If you’re a business owner or work in payroll, you’re likely aware of the importance of meeting pay as you go (PAYG) withholding obligations. The ATO reviews PAYG withholding cycles annually to ensure they’re aligned with your business’s annual withholding amount and, starting from 1 July 2025, some businesses might experience changes in their withholding, reporting and payment obligations.
The ATO is writing to affected businesses during April 2025 to advise of any changes to their PAYG withholding cycle. If your business is impacted, you’ll need to update your payroll software to reflect the new reporting and payment obligations.
What triggers a PAYG cycle change?
Each year, the ATO reviews your PAYG withholding cycle based on your business’s annual withholding amount. If your withholding payments have increased since the last review, your cycle might change. Businesses are classified into different withholder statuses based on the annual withholding amount:
- small withholders: withhold $25,000 or less annually and report quarterly;
- medium withholders: withhold between $25,001 and $1 million annually and report monthly; and
- large withholders: withhold more than $1 million annually and must pay electronically within six to eight days from the withholding event.
If your business’s status changes from small to medium or medium to large, you’ll need to adjust your reporting and payment processes accordingly.
Preparing for the change
If your withholding status is set to change, it’s vital to update your payroll software before 1 July 2025 to align with the new due dates. The ATO will notify you in April if your cycle is changing, giving you time to prepare for the new financial year.
Where your estimated PAYG withholding for 2025–2026 falls below the new threshold, you may request to remain on your current cycle. You must submit a Request to remain on a lower withholding cycle form within 21 days of receiving the ATO’s notification, providing detailed reasons and estimated withholding amounts. Note that the ATO won’t approve requests based solely on reasons like remote business location, cash flow difficulties or administrative costs.
You can also contact the ATO or your registered tax or BAS agent for assistance with changing your withholding cycle or requesting to remain on a lower cycle.
Understanding the implications
For medium withholders, transitioning to monthly reporting can streamline your cash flow management and ensure compliance. Large withholders will need to manage more frequent payments and ensure accurate reporting through Single Touch Payroll (STP). The ATO assigns a new Payment Reference Number (PRN) for large withholders, which should be used to ensure that your withholding amounts match reported figures.
Additional considerations
Your withholding obligations extend to various payments, including those to employees, directors and certain contractors. It’s important to distinguish between employees and independent contractors, as withholding rules differ for each. Payments like investment income and royalties may also require withholding.
Staying compliant
If you’re unable to meet your withholding obligations, contact the ATO immediately to discuss options. For large withholders, if there’s a net GST credit, it can be offset against the PAYG withholding liability, providing some flexibility in managing payments.
