The 70% of gross PSI received is the simplest method to report and pay PAYG withholding on PSI.
You simply work out 70% of the PSI (excluding GST) received by your business for the PAYG payment period. Using this method you do not need to calculate entity maintenance deductions or factor in other unclaimed deductions against the PSI in your BAS.
Example
Kieran and Jackie are directors of Smith Pty Ltd, which reports GST and PAYG quarterly. Smith Pty Ltd provides Kieran's services as a computer consultant to a bank.
For the period 1 July to 30 September, Smith Pty Ltd received income of $16,000 (excluding GST) as payment for Kieran's services – this is Kieran's PSI.
From that $16,000 (PSI) Smith Pty Ltd has paid Kieran $9,000 as salary for the services he performed for the bank. It was promptly paid as salary.
Smith Pty Ltd withheld PAYG of $1,222 from his $9,000 salary.
Under method 1, the amount subject to PAYG withholding for the period is 70% of $16,000 = $11,200.
PAYG withholding has only been paid on $9,000. So there are additional PAYG withholding obligations.
The additional PAYG withholding applies to the attributed income amount ($11,200 − $9,000 = $2,200).
Kieran has provided a TFN declaration and has claimed the tax-free threshold. Using the tax withheld calculator (quarterly), the amount of PAYG withholding payable is $1,963. This is made up of the:
- $1,222 of tax withheld from the salary paid to Kieran, plus
- $741 of additional PAYG withholding applicable to Kieran's PSI.
Smith Pty Ltd reports and pays these amounts in its BAS.
Smith Pty Ltd will send the ATO an annual report showing the total PAYG withholding at the end of the income year.
As long as the PSI paid as salary is promptly paid and Smith Pty Ltd uses this simplified method correctly, it will not be penalised if, at the end of the income year, Smith Pty Ltd works out that it withheld less tax than it should have under the legislative method.
