Your business needs to work out any additional PAYG withholding amounts for each business activity statement (BAS) for the attributed income only.
It can sometimes be difficult for businesses to accurately work out the attributed income amount each time their BAS is due, so the ATO allow 2 simplified methods to help you.
The 2 simplified methods of calculating attributed income for withholding purposes are:
- 70% of the gross PSI received in the PAYG payment period, and
- a percentage of the net PSI from the previous income year.
If you intend to pay the whole of an individual's net PSI as salary and wages, these 2 methods can also be used to work out a reasonable salary amount for PAYG withholding purposes. If you correctly use either of the 2 simplified methods, you will not be penalised if, at the end of the income year, you work out that you withheld less tax than you should have.
If you would prefer to work out the actual amount of PSI and additional PAYG withholding amounts for the BAS period, your business can use the legislative method.
The legislative method allows you to more closely match your PAYG withholding obligations with your current PSI and expenses. Penalties may apply where you incorrectly calculate your PAYG withholding obligations and you end up not withholding enough tax. So it’s important to take care when calculating.
Example: working out PAYGW obligations
Claire is a computer programmer who operates through her company, Claire's Computer Programming Services Pty Ltd. In the first quarter (1 July to 30 September), Claire (on behalf of the company) completed 3 contracts which generated $100,000 PSI (GST exclusive). The company did not earn any other income.
The company has worked out the PSI rules apply to the PSI and the company is registered for PAYG withholding.
For the $100,000 PSI, Claire's Computer Programming Services Pty Ltd has:
- promptly paid $30,000 to Claire as salary or wages
- incurred $10,000 in allowable deductions (other than entity maintenance deductions)
- attributed $60,000 ($100,000 − $30,000 − $10,000) to Claire, as she was the individual who produced the PSI.
Claire's Computer Programming Services Pty Ltd would have:
- additional PAYG withholding obligations for the $60,000 attributed to Claire
- normal PAYG withholding obligations for the $30,000 salary or wages promptly paid to Claire
- to give Claire PAYG payment summaries for the salary or wages and for the attributed PSI at the end of the income year.
For the additional PAYG obligations, Claire's Computer Programming Services Pty Ltd must:
- work out the amount of PAYG withholding for the PSI attributed to Claire using one of the following methods
- 70% of the gross PSI received in the PAYG payment period
- a percentage of the net PSI from the previous income year
- legislative method
- report and pay the additional PAYG withholding amounts through the company's BAS for the first quarter
- give Claire an annual PAYG payment summary at the end of the income year
- send the ATO an annual report showing additional PAYG withholding at the end of the income year.
