages
• Salaries
• Allowances
• Bonuses
• Commissions
• Leave entitlements
• Eligible termination payments.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
6
PAYMENT UNDER VOLUNTARY
AGREEMENT
PAYER
PAYEE
SUPPLY OF SERVICES
BUSINESS
NET PAYMENT
INDIVIDUAL
CONTRACTOR
(after PAYG tax withheld)
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
7
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:
• 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.
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 AGREEMENT
• 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.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
9
ADVANTAGES OF VOLUNTARY
AGREEMENTS
• 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.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
10
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.
• 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.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
11
LABOUR HIRE ARRANGEMENT
Business
Payer
Pays
Labour
Hire
firm
Pays
Worker
(works for)
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
12
COMPENSATION, SICKNESS OR
ACCIDENT PAYMENTS TO INDIVIDUALS
Businesses may have to withhold tax from any
compensation, sickness or accident payments made to
individuals.
These payments must be made
because of incapacity for work and
are based on periodic rates.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
13
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.
No withholding is required from payments
where no ABN is quoted if:
• 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.
Businesses who pay other businesses who do not quote an
ABN on invoices for goods or services supplied must withhold tax at 48.5%
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
14
INVESTMENT INCOME PAYMENTS BY
INVESTMENT BODIES TO INVESTORS
WHO DO NOT QUOTE AN ABN
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.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
15
DIVIDEND, INTEREST OR ROYALTY
PAYMENTS TO NON-RESIDENTS
• 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.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
16
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
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
17
DOCUMENTS
Used by payers in the PAYG withholding system
•
•
•
•
•
TFN declarations
Withholding schedules
Activity statements
Payment summaries
Annual reports.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
18
REGISTERING FOR PAYG
WITHHOLDINGS
• Registering is a once-only
requirement by mail or via the ATO
site, www.business.gov.au.
• New payers register when they
apply for an ABN.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
19
TFN DECLARATION
An authority for the payer to withhold tax at prescribed rates
• 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.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
20
WITHHOLDING DECLARATION
FORM
• These declarations disclose any tax
offsets the payee is entitled to.
• They are used to request a reduced
rate of withholding.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
21
WITHHOLDING PAYG TAX
Type of withholding payment
• 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 rate to apply
•
Rates under the withholding schedules base on
progressive personal tax rates.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
22
WITHHOLDING PAYG TAX
Type of withholding payment
• Unused leave paid to employees on
termination of employment.
Withholding rate to apply
•
Rates under PAYG withholding tax tables.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
23
WITHHOLDING PAYG TAX
Type of withholding payment
• Payments to individual contractors under
voluntary agreements.
Withholding rate to apply
•
The ATO notified instalment rate per cent or
20 per cent, whichever is greater.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
24
WITHHOLDING PAYG TAX
Type of withholding payment
• Payments for supplies where no ABN is
quoted by suppliers.
• Payments from investments where the
investor does not quote a TFN.
Withholding rate to apply
•
48.5 per cent of payment.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
25
SENDING PAYG
WITHHOLDINGS TO THE ATO
Business payers regularly report and remit PAYG
tax withheld to the ATO.
Ways to make tax payments:
• Electronically transferring funds.
• Posting payments to the ATO.
• Paying personally at any Australian Post Office.
The tax is reported on either a BAS or IAS and sent to the ATO
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
26
ISSUE PAYMENT SUMMARIES
TO PAYEES
Payment summaries are issued to employees after
the end of the income year.
A payment summary shows:
• The total gross payment.
• The total tax withheld from the payment for
the income year.
• Any allowances and lump sum payments.
Payment summaries must be issued by employers within 14
days after the end of the income year.
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
27
PENALTIES FOR NON-COMPLIANCE
Offence
Penalty
Failure to withhold
Penalty up to $1100 and liability for
amount that should have been
withheld.
Failure to register
Penalty 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 report
Penalty up to $1100
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
28
Chapter 4
Discusses
PAYG Instalments
Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a
Tax Procedures for your Business by Ian Birt,
Slides prepared by Peter Miller
29