Why do I need to pay PAYG if I am not employing anyone?

This is a common query my office gets asked.

Firstly, you need to decipher which PAYG the ATO wishes you to pay; PAYG Instalments or PAYG Withholding.

PAYG Instalments

This is a system for paying instalments towards your expected income tax liability on your business and/or investment income for the current income year.

Your actual income tax liability is worked out when your annual income tax return is assessed.

Your PAYG instalments for the year are credited/offset against your tax assessment, for that year, to determine whether you owe more tax or are owed a refund.

The ATO is the only one who can enter and cancel you from the PAYG Instalment system.

PAYG Withholding

This is a system for withholding amounts from payments you make to employees and other businesses so they can meet their end-of-year tax liabilities.

You will have withholding obligations if you:
• are an employer, or
• operate a business that has other workers, such as contract workers and you enter into voluntary agreements to withhold amounts from payments you make to them, or
• make payments to other businesses that do not quote their Australian business number (ABN).

If you make payments subject to withholding, you must:
• register for PAYG withholding
• withhold amounts from wages and other payments
• lodge activity statements and make payments to the ATO
• provide payment summaries to workers
• provide ATO with a PAYG withholding payment summary annual report.

Hope that helps!