How to stay on top of PAYG withholding

7th July, 2016

The PAYG withholding (pay-as-you-go) system is used to progressively withhold income tax, the Medicare levy, student HELP loan repayments and sundry other statutory deductions from salary, compensation and other payments made to employeescontractors or directors and in respect of certain other payments including where a business has not provided an ABN.

The PAYG withholding amounts to be withheld from these payments are determined by your payroll accounting system and ATO directives. You need to advise the ATO of the amount that has been withheld through lodgement of your BAS. It must then be remitted to remit this to the ATO when periodically submitting your BAS.

Get your PAYG Payment Summaries ready

For the financial year just ended, employers are required to provide each employee with a Payment Summary by 14 July.

The Payment Summary must accurately reflect the gross payments made to that person and details of all deductions for income tax, Medicare levy, Superannuation, RESC (salary sacrifice Superannuation) grossed-up Fringe Benefits and HELP.

Employers must ensure that PAYG Withholding required for Eligible Termination payments and Voluntary Agreements has been correctly accounted for as required by relevant rules.

Details need to be lodged either electronically or paper-based (disks and USBs are no longer accepted) with the ATO by 14 August.

READ: A handy EOFY checklist for small business owners

Prior to publishing and distributing the Payment Summaries you must ensure that these are correct and the total amounts balance to your accounting records. To ensure that this is correct, we recommend that you complete the following reconciliations:

  • Reconcile Gross Salaries and PAYG monthly and annual data with BAS returns
  • Reconcile full year summaries of Gross Wages, PAYG, Superannuation and RESC in your accounting system with the ATO return; and
  • Reconcile Gross Salaries in the General Ledger with the Payment Summary totals

Note that you will need to retain the following for seven years:

  • Copies of Payment Summaries
  • Wage records with amounts withheld
  • TFN declarations by employees and withholding declarations
  • Eligible termination records; and
  • Voluntary Agreements

We recommend that, for the new Financial Year, you reconcile your General Ledger accounts for Gross Wages and PAYG with your BAS on a monthly or quarterly basis. Doing this will assist you in completing your Payment Summaries and ATO returns for this period quickly and accurately. In addition this will provide the opportunity for any queries to be identified and resolved.

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