Variation of withholding for personal services income (15/03/2013)

Administered by Department of the Treasury

Legislation au F2013L00522 Not in force Legislative Instrument

Legislation content

Australian Taxation Office Legislative Instrument

Instrument ID 2013/MEI/0012

 

 

Taxation Administration Act 1953

Variation of withholding for personal services income

Explanatory Statement

 

General Outline of Instrument

  1. This instrument enables a variation to the amount of withholding required by a payer under the pay as you go withholding system for personal services income payments received by an entity for a certain class of cases. The withholding is required under Division 13 of Schedule 1 to the Taxation Administration Act 1953 (TAA).
  2. This instrument is made by the Commissioner of Taxation (the Commissioner) pursuant to section 15-15 of Schedule 1 to the TAA.
  3. This is a legislative instrument for the purposes of the Legislative Instruments Act 2003.

 

Date of effect

4.         The instrument commences on the day after it is registered on the Federal Register of Legislative Instruments.

 

What is this instrument about?

 

5.         The object of Division 13 of Schedule 1 to the TAA is to ensure the efficient collection of income tax (and other liabilities) on any personal services income included in an individual's assessable income under the Alienation of Personal Services Income Measures (Part 2-42 of the Income Tax Assessment Act 1997 (ITAA 1997)).

6.         Under section 13-5 of Schedule 1 to the TAA, a personal services entity must pay an amount of tax to the Commissioner if it receives an alienated personal services payment that relates to an individual's personal services income; and if it receives the payment during a PAYG payment period for which it is a personal services payment remitter.

7.         In working out the amount to pay to the Commissioner under Division 13 of Schedule 1 to the TAA, the personal services entity follows a method statement in subsection 13-5(2) of Schedule 1 to the TAA.

8.         Step 2(a) of the method statement in subsection 13-5(2) of Schedule 1 to the TAA requires the personal services entity to identify amounts that are included in the individual's assessable income under section 86-15 of the ITAA 1997 and that relate to alienated personal services payments the entity received during the PAYG payment period.

9.         The amounts that are included in the individual's assessable income under section 86-15 of the ITAA 1997 are reduced by certain deductions calculated under section 86-20 of the ITAA 1997. These amounts are worked out after the end of an income year.

 

 

 

10.     The personal services entity therefore cannot quantify the amount to be included at Step 2(a) of the method statement in subsection 13-5(2) of Schedule 1 to the TAA during the income year as these amounts are not determined until after the end of the income year. As a result, the personal services entity will not be able to accurately determine the correct amount to pay to the Commissioner under Division 13 of Schedule 1 to the TAA.

11.     This instrument provides an alternative, practical method for estimating the net amounts that will be included in the individual’s assessable income under section 86‑15 of the ITAA 1997, after taking into account those allowable deductions calculated under section 86-20 of the ITAA 1997. 

12.     This instrument then varies to nil the amount of withholding required by a payer under the pay as you go withholding system for personal services income payments for the class of cases which satisfies the test relating to payments made to the individual.

13.     The absence of this variation would remove the legal power for payers to vary the amount to withhold from these personal services income payments. That would then cause withholding to take place when it would not be required to meet a future tax liability.

 

What is the effect of this instrument?

14.     The instrument is a pay as you go withholding class variation that reduces the required amount of withholding to nil for the relevant entities receiving a personal services income payment.

15.     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:

16.      This instrument supports the administrative policy outlined in ATO Law Administration Practice Statement PS LA 2003/6 ‘Administrative arrangements for the calculation of Alienated Personal Services Payments withholding amounts’ which sets out the circumstances in which the Commissioner of Taxation will allow a taxpayer to use administrative options for calculating withholding amounts under Division 13 in Schedule 1 to the TAA.

17.     Under the administrative arrangements, a personal services entity can satisfy their Division 13 of Schedule 1 to the TAA obligations by withholding or paying amounts under Part 2-5 of Schedule 1 to the TAA (either withholding under Division 12 of Schedule 1 to the TAA or paying under Division 13 of Schedule 1 to the TAA) that are calculated by applying the applicable withholding rate to a minimum personal services income payout measure.

 

 

 

 

 

 

Consultation:

18.     This instrument is required to support the current withholding practice set out in ATO Law Administration Practice Statement PS LA 2003/6 ‘Administrative arrangements for the calculation of Alienated Personal Services Payments withholding amounts’ for personal services income payments being made to this class of cases.

