Can I increase or decrease the amount of PAYG withholding tax I pay?
You can vary the amount of PAYG withholding tax you pay, to best reflect your expected income tax liability for the year. PAYG withholding tax is the tax on salaries and wages that you are subject to as an employee or company director. It is essentially Paying your taxes As You Go. You can vary your tax rate upwards or downwards depending on your circumstances. If you are expecting a tax liability, you can increase your withholding tax rate to reduce the end of year tax liability. If you are expecting a tax refund, you can decrease your withholding tax rate which will reduce your tax refund, but increase your cashflow throughout the year.
Your accountant can submit the required form to the Australian Taxation Office on your behalf. You can locate the application form at www.ato.gov.au.
You should consider a withholding tax variation if you have:
-an allowance such as a car or travel allowance
-earlier year losses from business
-large sales commissions
-large tax deductions
-negative gearing in other investments or financial products
-negatively geared real estate
The Australian Taxation Office can work out a varied tax rate for you. In effect you are declaring your estimated income and expenses for the tax year (1st July to 30th June). The Tax Office will report the varied tax rate to you, and your employer, approximately one week after your application is processed.
Once your employer receives notification from the Tax Office, your varied tax rate will be in effect and pay-slips that follow will reflect the change. The Tax Office will issue an expiry date for the rate variation and once it expires you will need to lodge another application. If your employment or financial circumstances change prior to the expiry date, you will need to lodge a new application with the Australian Taxation Office. It is required by law that you keep a copy of the withholding variation form for at least 5 years
Your actual tax liability for the tax year is determined when you complete your tax return. The refund due or the tax payable will be reported to you by your accountant. The main aim of this tax strategy is to spread the tax payments over the year so that you, and your business, can have a good cashflow and avoid large tax payments.