PAYG withholding
PAYG withholding is the system where payers deduct tax from wages or contractor payments before they are made. 47% is withheld when no ABN is quoted.
Ask Chalkline about this →PAYG (Pay As You Go) withholding is the system under which payers deduct tax from certain payments before the money reaches the recipient, then remit it to the ATO on the recipient’s behalf. In construction, it applies in two main situations: wages paid to employees (deducted per the ATO tax tables), and payments to contractors who fail to quote an ABN on their invoice.
When a contractor does not provide an ABN, the principal builder must withhold 47% of the payment (the top marginal income tax rate plus Medicare levy) and remit that amount to the ATO via the W3 field on their BAS. The contractor receives only the net 53% and must reclaim the withheld amount as a credit against their tax liability at the end of the financial year.
The withheld amount is not a penalty: it is a prepayment of the contractor’s tax. But it creates a significant cash flow problem for the contractor and an administrative burden for the builder, making it critical that every subcontractor’s ABN is confirmed before they submit their first invoice.
Also known as: Pay As You Go withholding, PAYG
Category: Tax administration
Related
See also
Last updated: 2026-05-10. Verified: 2026-05-10. Quarterly review for currency.