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

 

 

 

 

Erin Holland

Deputy Commissioner of Taxation

Date 15 March 2013

 

 

 

Legislative references:

Taxation Administration Act 1953

Legislative Instruments Act 2003

Human Rights (Parliamentary Scrutiny) Act 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Statement of Compatibility with Human Rights

 

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

 

Taxation Administration Act 1953

Variation of withholding for personal services income

 

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 to nil the amount to withhold for the following personal services income payments:

        70% of the gross personal services income (exclusive of GST) received by the personal services entity during the current PAYG payment period

        a net personal services income percentage applied to the gross personal services income (exclusive of GST) received by the personal services entity during the current PAYG payment period.

 

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 is compatible with human rights as it does not raise any human rights issues.

 

 

 

 

 

______________________________________________________________________

 

Erin Holland

Deputy Commissioner of Taxation

Date 15 March 2013

 

 

Overview

The Taxation Administration Act 1953 (TAA) was enacted to streamline and facilitate the efficient collection of income tax and other liabilities. The 2013 legislative instrument F2013L00522, titled "Variation of withholding for personal services income," was introduced to address the practical challenges faced by personal services entities when calculating the required withholding for personal services income under the pay as you go withholding system. This instrument was created by the Commissioner of Taxation under section 15-15 of Schedule 1 to the TAA and serves to provide an alternative method for estimating the net amounts that will be included in the individual's assessable income under section 86-15 of the Income Tax Assessment Act 1997. The primary policy objective of this instrument is to ensure that withholding occurs efficiently and accurately without imposing undue compliance burdens on taxpayers, thereby supporting the administrative policy outlined in ATO Law Administration Practice Statement PS LA 2003/6.

Scope and Application

This legislative instrument, F2013L00522, pertains to variations in the withholding of tax under the pay-as-you-go (PAYG) system for personal services income payments as outlined in the Taxation Administration Act 1953 (TAA). The instrument applies to personal services entities that are required to withhold tax on payments that are considered personal services income under the Alienation of Personal Services Income Measures in the Income Tax Assessment Act 1997. Specifically, it addresses the issue where these entities cannot accurately determine the amount of tax to withhold during the income year due to the timing of certain deductions. The instrument allows for a variation of withholding to nil for a specified class of cases, effectively providing a practical method for estimating net amounts after allowable deductions. The instrument is applicable nationally across Australia, governed by Commonwealth law. The legislation does not specify exclusions or thresholds but provides an alternative method for calculating withholding amounts. The instrument's commencement date is the day after it is registered on the Federal Register of Legislative Instruments, and it is of a minor or machinery nature, implying minimal compliance costs.

Key Provisions

The main operative sections of this legislative instrument, found in the Taxation Administration Act 1953, establish the framework for varying the withholding of personal services income payments. Specifically, section 13-5 of Schedule 1 to the Taxation Administration Act 1953 (TAA) mandates that a personal services entity must withhold tax from payments related to an individual's personal services income if those payments are received during a PAYG payment period. However, section 15-15 of Schedule 1 to the TAA empowers the Commissioner of Taxation to vary the withholding amount for certain cases. This instrument leverages that power to set the withholding amount to nil for specific personal services income payments (sections 70% of the gross personal services income and a net personal services income percentage applied to the gross personal services income). The obligations imposed by this Act on personal services entities are primarily related to the accurate calculation and withholding of tax on personal services income. Under section 13-5, these entities must determine the tax payable to the Commissioner based on a method statement outlined in subsection 13-5(2). However, due to the complexities in calculating the net amounts included in an individual’s assessable income under section 86-15 of the Income Tax Assessment Act 1997, and the deductions allowed under section 86-20, entities often find it challenging to accurately determine the correct withholding amount during the income year. This instrument thus provides a practical alternative method for estimating these net amounts, allowing entities to withhold nil tax for the specified class of cases, thereby aligning with the administrative policy outlined in ATO Law Administration Practice Statement PS LA 2003/6. Failure to comply with the provisions of this instrument could result in civil or criminal penalties under the Taxation Administration Act 1953. For example, under section 284-15, a person who fails to comply with a notice or direction from the Commissioner may be liable for a civil penalty of up to $2,100 for individuals and $10,500 for bodies corporate, as prescribed by the Schedule to the Administrative Penalties (Common) Regulations 1998. Additionally, section 284-20 of the TAA stipulates that knowingly or recklessly making a false or misleading statement can result in criminal penalties, including fines of up to $126,000 for individuals and $630,000 for bodies corporate, or imprisonment for up to five years, or both, as determined by the court. These penalties underscore the importance of adhering to the withholding requirements set out in the instrument.

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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.