Yong-Long Lai

For the people who are new to this I will briefly explain what Income Tax Withholding Variation is:

PAYG income tax withholding variation (ITWV) is used for people on the PAYG (Pay As You Go) system, i.e. pretty much everybody who is on a salary. This just means that your employer is withholding some part of your salary base on your tax payable and sending it to the tax man, Mr ATO (Australian Taxation Office).

You might be thinking, what’s the point of all this and how is this going to benefit you? Well If you have tax deductible expenses such as interest on an investment property, margin loan, land rates, water charges, property management expenses etc. then this will be useful for you. What usually happen is that you get a tax refund at the end of the financial year because your employer has withheld too much tax for the tax man (simply because your employer doesn’t know that you have investment properties or other tax deductible expenses).

By completing a PAYG income tax withholding variation (ITWV) application, you are applying for all those investment deductions to be refunded during the year via reduction in the tax withholding that’s been applied by your employer to your pay slips. This way it seems like you are getting more cash from your pay slips due to the reduction in the tax withheld. This money can be used for anything, hopefully you will use it to pay for those expenses when it happens or simply set it aside to offset interest or even earn interest in some high interest account, instead of sitting in the tax man, Mr ATO’s bank account earning interest for them.

Once you complete this form, the ATO will tell your employer to make the necessary changes to your pay slips. So get on-line today and complete one, especially if you have deductible expenses!

There are two ways of submitting the application:

1. complete the e-form and submit it on-line (highly recommended because you get it done straight away)
2. printing the form out and completing it yourself and ’snail’ mail it to the ATO, if you don’t know how to fill out the form ask you accountant about it. The form is actually very easy to fill out!

Example:

Here’s a quick example of how PAYG income tax withholding variation (ITWV) will help you:
For simplicity i am going to assume the following:

• Tax rate is 30%( flat rate across all income)
• You get paid monthly
• You earn $50,000 a year
• You have net $12,000 worth of investment expense ($1,000 per month)

BASE CASE

• Your taxable income is $50,000, so your tax payable is $15,000 (30% x $50,000)
• Your employer will withhold 30% ($15,000 per year) of your salary and send it to the tax man
• This means your monthly pay slip is $2,916.67 ($35,000 / 12)
• You will need to spend $1,000 for your investment expense monthly
• This leaves you with $1,916.67 for your living expenses and savings per month
• You get a huge tax refund at the end of the financial year $3,600 (30% x$12,000)

AFTER PAYG income tax withholding variation (ITWV)

• Your taxable income is $38,000 ($50,000 – $12,000), so your tax payable is $11,400 (30% x $$38,000)
• Your employer will withhold 30% ($11,400 per year) of your salary and send it to the tax man
• This means your monthly pay slip is $3,216.67 ($38,600 / 12)
• You will need to spend $1,000 for your investment expense monthly
• This leaves you with $2,216.67 for your living expenses and savings per month
• You get NO tax refund at the end of the year, but you received $300 more a month which could be better used in your hands than the tax man, Mr ATO’s hand

So the question is will you be doing your PAYG income tax withholding variation (ITWV) this year? or at least find out from your accountant what this is all about!