How I get $40,000 back in PAYG TAX variation - 'Secret Weapon'?
- Alessio Favaretto - Founder
- May 20, 2017
- 4 min read
Oh, My God - the end of the TAX financial year is coming up!!
Tax? A subject that we all have to obey to, but only the few comprehend fully. In this post, I am would like to talk about my experience with using the PAYG withholding variation in Australia. I prefer to call it the 'TAX Secret Weapon'. If you are from another country make sure to check whether you can apply the same concept in your place of residence. It's imperative you do! (PAYG stands for - Pay As You Go).
What is the PAYG withholding variation? Why should you learn about it, especially if you have investments or you luck confidence in investing? Many people miss out on this great opportunity.
Let's keep it simple!
Do you have job? Yes!
Lets' say for example you earn a total $1000 a week, and after the tax withheld component of $300, you only receive $700 in your bank account. So, what exactly is happening here? Why did you get deducted $300 in tax and not $400 or $50? Because, your payroll must deduct from your pay (Pay As You Go) a tax percentage amount based on the projection of your income for the year. (Click here for the current tax calculator). So far so good.
Then, what happens? At the end of the financial year when you do your tax return, you declare to the tax department all your income, minus any related deductions. At the point, the tax department will re-calculate your 'taxable' income, and reimburse any excess tax paid. So you realized that you have been paid more tax then what you should of. Instead of $300 in tax every week during the year, maybe you should have only been paying $200. That's $100 dollars more in your pocket every week, $5,200 dollars more in one year. You just paid back yourself a month work.
So, how can you rectify that???? Welcome to the PAYG withholding variation!
This variation is simply a way to communicate to the tax department, one year in advance, what your income and deductions are expected to be for the coming financial year. So it avoids paying more tax then what you should, based on your deductions. Causing you the burden to be short in cash for paying bills and other income related expenses.
Who can apply for the PAY withholding variation?
You can find the answer in the tax department office, under this table (open it using Internet Explorer), scroll down to point 13. Reason Code Notes - Link.
In the table you can probably find that you are entitle to apply for it, and you have been missing out all these years! Allowances for car, phone and travel. Negatively gear investments such as real estate, business loss, partnership/trusts, futures, bonds and options - just to name a few. HELP, SFSS, pensioners below the tax-free threshold and so on.
How can you apply?
My favorite method is online by filling up the PAYG withholding e-variation.
(open only in Internet Explorer)
Or by ordering for NAT 2036.
Call the ATO (tax department office) on 1300 360 221 if you wish, like I do all the times when I need help, The ATO office in Australia is always been very friendly and helpful. In fact, they are now my most trusted accountant.
How long does it take?
To complete the form, it takes me about one hour. You need to insert in the form, similar to a tax return the projections of you expected income and related deductions for the new financial year.
Then a couple of weeks for processing your application and the tax department will send a letter to your payroll at work indicating your new tax variation. I do this in May or June of every year, so by the 1st of July of the new financial year, my payroll will apply immediately my tax concession variation, and I don't miss out in precious cash I need for my investments for example.
What are the risks?
The risks exist when you declare an incorrect projection of your income and/or deductions. Since at the end of the financial year, you still need to submit a tax return. If your projections in the PAYG variation are genuine, but something changes during the year, what you need to do is advice the tax department accordingly. Remember they are always one phone call away!
At BEA HERO™ we inform and help people in the subject of tax by often sharing our personal experiences. This among other great things, such as earning income online in simple ways and develop yourself in other areas of your life.
To your success!!
Article Reference:
https://www.ato.gov.au/Forms/PAYG-withholding-e-variation/
https://www.ato.gov.au/misc/formflow/form/nat2036.htm?title=PAYG+withholding+e-variation+application+2018
https://www.ato.gov.au/Calculators-and-tools/Host/?anchor=TWC&anchor=TWC#TWC/questions
DISCLAIMER: BEA HERO™ do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
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