Inside or Outside Super? Strategies for High Net Worth Investors
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If you are an employer or own a self-managed superannuation fund (SMSF) you may be required to register for Pay As You Go (PAYG) withholding.
PAYG is a withholding tax that requires the payment of incremental amounts of your business's income to the ATO, in order to slowly accumulate towards your expected end of year income tax liability.
You should always finalise your year's PAYG instalments before lodging your income tax return, to ensure that the contributions you have paid throughout the year are taken into account during your income tax assessment.
As a business owner, you may also have an obligation under the PAYG withholding rules to collect tax from employee payment and any payments made to certain businesses. This withholding obligation is designed to ensure that they, too, will meet their end-of-year tax liabilities.
You have a withholding obligation as a business owner if:
You will start the PAYG process by registering for PAYG withholding, which will require you to first register an ABN for your business if you have not already done so, then use the ABN to register for PAYG withholding. This process can be completed through a registered tax agent or BAS agent, or online through the Business Portal on the ATO website.
Payments to the following are typically subject to PAYG withholding:
If an employee leaves, retires, or otherwise ceases employment with you, a contractor under a voluntary agreements ceases their contract with you, or a business that did not quote their ABN stops doing business with you:
You may also stop withholding if you should cease as an employer (in which case you should cancel your PAYG withholding registration) or if you cease operating your business (in which case you may wish to cancel both your ABN and PAYG registrations.) You must have lodged any outstanding activity statements and met all your outstanding PAYG withholding registration obligations.
If you are the trustee of a self-managed super fund (SMSF), you may also have PAYG obligations. Such obligations would relate to withholding tax for superannuation benefit payments you pay to members who meet the following qualifications:
You may also be obligated to withhold tax from superannuation benefits you pay to:
You will need to register for PAYG withholding and obtain a tax file number declaration (TFN) from the member (otherwise tax must be withheld at the top marginal rate.) Withheld amounts must be paid to the ATO, and a PAYG payment summary issued to the recipient of the benefit.
Each pension payment summary should include full details of the payment such as:
Payment summaries should also be issued in the situations listed above even if no tax has been withheld. For lump-sum payments, you must provide the recipient with a PAYG payment summary for the superannuation lump sum within 14 days of making the payment.
Tax need not be withheld if:
Managing PAYG withholding for a business or a SMSF can be complex. Contact us today for advice on managing your employee or SMSF PAYG withholding or instalments.
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