General outline of instrument

1.                   This instrument is made under section 15-25 in Schedule 1 to the Taxation Administration Act 1953 (TAA).
2.                   The instrument makes withholding schedules that specify the amount, formulas and procedures to be used for working out the amount required to be withheld by an entity under the pay as you go (PAYG) system.
3.                   The instrument contains fifteen withholding schedules. Each schedule provides information for calculating the withholding amount, taking into account the particular circumstances presented in the schedule.
4.                   The instrument repeals and replaces the previous legislative instrument Taxation Administration (Withholding Schedules) Instrument 2024 (F2024L00664), which was registered on 11 June 2024 (the 2024 instrument).
5.                   Under subsection 33(3) of the Acts Interpretation Act 1901, where an Act confers a power to make, grant or issue any instrument of a legislative or administrative character (including rules, regulations or by-laws), the power shall be construed as including a power exercisable in the like manner and subject to the like conditions (if any) to repeal, rescind, revoke, amend, or vary any such instrument.
6.                   The instrument is a legislative instrument for the purposes of the Legislation Act 2003.

Date of effect

1.                   The instrument commences on 1 July 2025.

Effect of this instrument

1.                   The withholding schedules in this instrument set out the amounts, formulas and procedures to be used to calculate the amount required to be withheld from certain payments. The withholding schedules facilitate the collection of income tax, Medicare levy, Higher Education Loan Program, Student Start-up Loans, Australian Apprenticeship Support Loans, VET Student Loans and Financial Supplement repayments.
2.                   The following four withholding schedules have been updated by this instrument. The other eleven withholding schedules remain the same as in the 2024 instrument:

• Withholding schedule 5 has been updated to remove the $1,200 lump sum E threshold. From 1 July 2025, all back payments that accrued more than 12 months before the date of payment should be treated as lump sum E regardless of the amount. This change has been made as the result of legislation that changed the way lump sum payments in arrears are treated for Medicare levy purposes.  
• Withholding schedule 8 has been updated to account for the annual indexing and changing of the repayment income thresholds for study and training support loans.
• Withholding schedule 12 has been updated to account for the annual indexation to the untaxed plan cap.
• Withholding schedule 13 has been updated due to the indexation of the general transfer balance cap and the defined benefit income cap amount.
• In addition, four new Quick Codes have been allocated to the relevant updated schedules. Quick Codes are alphanumeric codes that begin with ‘QC’. They can be used to navigate to a specific webpage on the Australian Taxation Office (ATO) website (ato.gov.au) by typing the relevant code into the ATO website search bar.

1.               There are no updates to the remaining eleven schedules, which will continue to apply from 1 July 2025.

Incorporation of withholding lookup tools and forms

1.               To assist entities to determine the correct amount to withhold, several withholding schedules include withholding lookup tools. The lookup tools are spreadsheets which identify a specific amount to withhold for a pay period, after an earnings amount is input into the spreadsheet for the pay period.
2.               The lookup tools are freely available for entities to apply when using the withholding schedule. The withholding schedules with a lookup tool can be accessed on the ATO website (ato.gov.au) by searching for the withholding schedule’s quick code number in the table below:

1.               To assist entities to determine the correct amount to withhold, consideration must be also given to whether certain forms referred to in the instrument have been completed, and the information that has been provided in any such completed forms. The forms are available via the ATO website (ato.gov.au) by searching for the relevant quick code number in the table below.

1.               These withholding lookup tools and forms are incorporated by reference in this instrument in accordance with paragraph 14(1)(b) of the Legislation Act 2003. That paragraph allows a legislative instrument to incorporate any other document in writing which exists either at the time the legislative instrument commences, or at a time before its commencement.
2.               This instrument incorporates the withholding lookup tools and forms that existed immediately before this instrument was registered on the Federal Register of Legislation. These lookup tools and forms will remain unchanged for the life of this instrument. Changes to the withholding lookup tools and forms will only be made when it is necessary to give effect to a new legislative instrument that both contains new withholding schedules and repeals the current instrument.

Compliance cost assessment

1.               Minor - there will be no or minimal impacts for both implementation and ongoing compliance costs. The legislative instrument is minor and machinery in nature (The Office of Impact Analysis reference: OIA25-09460).

Background

1.               The PAYG system, introduced by the A New Tax System (Pay As You Go) Act 1999, is a simple and convenient way for taxpayers to meet their annual income tax liabilities either through instalments or through withholding as their income is earned.
2.               Under that system, payers are required to withhold (and remit to the ATO) amounts from certain payments they make to other entities during the year. This system aims to prevent large end-of-year tax bills. It also ensures that the Commonwealth has the revenue it needs during the year to provide services and benefits to the community.
3.               Subsection 15-25(1) in Schedule 1 to the TAA empowers the Commissioner to make withholding schedules specifying the amounts, formulas and procedures to be used for working out the amount required to be withheld by an entity. The TAA requires the Commissioner to make each withholding schedule publicly available.
4.               This instrument contains the withholding schedules, to help payers withhold the correct amount from certain payments they make.
5.               Each withholding schedule is tailored to meet the circumstances of a particular class of payment or payee.
6.               These schedules are relied on by a number of groups including employers, employees, professional tax advisers, payroll software developers, payroll service providers, and the ATO.

Consultation

1.               The making and publication of withholding schedules is a routine part of tax administration.
2.               No community consultation has been undertaken as it is not reasonably practicable for withholding schedules. This is because new indexed thresholds which affect the content of the instrument do not become available until shortly before the start of the new financial year, and there is a need to register the instrument as soon as possible to give payroll software providers and employers sufficient time to update their software packages and systems in time for the new financial year.

Legislative references:

Acts Interpretation Act 1901

A New Tax System (Pay As You Go) Act 1999

A New Tax System (Medicare Levy Surcharge — Fringe Benefits) Act 1999

Australian Federal Police Act 1979

Education and Other Legislation Amendment (VET Student Loan Debt Separation) Act 2018

Family Law Act 1975

Higher Education Support Act 2003

Higher Education Support Legislation Amendment (Student Loan Sustainability) Act 2018

Human Rights (Parliamentary Scrutiny) Act 2011

Income Tax Rates Act 1986

Legislation Act 2003

Medicare Levy Act 1986

Migration Act 1958

Social Security Act 1991

Student Assistance Act 1973

Taxation Administration Act 1953

Trade Support Loans Act 2014

Veterans’ Entitlements Act 1986

Statement of compatibility with human rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Taxation Administration (Withholding Schedules) Instrument 2025

This legislative instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

This legislative instrument makes publicly available the withholding schedules that entities must use under the pay as you go (PAYG) system. The schedules provide certainty to payers about what amounts they are required to withhold (and remit to the Australian Taxation Office) from certain payments they make to other entities. This assists those other entities to meet their annual income tax liability.

Without the instrument, payers would not know the correct amounts to withhold from relevant payments. Further, the instrument helps ensure that taxpayers do not receive large end-of-year tax bills, and the Commonwealth has the revenue it needs during the year to provide services and benefits to the community.

Human rights implications

This legislative instrument does not engage any of the applicable rights or freedoms because it is of a minor or machinery nature. The withholding schedules set out the amounts, formulas and procedures to be used to calculate the amount required to be withheld from certain payments and remitted to the Australian Taxation Office.

Conclusion

This legislative instrument is compatible with human rights because it does not raise any human rights issues.