PAYG Withholding Variation: What is it and how do I apply for it?
Did you know you can vary the amount of tax your employer withholds from your regular pay if you have substantial tax deductions? This can increase your cash flow significantly and allow you to direct that extra cash in hand to investments or paying off debt. In Australia, when you earn money from a job or other sources, your employer typically withholds a portion of the earned money to pay your required annual taxes. It is setting aside money for your taxes as you earn it, so you don’t have to scramble to come up with the lump sum at the end of the year. This withholding system is really handy, especially if you don’t have any reason to owe less tax.
But what if you do have a reason to owe less tax? Let’s say you have accumulated a lot of work-related expenses, other sources of income with associated deductions that reduce your income and tax rate, expenses from the rental property you own, personal superannuation contributions or other deductions that reduce your taxable income or rebates towards your taxes… in these cases, you shouldn’t have to have a set amount taken out of your earnings each paycheck. You can apply for something called a variation. In the case of PAYG Withholding Variation, it means a change to the amount of tax that gets withheld from your pay. Instead of having the usual amount withheld, you can request the tax office to reduce the amount taken out of your pay.
So, what kind of expenses can count towards a PAYG Withholding Variation?
Work-Related Expenses: If you incur expenses as part of your job that aren’t reimbursed by your employer, like tools, uniforms, vehicle expenses, or self-education expenses, these could be eligible.
Rental Property Losses: If you own a rental property and have expenses such as repairs, maintenance, mortgage interest, and rates, these can be offset against the rental income, potentially reducing your overall tax liability.
Investment Losses: If you’ve made investments that generated a loss, such as shares or managed funds that have decreased in value, these losses might be eligible to be offset against other income.
Superannuation Contributions: Personal super contributions made from after-tax income could be eligible for a tax offset. Contributions to your spouse’s superannuation account might also count if certain conditions are met.
Charitable Donations: Donations to registered charities are generally tax-deductible.
Medical Expenses: Some medical expenses, such as those relating to disability aids, attendant care, or aged care, could be eligible, although the ATO has made changes to deductions/rebates for medical expenses in the recent years making it more difficult to claim them.
It’s important to note that these are just a few examples, and there could be other deductions and offsets that apply to specific circumstances.
If any of these expenses relate to you, you can start applying for a PAYG Withholding Variation to maximize your income. You can lodge your application during the year, but the last date for lodgement is April 30th of the application year. You can apply online through the Australian Taxation Office (ATO) website or by completing their paper form. If you lodge online, the processing time is within 28 days, and if you lodge by paper, the processing is within 56 days. You’ll need to provide details of your income, deductions, and tax offsets for the current financial year. The ATO will then review your application and may request additional documentation or information to support your claims. If approved, the ATO will send you and your employer a variation notice, instructing your employer to withhold tax at the reduced rate specified in the notice from the date specified in the notice until the end of the financial year – you’ll have to reapply again for the next financial year.
It’s imperative that you monitor your income and deductions to ensure that the variation remains accurate. If your circumstances change or fluctuate, you may need to apply for a new variation or notify the ATO in order to avoid underpayment of tax.
If your application for a variation is denied or you disagree with the ATO’s decision, you have the right to request a review or lodge an appeal. It’s important to note that the ATO can impose penalties for providing false or misleading information in a PAYG Withholding Variation application, so be sure to check and double check your information and keep your records up to date with copies of your application and any supporting documentation.
If you’re tax-savvy and feel like you can go through this process alone, that’s amazing. If you end up needing help along the way or decide this is out of your realm of understanding, a financial advisor is a great way to navigate the tax world. Send FRE.DM a message and we can walk you through this process with absolute ease and peace of mind!
