In today’s blog, we’ll discuss changes to your pay-as-you-go (PAYG) withholding cycle. Let’s get started:
PAYG Withholding Cycle
The PAYG withholding cycle is used to help you check how often you are required to report and pay the withholding amounts to the ATO. The ATO will write to tax agents and employers in April to announce if your PAYG withholding cycle needs to be upgraded. If affected, your paying and reporting obligations changes will come into effect from 1 July. Your new withholding and payment cycle will depend on the amount you withheld under your Australian Business Number (ABN) in all branches in 2022-23.
- Small withholder status: $25,000 or less – you need to inform and pay quarterly
- Medium withholders: If you withheld above $25,000 and up to $1 million, then you will be classified as a medium withholder. You will have to:
- report your PAYG withholding amounts on your activity statement on a monthly basis
- make payments by the monthly due date
- check that your reported withholding matches the amounts you stated using Single Touch Payroll (STP).
- Large withholders: If you withheld over $1 million, then you will be considered a large withholder by the ATO. By paying on the set payment dates, you will receive a new Payment Reference Number (PRN) to quote. You don’t need to report PAYG withholding on your activity statement. However, you are required to reconcile your stated Single Touch Payroll and paid amounts.
Changes to Your Withholding Reporting and Payment Cycle
You may have to make modifications to your payroll software prior to July 1 to match your withholding reporting payments with the new due dates. If your estimated PAYG withholding amount for 2024-25 will not exceed the relevant threshold, you can request to stay on your existing cycle.
Annual Review by the ATO
A review will be conducted by the ATO to check your withholding payments every financial year to check if your withholding cycle needs to be upgraded. The ATO will either write or email you to upgrade your withholding cycle if your annual withholding payments have been maximised. Your new withholder status (medium or large) will be used to determine your new withholding cycle. Before the due date of your first payment for the new financial year, the ATO will give you some time to change to the new payment cycle. Objection is not allowed to this notice. However, if you do not agree with the ATO decision to change your PAYG withholding cycle, you can request to stay on your existing cycle in case you estimate that your withholding amount will remain within your withholding status threshold in future. You or your small business accountant need to send a request to the ATO within 21 days of receiving a letter or email from the ATO.
Cycle Change Because of Compliance Activity
Your PAYG withholding cycle may be changed by the ATO because of an audit or other compliance activity. The ATO will consider the matters mentioned below when making a determination:
- the sum of amounts you may withhold in the next 12 months
- the extent, if any, to which you receive or pay withholding payments that were received or made previously by another entity
- any failure to satisfy tax obligations under the withholding rules
If the ATO thinks to upgrade your withholding cycle, the ATO will release a written notice to notify you about the changes and the date when they will come into effect.
Request to Remain within a Lower Withholding Cycle
The ATO may approve a request to remain within a lower withholding cycle if you satisfy any of these conditions. Don’t forget to attach an explanation to support your request. If this is not given, then it won’t be considered. You:
- are engaged in seasonal work
- only pay withholding for the part of the year
- have income fluctuations due to uncertainty of contracts in certain fields
- are impacted by a natural disaster.
Conclusion
The blog outlines changes to your PAYG withholding cycle. Moreover, if you are confused or not sure about these changes, then you can receive support from our Reliable Melbourne Accountants.
More Useful Links:
Small Business Tax Accountants