Withholding declarationsWithholding declarations

Withholding declarations

A valid Tax file number declaration (or Employment declaration or Annuity and superannuation pension declaration) must be in place before a payee can authorise the payer to vary their rate of withholding by providing a Withholding declaration.

A payee may use the Withholding declaration to advise their entitlement to the family tax benefit (FTB) or a tax offset, which they choose to claim through a reduced rate of withholding. Withholding declarations can also be used by payees to advise of changes to their situation since providing a valid Tax file number declaration, which may affect the amount to be withheld from their payments.

Changes which may affect the payee’s withholding rate include:

 becoming or ceasing to be an Australian resident for tax purposes
 claiming or discontinuing a claim for the tax-free threshold
 advising a HECS or HELP debt, or Financial Supplement debt, or changes to them
 entitlement to a Senior Australians tax offset, and
 upward variation to increase the rate or amount to be withheld.

A Withholding declaration takes effect from the first payment the payer makes after the payee has provided the declaration. A later declaration provided by a payee overrides an earlier declaration.

Medicare levy adjustment

To claim the Medicare levy adjustment available to some low income earners with dependants, a payee must lodge a Medicare levy variation declaration along with their Tax file number declaration.

Image unavailable in extracted text For instructions on how to calculate the Medicare levy adjustment, see page 3 of this schedule.

Some payees may be liable for an increased rate of Medicare levy or the Medicare levy surcharge on reportable fringe benefits. These payees can lodge a Medicare levy variation declaration, requiring the payer to increase the amount to be withheld from payments made to them.

Allowances

Generally, allowances are added to normal earnings and the amount to be withheld is calculated on the total amount of earnings and allowances.

Image unavailable in extracted text Refer to PAYG bulletin no 1 – Taxing of allowances for the 2000/01 and future income years.

Foreign residents

Foreign resident tax rates apply where a payee has answered No to the question ‘Are you an Australian resident for tax purposes?’ on their Tax file number declaration. There are two ways to withhold from earnings for a foreign resident:

 If the payee has provided a valid TFN, use Scale 3.
 If the payee has not provided a valid TFN, use Scale 4.

Foreign resident payees cannot claim family tax benefit (FTB) or any tax offset. If a foreign resident payee has claimed FTB or any tax offsets on the Tax file number declaration, do not make any adjustment to the amount to be withheld.