Is a PAYG Variation Right For Me?
Whether or not to obtain a PAYG variation is a matter of personal preference. If your work related expenses or negative geared rental properties will generate a large tax refund for you when you lodge your income tax return, then a PAYG variation will allow you to reduce the amount of tax which is withheld from your salary. The result is more money in your weekly or fortnightly paycheque, and a smaller refund when you lodge your tax return.
How does it work?
The process is fairly simple. We submit an application to the tax office with all of the details of your income and deductible expenses. Providing the application is approved, the tax office will then notify your employer of the variation, and ask them to withhold a more appropriate amount of tax from your salary every week or fortnight.
Your end of year income tax return will be prepared in exactly the same way, however as less tax is withheld from your salary, there will be less tax credits to claim back in your tax return.
A new PAYG variation needs to be prepared at the start of every new financial year. This gives you an opportunity to review your rate of withholding, and fine tune it for the new year.
What are the advantages?
It is simply a matter of cashflow. It does not make much sense to pay thousands of dollars to the tax office during the year, only to receive it back when you lodge your tax return. The tax office does not pay interest on these funds. Many rental property investors use borrowed funds to support their investment properties during the year, and then reimburse those borrowings with their tax refund at the end of the year. It makes more sense to have that money during the year, when you need it to support your properties.
What are the disadvantages?
It is possible that a PAYG variation could result in a small amount of tax payable when you lodge your Income Tax Return. To reduce the liklihood of this eventuality, we can underestimate your costs when preparing your PAYG variation. However it is still possible that not enough tax may be withheld from your salary, to pay your end of year tax liability. It is important to remember, that the PAYG variation does not alter the annual tax liability calculated in your Income Tax Return. So even if you do have a small shortfall in your tax return, the amount of tax you will pay for the financial year is the same.
What details are required?
Preparing your PAYG variation involves estimating your taxable income for the financial year, and doing so requires a considerable amount of information. As your accountant, we will already have much of this information on hand, but there is additional documentation that we will require. Such as:Payroll Officer's address & phone number.The years in which your properties were constructed.Details of any new properties you intend to buy during the year.Your most recent payslip.