How the PAYG withholding amount is calculated for the Australian version of Microsoft Dynamics GP


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INTRODUCTION


This article describes how Pay As You Go (PAYG) withholding is calculated for the different withholding types for the Australian version of Microsoft Dynamics GP. The calculations involve rounding, and this rounding may cause different results to a simple multiplication calculation.

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There are two main types of PAYG withholding which are calculated slightly differently:
  • Standard PAYG Withholding: The standard PAYG withholding can be due to a voluntary agreement, labor hire agreement, and so on.
  • No Australian Business Number (ABN) PAYG Withholding: This is PAYG withholding when the supplier has not provided an ABN.
The following is an excerpt from the "Statement of formulas for calculating amounts to be withheld" document from the Australian Taxation Office (ATO).


Note Scale 4 refers to withholding when no Tax File Number (TFN) or Australian Business Number (ABN) is provided.


ROUNDING OF WITHHOLDING AMOUNTS

Withholding amounts calculated as a result of applying the above formulas should be rounded to the nearest dollar. Values ending in exactly 50 cents are rounded to the next higher dollar. Do this rounding directly – that is, do not make a preliminary rounding to the nearest cent.

Use these rounding rules across all scales except scale 4 (where tax file number not provided by payee). For scale 4, cents are ignored when applying the tax rate to earnings and when withholding amounts are calculated.


The formulas for calculating the amount of PAYG withholding are displayed for the two types of withholding:
  • Standard PAYG Withholding
  • No ABN PAYG Withholding

Standard PAYG Withholding

Withholding Amount = Round (Document Amount * Rate)

For example with a Document Amount = $531.90 and a Rate of 20.0%
Withholding Amount = Round ($531.90 * 20.0%)


Withholding Amount = Round ($106.38)


Withholding Amount = $106.00


Therefore, $106.00 will be withheld for the ATO and the creditor will receive the balance of $425.90. This gives a different result to the simple multiplication calculation without rounding:

Incorrect Withholding value = $531.90 * 20.0% = $106.38 leaving $425.52 for the creditor.

No ABN PAYG Withholding

Withholding Amount = Truncate (Truncate (Document Amount) * Rate)

For example with a Document Amount = $531.90 and the No ABN Rate of 48.5%
Withholding Amount = Truncate (Truncate ($531.90) * 48.5%)


Withholding Amount = Truncate ($531.00 * 48.5%)


Withholding Amount = Truncate ($257.535)


Withholding Amount = $257.00


Therefore, $257.00 will be withheld for the ATO and the Creditor will receive the balance of $274.90.This gives a different result to the simple multiplication calculation without rounding:

Incorrect withholding value = $531.90 * 48.5% = $257.97 leaving $273.93 for the creditor.

References


Australian Taxation Office - SCHEDULE 1: PAY AS YOU GO (PAYG) WITHHOLDING - "Statement of formulas for calculating amounts to be withheld".

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