PAYG Withholding Variation: Company Directors and Office Holders

Administered by Department of the Treasury

Legislation au F2016L00222 Not in force Legislative Instrument

Legislation content

Explanatory Statement

 

PAYG WITHHOLDING VARIATION: Company Directors and Office Holders

 

General Outline of Instrument

  1. This instrument is made under sections 15-15 and 16-180 of Schedule 1 to the Taxation Administration Act 1953.
  2. This instrument varies the rate of withholding required by a payer under pay as you go withholding for payments in a certain class of cases.
  3. This instrument also removes the requirement to provide payment summaries for those payments.
  4. The instrument is a legislative instrument for the purposes of the Legislative Instruments Act 2003.

 

Date of effect

5.      The instrument commences on 1 April 2016.

 

Repealing of existing instrument

6.      This legislative instrument repeals the following legislative instruments:

  • PAYG Withholding Variation: Office Holders – F2006B00295, registered on 10 February 2006.
  • PAYG Withholding Variation: Partnerships – F2006B00404, registered on 21 February 2006.

 

What is this instrument about

7.      Legislative Instruments numbers F2006B00295 and F2006B00404 were registered on 10 and 21 February 2006 respectively, provided variations to the rate of withholding for payments made to company directors or office holders to nil in certain cases.

8.      Those instruments are due for repeal on 1 April 2016 under the sunsetting provisions contained in section 50 of the Legislative Instrument Act 2003. This instrument replaces those instruments from that date, and continues to provide the same treatment for the affected class of cases.

 

What is the effect of this instrument

9.      This instrument applies to a payment to an individual (who is a partner in a partnership, or a director or employee of another entity) appointed as:

  • a director
  • a member of a committee of management of a company, or
  • an office holder

 

who is required to pay those payments to the entity of which they are a partner, director or employee.

10.  For example, a medical research entity contracts a hospital for a specialised medical practitioner to join its board to manage a medical research project. The hospital provides a specialised medical practitioner as its representative to join the board. The medical research entity makes payments to the specialised medical practitioner who is required, under his contract with the hospital, to pass those payments on to the hospital. Although the payments are for the services of the specialised medical practitioner, the medical research entity is not required to:

  • withhold from these payments, and
  • issue a payment summary to the specialised medical practitioner.

11.  The variation will continue to allow a nil rate of withholding from payments to company directors or office holders for their services on behalf of the other entity.

12.  An assessment of the compliance cost impact indicates that the impact will be minor for both implementation and on-going compliance costs. The new instrument is of a minor or machinery nature.

 

Background

13.  This instrument has been developed to avoid the need for unnecessary withholding and reporting where the payments are effectively made to the other entity.

 

Consultation:

14.  No further consultation has been conducted as the effect of the instrument is to support current practices.

 

 

 

 

Steve Vesperman

Deputy Commissioner of Taxation

24 February 2016

 

Legislative references:

 

Taxation Administration Act 1953

Legislative Instruments Act 2003


Statement of Compatibility with Human Rights

This Statement is prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

 

PAYG WITHHOLDING VARIATION: Company Directors and Office Holders

This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

 

Overview

This Legislative Instrument varies the withholding rate to nil for payments to a company director and an office holder in certain cases.

A company director or an office holder:

  • is an individual who is a partner in a partnership, or a director or employee of another entity, and
  • is appointed as a director, member of a committee of management of a company, or an office holder.

The variation applies in certain cases where payments are made to a company director or an office holder who is required to pay those payments to another entity (the partnership or the other entity). This avoids the need for unnecessary withholding and reporting where the payments are effectively made to the other entity.

 

Human rights implications

This legislative instrument does not engage any of the applicable rights or freedoms because the new instrument is of a minor or machinery nature.

 

Conclusion

This legislative instrument does not raise any human rights issues.

 

Overview

The PAYG Withholding Variation: Company Directors and Office Holders legislative instrument, enacted in 2016, was developed under sections 15-15 and 16-180 of Schedule 1 to the Taxation Administration Act 1953 to address a gap in the current withholding system for payments made to company directors and office holders. The instrument repeals previous legislative instruments, F2006B00295 and F2006B00404, which provided variations to the rate of withholding for certain payments made to company directors or office holders. This new instrument continues to provide the same treatment for affected cases, applying to payments made to individuals who are partners in a partnership, or directors or employees of another entity, and who are appointed as directors, members of a committee of management of a company, or office holders. The purpose of this legislative instrument is to avoid unnecessary withholding and reporting where the payments are effectively made to another entity. The instrument is of a minor or machinery nature and has a minor compliance cost impact.

Scope and Application

The PAYG Withholding Variation: Company Directors and Office Holders legislative instrument, F2016L00222, applies to payments made to individuals who are either partners in a partnership or directors or employees of another entity. These individuals must be appointed as directors, members of a committee of management of a company, or office holders. The instrument specifically targets cases where the individual is required to pass on these payments to another entity, such as a partnership or the entity of which they are a director or employee. For instance, if a medical research entity contracts a hospital for a specialised medical practitioner who joins its board, the research entity makes payments to the practitioner, who in turn passes those payments on to the hospital. Under this legislation, the research entity is not required to withhold any tax from these payments or issue a payment summary to the practitioner. This variation aims to avoid unnecessary withholding and reporting, streamlining the process for affected entities. The instrument, which commenced on 1 April 2016, replaces previous instruments registered in 2006 and is of a minor or machinery nature, indicating minimal compliance costs.

Key Provisions

This legislation, specifically the F2016L00222 instrument, modifies the withholding rates for payments made to company directors and office holders, setting them to nil under certain conditions. This change applies to individuals who hold positions as directors, committee members, or office holders of companies, and who receive payments that are intended to be passed on to another entity (paragraph 9). The aim of this modification is to eliminate unnecessary withholding and reporting requirements, thus simplifying the process when payments are essentially made to another entity, such as a partnership or another company (paragraph 10). This alteration in withholding rates is designed to streamline tax compliance by removing the burden of withholding tax and issuing payment summaries in cases where the payments are functionally directed to another entity. Entities and individuals governed by this Act are required to ensure that payments made to directors or office holders, who are also partners, directors, or employees of other entities, adhere to the new withholding rates. Specifically, if a director or office holder receives payments that are intended to be passed on to another entity, they must not withhold tax from these payments and are exempt from issuing payment summaries (paragraph 11). This requirement is crucial for entities engaging in such arrangements to avoid unnecessary administrative burdens and compliance costs. Failure to comply with the provisions of this Act could result in legal consequences. While specific penalties are not detailed in the provided text, breaches of tax withholding obligations generally carry significant penalties under Australian tax law. These penalties can include fines and, in severe cases, criminal charges for tax evasion or fraud. The exact penalties would be determined by the Australian Taxation Office based on the nature and severity of the breach.

Legal classification tags

Area of Law
Taxation Law
Instrument
Legislative Instrument
Concepts
Commencement Provisions
Repeal & Amendment
Offence Provisions
Compliance Obligations

Interactions

Authorises

All Versions

Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.