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Transcript of Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Tax Procedures for your Business by Ian Birt,...
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
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
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
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
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.
PAYGA prepayment system
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 COVEREDSome of the payments by business payers to payees subject to PAYG withholding include:
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 arecontrolled by the employer paying them.
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
BUSINESS 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
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:
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
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
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.
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
PaysLabour
Hire firm
WorkerPays
(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
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.
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 anABN 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:
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
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
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 OBLIGATIONSRegister 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
18
• TFN declarations• Withholding schedules• Activity statements• Payment summaries• Annual reports.
DOCUMENTSUsed by payers in 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
19
• 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.
REGISTERING FOR 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
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 DECLARATIONAn authority for the payer to withhold tax at prescribed rates
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
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 TAXType of withholding payment
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
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.
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.
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.
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:
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:
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
Offence Penalty
Failure to withholdPenalty 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 dateGeneral 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