Understanding withholding variations
Varying your rate or amount of withholding helps to make sure that the amount withheld during the income year meets your end-of-year tax liability.
If your circumstances warrant a withholding variation, you will need to work out if the variation is:
Upward variations
An upwards variation increases the tax withheld from your payments.
You can ask your payer to increase the amount they withhold from your income. You may do this where you expect to have a tax amount to pay at the end of the income year.
Example: upward variation
Keith has retired and now receives $25,000 annually in superannuation pension income. He also receives interest on his term deposit. Keith estimates his interest will be $1,000, bringing his estimated taxable income to $26,000 ($25,000 + $1,000 = $26,000).
Keith can apply for an upward withholding variation to have tax withheld at the rate he estimates his taxable income will be. In this case, $26,000.
End of exampleHow to apply for an upward variation
You can arrange an upward variation by:
- requesting your payer to vary the withholding rate or amount in writing (in any format)
- completing a withholding declaration online through ATO online services.
For more information, see Schedule 14 – Tax table for additional amounts to withhold as a result of an agreement to increase withholding.
Downward variations
Under certain circumstances, the Commissioner of Taxation may approve a downward variation. This reduces the tax withheld from your payments, typically to prevent over-withholding when tax-deductible expenses are higher than normal. Before making a downward variation request you should confirm if your allowance will be fully or partially deductible.
Approval of a variation doesn't mean we accept the tax treatment of the income and deductions in your application. We assess your actual tax liability when you lodge your tax return. You must keep records of your relevant income and deductions for a minimum of 5 years.
If we approve your application, we'll issue a notice with the starting and finishing dates of a downward variation. Your notice will also advise if you have been granted a multi-year downward variation.
Your payer can't vary the withholding rate until they receive an official variation notice from us. The pay information you provide should match the amount you receive from your payer. If the information doesn’t align, it may slow or prevent the processing of your application.
Find out what you need to do if you have a change of circumstances or want a class variation for you and your work colleagues.
Example: downward variation for allowance
Sue is a salary and wage earner who uses her own vehicle for work purposes. Her payer pays her an annual motor vehicle allowance of $10,000. The allowance is fully deductible.
Sue estimates that her annual tax deduction for car expenses will be $9,000.
Sue can apply for a downwards variation so that her payer will withhold tax from only $1,000 of her allowance.
End of exampleExample: downward variation for taxable income
John, a real estate salesperson receives his payments on a commission basis. He also owns a rental property and receives rental income.
John's annual gross income from his only payer is $45,000. He estimates that his rental property loss will be $15,000.
John estimates his taxable income will be $30,000 ($45,000 − $15,000 = $30,000).
John can apply for a downwards variation to have his payer calculate his withholding rate according to the taxable income of $30,000.
End of exampleProcessing times
The processing time for an application depends on the method you use to lodge your application.
If you lodge:
- online – we aim to process within 28 days unless we need further information from you
- by paper – we aim to process within 56 days unless we need further information from you.
You need to lodge a PAYG withholding variation application with us to request a downwards variation.
Before you lodge a variation
We will only process your application for a downwards variation if you:
- have provided a valid TFN to your payer
- lodge all required tax returns and activity statements, or lodge a non-lodgment advice for tax returns in prior years
- didn't receive a debit assessment on your last tax assessment (if you also had an approved withholding variation for that year)
- don't have any outstanding tax debt owing to the Australian Government
- don't have any outstanding debts under any other Acts we administer.
We may seek more information from you before or after your application is processed. If you don't provide this, we may not be able to approve your application.
We process your application using the information you provide. It's your responsibility to make sure that you give us enough information to work out a withholding rate to meet your end-of-year tax liability.
Starting and finishing dates of a downward variation
If we approve your application, we will notify your pay office of the withholding variation. The varied rate or amount of withholding will then start from your next available payday.
Your variation finishes on the date shown on the letter you receive from us. To continue with varied or reduced tax withholding after this date, you must lodge another variation application – at least 6 weeks before the expiry date.
Multi-year downward variations
We may issue a variation for allowances for more than one year. The date on the letter we send after we process your application will show if the variation is for more than one year.
Change of circumstances
You must complete a new application and advise us of any change in your circumstances during the income year. For example, when you sell a rental property, or your taxable income changes to the extent that you'll receive a debit assessment of $500 or more.