| For the people who are new to this I will briefly | | | | and 'snail' mail it to the ATO, if you don't know |
| explain what Income Tax Withholding Variation is: | | | | how to fill out the form ask you accountant |
| PAYG income tax withholding variation (ITWV) is | | | | about it. The form is actually very easy to fill out! |
| used for people on the PAYG (Pay As You Go) | | | | Example: |
| system, i.e. pretty much everybody who is on a | | | | Here's a quick example of how PAYG income tax |
| salary. This just means that your employer is | | | | withholding variation (ITWV) will help you: For |
| withholding some part of your salary base on | | | | simplicity i am going to assume the following: |
| your tax payable and sending it to the tax man, | | | | - Tax rate is 30% (flat rate across all income) |
| Mr ATO (Australian Taxation Office). | | | | - You get paid monthly |
| You might be thinking, what's the point of all this | | | | - You earn $50,000 a year |
| and how is this going to benefit you? Well If you | | | | - You have net $12,000 worth of investment |
| have tax deductible expenses such as interest on | | | | expense ($1,000 per month) |
| an investment property, margin loan, land rates, | | | | BASE CASE |
| water charges, property management expenses | | | | - Your taxable income is $50,000, so your tax |
| etc. then this will be useful for you. What usually | | | | payable is $15,000 (30% x $50,000) |
| happen is that you get a tax refund at the end of | | | | - Your employer will withhold 30% ($15,000 per |
| the financial year because your employer has | | | | year) of your salary and send it to the tax man |
| withheld too much tax for the tax man (simply | | | | - This means your monthly pay slip is $2,916.67 |
| because your employer doesn't know that you | | | | ($35,000 / 12) |
| have investment properties or other tax | | | | - You will need to spend $1,000 for your |
| deductible expenses). | | | | investment expense monthly |
| By completing a PAYG income tax withholding | | | | - This leaves you with $1,916.67 for your living |
| variation (ITWV) application, you are applying for | | | | expenses and savings per month |
| all those investment deductions to be refunded | | | | - You get a huge tax refund at the end of the |
| during the year via reduction in the tax withholding | | | | financial year $3,600 (30% x$12,000) |
| that's been applied by your employer to your pay | | | | AFTER PAYG income tax withholding variation |
| slips. This way it seems like you are getting more | | | | (ITWV) |
| cash from your pay slips due to the reduction in | | | | - Your taxable income is $38,000 ($50,000 - |
| the tax withheld. This money can be used for | | | | $12,000), so your tax payable is $11,400 (30% x |
| anything, hopefully you will use it to pay for those | | | | $$38,000) |
| expenses when it happens or simply set it aside | | | | - Your employer will withhold 30% ($11,400 per |
| to offset interest or even earn interest in some | | | | year) of your salary and send it to the tax man |
| high interest account, instead of sitting in the tax | | | | - This means your monthly pay slip is $3,216.67 |
| man, Mr ATO's bank account earning interest for | | | | ($38,600 / 12) |
| them. | | | | - You will need to spend $1,000 for your |
| Once you complete this form, the ATO will tell | | | | investment expense monthly |
| your employer to make the necessary changes | | | | - This leaves you with $2,216.67 for your living |
| to your pay slips. So get on-line today and | | | | expenses and savings per month |
| complete one, especially if you have deductible | | | | - You get NO tax refund at the end of the year, |
| expenses! | | | | but you received $300 more a month which could |
| There are two ways of submitting the application: | | | | be better used in your hands than the tax man, |
| | | | Mr ATO's hand |
| 1. complete the e-form and submit it on-line (highly | | | | So the question is will you be doing your PAYG |
| recommended because you get it done straight | | | | income tax withholding variation (ITWV) this year? |
| away) | | | | or at least find out from your accountant what |
| 2. printing the form out and completing it yourself | | | | this is all about! |