Pay As You Go (PAYG)

Pay As You Go (PAYG) is a tax of business income paid incrementally to the ATO.

There are two types of PAYG payments: PAYG withholding and PAYG instalments.

If you’re an employer, PAYG withholding is your legal requirement to set aside portion of payments made to your employees and other businesses, which you then pay to the ATO in regular instalments. This is done on behalf of your employees, who may then claim against the amount withheld at the end of the financial year. PAYG withholding may also apply to some contractors.

However, PAYG instalments allow you or your business to meet your income tax obligations. PAYG instalments are generally paid by business owners, investors and sub-contractors who earn a certain amount of income.

PAYG withholding obligations will apply if:

  • you have employees
  • you have other workers, such as contractors, and you enter into voluntary agreements to withhold amounts from your payments to them
  • you make payments to businesses that don’t quote their Australian Business Number (ABN).

If this applies, then you must:

  • register for PAYG withholding as soon as you know you need to withhold
  • withhold amounts from wages and other payments
  • lodge activity statements and pay the withheld amounts to the ATO
  • provide payment summaries to all employees and other payees by a set date
  • provide a PAYG withholding payment summary annual report to the ATO by a set date