The ATO loves acronyms. If you spend any amount of time researching the answer to a simple tax question and become faced with alphabet soup you are not alone.
Potentially the most confusing of these relates to the Pay-As-You-Go (PAYG) system.
Everyone in the building & construction industry, and indeed in the whole community will come into contact with the Australian system of collecting tax.
The two acronyms your business needs to nail is: PAYG-W (Withholding) and PAYG-I (Instalments).
PAYG Withholding is external.
These are the payments of tax you withhold from your employees gross salary/wages. You are withholding their tax and sending the payment to the ATO on their behalf.
Most accounting software can work out the rate you need to withhold from employee pay for you, however, the ATO publishes PAYG tables which outline the different circumstances for withholding and the correct rate which must be applied to an employee's gross wages.
PAYG Instalments is internal.
These are the prepayments of your tax for the current financial year. When your business has a high enough business or investment income, the ATO will register your business for PAYG Instalments.
What this essentially means is you are pre-paying your future tax liability. The amounts paid here will be credited against your tax liability in your next tax return.
If there is a significant change in trading conditions (ie for income will be significantly less than compared to last year) you are able to vary the instalment to nil. Remember, this may mean you have more tax to pay at the end of the year, placing pressure on your cash flow.
Contact us at Dolman Bateman or Buildersbooks if you are looking for an experienced accountant or Bookkeeper.
This information is not to be relied upon without speaking to your accountant, tax agent or financial adviser depending on the advice