Information about the Pay-As-You-Go tax collection system in Australia...

The Pay-As-You-Go (PAYG) system of tax collection applies to salary and wage earners, and includes superannuation and termination payments. Under PAYG, an employee's tax is deducted from his gross salary at source by his employer, who pays it to the ATO. If you have no income apart from your salary or wages, PAYG covers your entire tax liability. Any additional income, for example part-time employment or income from investments or savings, whether tax is deducted at source or not, must be declared to the ATO. Nevertheless, you must lodge a tax return if you receive more than $18,200 in taxable income during the financial year. If you have non-salary income to declare, you'll receive a credit for your PAYG payments against any tax due.

You must give your employer your tax file number, or you could be taxed at the highest rate. If you want to receive your $18,200 tax-free allowance, you must lodge an Employee Declaration Instalment Form with your employer; otherwise tax is deducted from all your income.

The PAYG scheme is disadvantageous to employees, who in many cases would be entitled to claim larger and more allowances if they were classified as self-employed (they would also have the benefit of paying their tax in arrears). For this reason, many employees disguise themselves as self-employed contractors (the practice is estimated to cost the government at least $100m per year). However, companies are no longer able to pay employees as self-employed 'contractors' to avoid fringe benefit tax, the superannuation guarantee and workers' compensation payments.

If your most recent income tax assessment shows more than $2,000 of gross investment or business income or if your most recent income tax return resulted in a tax debt of over $500, you'll receive a letter from the Taxation Office advising you that you must pay PAYG instalments, i.e. advance payments against your next tax bill. If you pay PAYG tax, make sure that the tax deducted is correct and never hesitate to dispute a tax bill with which you disagree.

Extract from Living and Working in Australia (8th Edition - 2013) David Hampshire Published by Survival Books Ltd, Survival Books, P.O. Box 3780,Yeovil, Somerset, BA21 5WX, United Kingdom. Tel/Fax: (+44) 01935-700060 Copyright © Survival Books Ltd All Rights Reserved