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Its that time of the year again when you have to do your PAYG income tax withholding variation (ITWV) applications again

For the people who are new at this I will briefly explain what this mean:

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 will be on PAYG. 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.

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 or margin loan, rates, water charges, managing expenses etc for your investment property etc. What usually happen is that you get a tax refund at the end of the 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 checks. This way i seems like you are getting more cash from our pay slips due to the reduction in tax withheld. This money can be used for anything, hopefully you use it to pay for those expenses when it happens or simply to offset interest or even earn interest (whatever you please) 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. completing the e-form and submitting it on-line (highly preferred) => PAYG income tax withholding variation (ITWV) Application (On-line)
2. option printing it out and completing it yourself and ’snail’ mail it to the ATO get your accountant to do it =>
   PAYG income tax withholding variation (ITWV) Application (Paper)

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 $12,000 worth of investment expense (net cost from your
• Investment properties or margin loans etc) which is charged monthly

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 $3,216.67 $2,216.67 [edited - great pick up Sheng] 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)? or at least find out from your accountant what this is all about!

Tags: tax, cashflow, income tax withholding variation, itwv, payg