PAYG Variation Estimator
For property investors and those with large deductions. Estimate how you can vary your PAYG withholding to improve your annual cash flow.
Quick Use Samples
PAYG Variation Estimate
Variation Results
By lodging a PAYG variation, you could increase your weekly take-home pay by approximately $167. This is because you are currently overpaying your tax throughout the year. The trade-off is that your end-of-year tax refund would be reduced by about $8,658, as you have already received that money during the year.
Summary
Cash Flow Impact
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What is a PAYG Withholding Variation?
A PAYG Withholding Variation is an application you can make to the Australian Taxation Office (ATO) to adjust the amount of tax your employer withholds from your salary. It's designed for people whose financial circumstances mean the standard withholding amount will be substantially incorrect, leading to a very large tax refund at the end of the year.
Behind the Formula
The estimator calculates your estimated annual tax liability by taking your expected income and subtracting your expected deductions (like investment property expenses). It compares this liability to the amount of tax your employer is projected to withhold for the year. A large difference suggests a variation could be beneficial, allowing you to reduce your withholding and increase your take-home pay throughout the year.
Expert Insights
- This is most commonly used by property investors who are 'negatively gearing'. The rental losses and interest expenses create large tax deductions that aren't factored into their regular salary's tax withholding, resulting in a large refund if not varied.
- Getting a large tax refund isn't a good thing. It's effectively an interest-free loan you've given to the ATO. A PAYG variation helps you get access to your money during the year when you need it.
- You must be careful with your estimates. If you overestimate your deductions or underestimate your income, you could end up with a tax debt at the end of the year. It's better to be slightly conservative in your application.
Actionable Tips
- Gather all your expected income and deduction information before using the estimator or applying. This includes your salary, investment property statements, and receipts for any other significant work-related expenses.
- Apply online via myGov for the quickest processing time. The application is usually available from May for the upcoming financial year.
- If your circumstances change during the year (e.g., you sell your investment property or get a large pay rise), you should lodge a new variation application to adjust your withholding accordingly.
Real-World Examples
The Property Investor
An investor expects their rental property to make a $15,000 loss for the year. This large deduction means they are due a big refund. By applying for a variation, they can reduce their weekly tax by about $280, significantly improving their cash flow to help cover the property's expenses.
The Charitable Giver
Someone plans to make a large, tax-deductible donation of $10,000. They apply for a variation to have their tax reduced for the year, effectively getting the tax benefit spread throughout the year rather than as a lump sum in their tax return.
The Freelancer with a PAYG Job
A freelancer also has a part-time job. They use a variation to have extra tax withheld from their part-time job to cover the tax liability from their freelance income, avoiding a large tax bill at the end of the year.
Glossary of Terms
Negative Gearing
An investment strategy where you borrow to invest and the income from the investment (e.g., rent) is less than the expenses (e.g., interest). The loss can be used to reduce your taxable income.
Taxable Income
Your gross income from all sources minus any allowable deductions. This is the figure your tax liability is calculated on.
Cash Flow
The net amount of cash moving into and out of your finances. A PAYG variation is a tool to improve your personal cash flow.