Payments with special rules

Special rules apply when calculating the amount of tax to withhold for certain employees.

Last updated 12 December 2022

Aboriginal and Torres Strait Islander artists who live or work in isolated areas

If your business pays an Aboriginal or Torres Strait Islander artist for artistic works, the artist is not required to quote an Australian business number (ABN) if they work or live in an isolated area, known as a special or ordinary zone A geographic regions.

You will not be required to withhold tax, even though the artist has not quoted an ABN.

Artistic works include:

graphic work, photography, sculpture, painting or collage
a work of artistic craftsmanship
the performance or presentation by a person, or participation by a person in a musical performance, play, dance, entertainment, display, exhibition or similar activity of a cultural nature.

Employees who work in a foreign country

If you make payments to Australian employees working overseas, you have the same tax obligations as if they were working in Australia.

Some payments for foreign services that relate to certain development projects, charitable activities or government activities are exempt from tax. You don't have to withhold amounts from these payments.

For more information, see Employees who work in a foreign country.

Learn more about the PAYG payment summary for foreign employment.

Foreign resident withholding

A foreign resident is not an Australian resident for tax purposes. This can include individuals, companies, partnerships and trusts. Learn more about withholding from a foreign resident.

To work out the tax you need to withhold from payments to employees and other workers, including working holiday makers and PALM visa holders, use the tax withheld calculators.

Learn more about rates that apply to individuals who are foreign residents for tax purposes.

Foreign resident entertainment, sports, construction and casino gaming activities

Payers are required to withhold prescribed amounts from specific payments made to foreign resident payees who work or take part in:

entertainment or sports activities
construction and related activities
casino gaming junket activities.

Foreign resident payees include all foreign individual and non-individual entities (for example, companies, partnerships, trusts, government organisations and superannuation funds).

These special rules don't apply to payments made to foreign residents if:

they are engaged as employees
the payment is interest, dividends and royalties.

Find out more about foreign resident entertainment, sports, construction and casino gaming activities.

Non-cash payments

If you provide a non-cash payment including property or services in any form except money - you will still be required to meet your withholding obligations. The withholding provisions ensure that a similar outcome is achieved for payments made in cash or non-cash payment. There is no requirement to withhold under pay as you go (PAYG) withholding if the payment is a fringe benefit or a share or right under the employee share scheme.

The amount you are required to withhold and send to us is the amount you would have been required to withhold if the payment had been in the form of money. You will need to calculate the amount according to the current market value of the non-payment when the payment is provided.

You will need to use the relevant tax withholding rates applicable to your payee depending on whether they are an employee or contractor, as well as whether the payee has provided an ABN.

When to withhold

You must withhold and pay to us an amount before providing a non-cash payment in the same way as if the payment was in the form of money.

Start of example

Example: non-cash benefit provisions

Nick is a building contractor who has entered into a voluntary agreement with Mike. Nick proposes to give Mike his old utility van as payment for work Mike has completed for him over a fortnight.

If the payment had been made in the form of money, Nick would be required to withhold an amount from the payment and send it to us. Under the non-cash benefit provisions, Nick is required to withhold an amount and send it to us before the benefit (the utility van) is provided to Mike.

Nick can recover the amount of withholding paid to us as a debt from Mike. Nick would be required to provide Mike with a payment summary and Mike will receive a credit for the amount that Nick has forwarded to us.

Nick may also offset the whole or part of Mike's debt (the amount of withholding paid by Nick to us) against any amount that is, or becomes, due and payable by Nick to Mike. This right to offset will assist to recover an amount owed by Nick that has been paid to us.

Example: no ABN withholding

Your business agrees to do cleaning worth $1,000 for an advertising business in exchange for $1,000 worth of advertising. If the advertising business does not quote their ABN to you, you must pay a withholding amount to us before you deliver the services or goods.

In this situation, you would become a supplier to the advertising business. Unless you have an ABN and quote it to them, they would also need to pay a withholding amount to us before they supply the advertising to you.

End of example

For more information, visit Withholding if ABN not provided.

Personal services income

Personal services income (PSI) is earned mainly by your personal efforts and skills.

If you operate a company, partnership or trust that does not pass the tests for a personal services business, some income your employees earn may be PSI.

When the PSI rules apply, your business will have additional PAYG obligations for the amount belonging to each individual who performed the services.

For more information, see Personal services income.

Payees in certain industries and occupations

Some industries and occupations may have different rules or conditions when calculating the amount to withhold. For more information that is applicable to your circumstances go to:

QC27071