Pay-as-you-go (PAYG) tax is Australia’s version of the widely-known withholding tax. However, the distinction from income tax is often shrouded in obscurity. Most employees don’t know the difference between the two, leaving employers to explain it to them. Here’s a breakdown of the basics.
To differentiate withholding and income tax, it’s important to know that withholding tax can also be called payroll tax. A certain portion of a worker’s payroll is withheld as the company’s tax liability. Businesses less than a year old normally don’t remit PAYG tax. The Australian Taxation Office will notify them of their PAYG instalments as soon as they hit their first anniversary.
While the business automatically cuts an employee’s income tax from his monthly salary, the taxation is already done by the government. The income tax is based on taxation policy, no longer the payroll. For a resident who earns $90,000 a year, income tax computation will be based on the latest tax table ($17,547 + $3,700 = $21,247).
Of course, you may still find the distinction unclear. If so, you’ll need a taxation professional taxation service to explain it to you. You’ll also need a certified accountant to perform the complex math.