PAYG
TFN declaration
A TFN declaration is a form an employee completes to give their employer their tax file number and tax details, so the right amount of PAYG tax is withheld from their pay.
A TFN declaration is the form that a new employee completes to give their employer the information needed to withhold the correct amount of PAYG tax. It asks for the employee's tax file number, name, address and date of birth, whether they are an Australian resident, a foreign resident or a working holiday maker for tax purposes, whether they want to claim the tax-free threshold, and whether they have a study or training support loan.
Employers should ask each new employee to complete a TFN declaration at the start of employment, normally before the first payment. The employee can complete the form online or on paper, and the employer must keep the information in their records. The details are then used in the payroll system to select the correct withholding schedule. Employers using Single Touch Payroll report the details to the ATO through their payroll software.
The most important choice on the form is the tax-free threshold. An employee should claim it only from one payer at a time, usually their main job. If they claim it at two jobs, too little tax may be withheld, which could cause a tax bill at the end of the year. If they do not claim it, higher withholding applies, and they may get some back in their return. Employees should update the declaration whenever their circumstances change.
If an employee does not provide a TFN, the employer must withhold at the highest marginal rate plus Medicare levy until one is provided. There are special arrangements where an employee has applied for a TFN but has not yet received it, or is applying for an exemption, so employers should follow the ATO's current guidance on how long they may wait and what to record, because the details can be updated.
The TFN declaration does not directly involve GST, because wages are outside the GST system. However, the amounts withheld on the basis of the declaration are reported on the BAS at W1 and W2 or through the combined STP reporting, and are paid to the ATO by the due date. The form also governs whether a worker is treated as an employee for withholding purposes, which links to the wider question of employee or contractor status.
A common mistake is to treat a TFN declaration as optional paperwork. Without it, the employer risks withholding the wrong amount and may be liable for any shortfall. Another mistake is assuming a declaration lasts forever without checking, when an employee who changes visa status or starts a second job should complete a new one.
This is general information only, so confirm requirements with the ATO or a registered tax professional.
Worked example
Tom starts as a retail assistant on $1,500 a fortnight and completes a TFN declaration, giving his TFN, claiming the tax-free threshold and saying he has no study loan. His employer enters the details in the payroll software, which picks the resident schedule with the tax-free threshold. Three months later Tom starts a second job; he leaves the threshold claimed only at the first job and tells the second employer he does not claim it.
Practical tips
- Get the declaration signed before the first pay run so the correct withholding schedule is used from day one.
- Remind staff with two jobs to claim the tax-free threshold from only one employer, to avoid a tax bill later.
- Keep completed declarations securely, as they contain a TFN, and update them when a worker tells you their circumstances have changed.