How to get your boss to tax you less….. Heard of a ‘Withholding Variation’?

Under tax law, the Australian Taxation Office (“ATO”) in special circumstances may vary the amount an employer is required to withhold from your pay packet.

You don’t want to do pay any more tax during the year than you need to.

Some taxpayers have losses from other business activities which can be offset against their wages and reduces their taxable income, which in turn reduces their annual tax bill.

So why pay too much during the year, just to get it back at year end?  A “withholding variation” allows your employer to deduct a lesser amount of tax than normal each week, so that the total over the year is correct.

Example: John is a computer analyst who is paid a regular wage. He owns a rental property. John’s annual gross income from his only employer is $80,000. He estimates that his rental property’s interest and other costs exceed his rental income by $15,000 each year. Therefore, his estimated taxable income will be $65,000 ($80,000 – $15,000).  John can apply for a variation to have his withholding rate calculated based on his estimated taxable income of $65,000.

The granting of a variation doesn’t mean that the ATO has accepted the tax treatment of the income and deductions in your application. Your actual tax liability will be determined when you lodge your income tax return.

Downwards variation

If you want to vary your withholding amount downwards, you need to lodge a PAYG withholding variation application form with the ATO. Applications must be lodged using the correct version of the ATO approved form. A new version of the form is issued each financial year.

The ATO will process your application only if you:

  • have lodged all required tax returns and activity statements in prior years,
  • did not receive a debit assessment on your last tax assessment (if you also had an approved withholding variation for that year),
  • do not have any outstanding tax or interest debt.

The ATO may ask for more information from you before or after your application is processed.  You must make sure that this information is adequate to enable us to calculate a withholding rate to meet your end-of-year tax liability.

If your application is not approved, you can apply for a review of the decision.

Upwards variation

You can arrange an upwards variation. But why would you?  The only reason would be if you were scared about a big tax bill at the end of the year, and if you’re not the sort of person who could set aside money in a separate bank account and save to meet your year-end tax bill. At least you’d earn interest on your savings.  If you are not the “saver” type, then an upwards variation is a type of forced savings.

For more information call Noel or Amanda on (03) 9585 7555
or email us