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austrilan accounting PAYG
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Pay As You Go (PAYG)
BY,NAME – RAJEEV NEELAY
PAYG SYSTEM OVERVIEW
PAYG is a system for regularly collecting income tax from earnings during the income year.
(Pay As You Go)
There are two limbs of PAYG:
1. PAYG Withholdings
2. PAYG Instalments
PAYG
PAYG
Withholding
PAYG
Installments
Means paying tax you withhold from
payments to others (i.e.
Salaries & Wages)
Means paying tax on your own Income (i.e.
Investment & Business Income)Regular
reporting and
remitting of tax to ATO
PAYG System
A Prepayment System
• From the payees point of view, PAYG taxes are prepayments of expected annual income tax payable.
• Payees claim any PAYG tax paid during the income year as a tax credit on their annual income tax returns for the year.
Pay As You Go (PAYG)
Some of the payments by business payers to payees subject to PAYG withholding include:
• Payments of remuneration to employees.
• Payments of directors’ fees to company directors.
• Payments to contractors under voluntary agreements.
• Payments for labour services under labour hire arrangements.
• Payments for the supply of goods or services where the payee does not quote an ABN.
• Compensation,sickness or accident payments to individuals.
Payments Covered
Employee remuneration includes:• Wages. • Salaries.• Allowances.• Bonus.• Commission.• Leave entitlement.• Eligible termination payments.
PAYMENTS OF REMUNERATION TO EMPLOYEES
Employees are generally individuals whose work tasks are
controlled by the employer paying them.
PENALTIES FOR NON-COMPLIANCE
Offence Penalty
Failure to withholdPenalty up to $1100 and liability for amount that should have been withheld.
Failure to register Penalty up to $550
Failure to remit tax by due dateGeneral interest charge for overdue period
Failure to provide payment summaries to employees
Penalty up to $2200
Failure to provide annual report Penalty up to $1100
Overview• The PAYG instalment system is another means of
regularly collecting income tax from taxpayers.
• The system applies to taxpayers with business and or investment income.
• The ATO notifies taxpayers whether they have to pay tax by PAYG instalments.
• Under the PAYG instalment system eligible taxpayers pay their own income tax to the ATO.
CONT…
• PAYG instalments are prepayments of income tax.
• The instalments are allowed as a tax credit on the taxpayer’s tax return for the income year.
• Eligible taxpayers are given various options for calculating instalment payments.
• Most taxpayers pay quarterly while others elect to pay a single annual instalment if they qualify.
ELIGIBLE TAXPAYERS
• Individuals in business.
• Individuals with investment income.
• Companies.
• Superannuation funds.
• Trustees and beneficiaries of some trusts.
Eligible taxpayers may include :-
• They have $2000 or more of gross business or investment income in their last year’s return.
• The tax assessment for their last return showed a tax debt of $500 or more.
Individual taxpayers will generally berequired to pay PAYG instalments if:
Instalment income for any tax period includes:
• Gross sales or fees received.
• Gross income from which tax was withheld because an ABN was not quoted by the taxpayer.
• Gross interest received.
• Gross rent received.
• Gross dividends received.
• Share of partnership gross income earned.
A taxpayers instalment income does not include:
• Income received that was subject to the PAYG withholding system other than where tax was withheld because an ABN was not quoted.
• Any GST amounts included in the sale price of goods or services sold.
Reporting and Paying Installments
• 28 October• 28 February• 28 April• 28 July
A quarterly BAS or IAS must be lodged at the ATO, regardless of which payment option is chosen.
Due dates for the payment of quarterlyinstalments are:
PENALTIES• Failure to notify the ATO of the correct
instalment rate for a tax period may attract a special ‘failure to notify penalty’
• This can apply to omissions or understatements of instalment income for a tax period.
• Late payment penalties apply for overdue PAYG installments.
• A General Interest Charge may also apply where instalment payers significantly underestimate their own instalment rates.
ExampleTotal Income Amount
Gross Total Income 100000$
Tax Rate (30%)
(-) PAYG Withholding
30000$
10000$
Balance Tax Liability
(-) PAYG Installments
20000$
10000$
Tax Payable 10000$