Low Income Tax Offsets

If the payee has claimed a low tax offset, the amount of tax that is withheld from the payee's earnings in each pay period is reduced by an amount that is equal to the offset amount divided by the number of pay periods in a year, based on the pay frequency of the payee's pay group.

For example, if a payee claims a total estimated offset of $400.00 and is paid on a weekly basis, the payee’s tax withholding for each pay period is reduced by $7.00 per pay period ($400.00 divided by 52 pay periods). This is referred to as the pay period offset amount. Note that in accordance with ATO requirements, the pay period offset amount is rounded down to the nearest whole dollar or, if the amount is less than $1.00, it is rounded up to $1.00.

Also note the following about tax offsets:

• The amount specified in the Offset Amount field is the estimated maximum amount that is to be offset over a 12 month period. The actual amount that will be offset depends on factors such as:

  • whether the payee has worked each pay period

  • how much the payee has earned and therefore how much tax, prior to applying the offset, is withheld from the payee's earnings.

• The entire pay period offset amount is applied in the first pay batch in which the payee is paid for any given pay period if possible. If the tax withheld in that pay batch is less than the pay period offset amount, any remaining balance to be offset will carry over to the next pay batch in which the payee is paid, if the payee is paid again in the same pay period.

• If the entire pay period offset amount cannot be applied in a given pay period, because the tax withheld in that pay period was less than the pay period offset amount or the payee did not work in that period, the balance of the pay period offset amount does not carry over to the next pay period.

• The pay period offset amount is re-calculated each time the payee is paid. If the payee's pay group has changed since the previous pay period, and the new pay group has a different pay frequency to the previous pay group, the pay period offset amount will change according to the new pay frequency.

• The offset is not applied in adjustment pay batches for closed periods. This is because the payee's pay group, and therefore the pay frequency, could have changed since the pay period that is being adjusted so applying the offset could result in too much tax being offset, resulting in the payee being under taxed.

• The amount of tax that has been offset in a pay batch is itemised separately in the Tax tab of the Payee Pay Details screen when processing a pay batch and within the Pay Enquiry, for closed pay batches. The offset amount is also shown separately on the Tax Withholding report.

• The offset will continue to be applied in each pay batch in which the payee is paid so long as the Tax Offset Claimed field is ticked.