Australia – Changes to PAYG Withholding Variation Process for Foreign Employers

Australia – Changes to PAYG Withholding Variation...

Effective July 1, 2014, the Pay-As-You-Go (PAYG) withholding variation process will change for foreign employers with employees working in Australia. Employers with employees on home country payrolls will need to make new PAYG withholding variation applications.

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Flash Alert 2014-025

The Australian Taxation Office (ATO) has changed the Pay-As-You-Go (PAYG) withholding variation process for foreign employers with employees working in Australia, with effect from 1 July 2014.1


With the upcoming cessation of all existing PAYG variation arrangements, foreign employers and their tax / payroll service providers will need to have in place new practices and procedures in order to comply with the new PAYG withholding variation requirements.  This means employers should now be undertaking a review of employees who remain on home country payrolls while on assignment to Australia to determine what changes may need to be made in advance of the 1 July 2014 start date.

Current Arrangement

Where a foreign employer has employees working in Australia and those employees remain on their home country payrolls, the foreign employer may apply to the Commissioner to vary to nil, the PAYG withholding requirements in respect of the taxable salary and wages of those employees.

The purpose of the PAYG withholding variation is to ease the compliance administrative requirements for foreign employers with employees working in Australia who remain on the home country payroll. 

A further benefit is that foreign employers have been able to submit a single PAYG withholding variation application for all relevant employees.  Where an employee satisfies the necessary criteria, the foreign employer is absolved from withholding PAYG on taxable remuneration paid to the employee.  The Australian tax liability is instead settled following submission of the relevant employee’s Australian income tax return. 

A condition for obtaining the PAYG withholding variation is that the foreign employer must undertake to settle the relevant employee’s Australian tax liability in the event of any default by the employee.

Changes from 1 July 2014

The ATO is currently notifying foreign employers and their tax agents that all existing PAYG variation arrangements will cease on 30 June 2014.

A new application will need to be lodged with the ATO for the variation to continue beyond 30 June 2014.  Each application will be valid for two years.

A key new additional requirement is that the Australian Tax File Number (TFN) of each relevant employee must be provided for all new applications.  Therefore, a foreign employer will need to lodge an additional application for each new relevant employee once the employee’s TFN has been obtained.


Based on discussions between the KPMG International member firm in Australia and the ATO, it is understood that an employer should apply for the PAYG withholding variation in a timely manner following the relevant employee’s arrival in Australia. 

The ATO will not accept applications for new arrivals to Australia on an annual basis.

In this regard, it is important to note that where there is no PAYG variation in place, the foreign employer is required to remit PAYG withholding to the ATO in respect of salary and wages paid to employees working in Australia.  Where no TFN is provided by the employee to the employer, the required PAYG withholding rate is 46.5 percent.

Other Considerations

  • Foreign employers seeking to make use of the PAYG withholding variation for employees should determine that each new employee is aware of his/her obligation to obtain an Australian TFN immediately following his/her arrival in Australia.
  • While the ATO has not provided a prescribed timeframe for new PAYG withholding variation applications, it appears that the ATO expects that an application be made immediately following receipt of the TFN by the relevant employee.
  • Foreign employers impacted by the new rules should evaluate whether a “shadow payroll” in Australia may be a more practicable solution to the PAYG withholding variation arrangement.  In addition to meeting the PAYG withholding obligations in respect of the employee, a shadow payroll may assist in meeting the employer’s other compliance obligations, including in respect of Superannuation Contributions and State Payroll Tax.


1  For more information, visit the ATO website at:


For further information or assistance, please contact your local IES professional, or one of the following IES professionals with the KPMG International member firm in Australia:



Ablean Saoud

+61 2 9335 8550



Ben Travers

+61 3 9288 5279 



Tim Sandow

+61 8 8236 3234



Dan Hodgson

+ 61 8 9278 2053

The information contained in this newsletter was submitted by the KPMG International member firm in Australia.

© 2016 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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