Highlights

  • PAYG withholding requires tax to be withheld from certain payments made to workers and suppliers.
  • BAS reporting involves completing labels W1, W2, W3, W4 and W5 accurately.
  • Incorrect withholding may lead to loss of deductions and penalties.
  • All withheld amounts must be reported and paid to the ATO through your BAS.

Under PAYG withholding in Australia, tax must be withheld from certain payments made to others. These include payments to employees, company directors, office holders, and workers engaged under labour-hire agreements. It also applies to payments made under voluntary agreements and situations where a supplier does not provide an Australian business number (ABN) in relation to a supply.

Any amounts withheld must be reported in the PAYG tax withheld section of your business activity statement (BAS) and paid to the ATO. Failure to comply may affect your entitlement to deductions for payments made to workers, and penalties may apply.

Additional support is available through ATO resources such as removing tax deductibility of non-compliant payments and PAYG withholding pre-fill for activity statements.

How to Complete Your Activity Statement Labels

PAYG withholding payers, which generally include businesses and enterprises, must withhold tax from specific payment types. These payments include those made to employees, office holders, labour-hire workers, under voluntary agreements, and where an ABN has not been quoted. Other amounts withheld, such as interest, dividend and royalty payments excluded from W2 or W4, must also be reported.

An activity statement will include the relevant reporting requirements, though its appearance may vary. When completing the statement, clearly print using a black pen, leave irrelevant boxes blank unless instructed to enter ‘0’, show whole dollars only, and avoid using symbols or negative figures. Additional information should not be written on the form.

W1 – Total Salary, Wages and Other Payments

W1 includes total gross payments from which withholding is usually required. Payments include salary, wages, allowances, leave loading, director fees, office holder payments, labour-hire payments, termination payments, unused leave, payments to religious practitioners, super income streams, super lump sums, Commonwealth education and training payments, and attributed personal services income.

All payments subject to withholding must be included even if no tax was required to be withheld. Certain payments should not be included at W1, such as those involving salary sacrifice, super contributions, departing Australia superannuation payments, payments without an ABN (reported at W4), and payments to foreign residents for specified activities.

If no payments were made, W1 should be left blank.

W2 – Amounts Withheld from Payments at W1

W2 includes total amounts withheld from payments listed at W1. If no withholding occurred, leave the box blank.

W4 – Amounts Withheld Where No ABN Is Quoted

If a supplier does not quote their ABN, 47% of the payment must be withheld. W4 includes the total withheld in these cases.

W3 – Other Amounts Withheld

W3 covers withholding from interest, dividends, investment distributions where a TFN is not provided, payments to foreign residents for certain activities, and departing Australia superannuation payments.

W5 – Total Amounts Withheld

W5 represents the sum of W2, W4 and W3. This figure is copied to label 4 in the summary section, or to label 9 where only PAYG withholding is reported.

Large Withholders

Businesses that have withheld more than AUD 1 million in a previous income year, or belong to a group that has done so, are classified as large withholders. They must complete only W1 and pay all withheld amounts electronically. If reporting via Single Touch Payroll, W1 no longer needs to be reported on activity statements.

Checklist

Before lodging, ensure PAYG instalment boxes are completed where applicable, calculations are correct, totals are copied accurately, signatures and dates are included, and the BAS is lodged and paid by the due date. Proper record-keeping is essential.