PAYG withholding
The tax your employer takes out of each pay and sends to the ATO on your behalf during the year.
Rather than facing one large bill at year end, most employees have tax withheld from every pay. Your employer calculates it using ATO schedules based on your salary, the tax-free threshold, and any study loan you have declared.
Withholding is an estimate, not a final figure. When you lodge your return, your actual tax is calculated on your real taxable income, and the difference between that and what was withheld becomes your refund or your bill.
This is why most Australians receive a refund: deductions claimed at lodgment were not known to the employer during the year, so slightly too much tax was withheld along the way.
Where a refund comes from
Your employer withholds $18,500 across the year. You claim $3,000 of deductions, reducing your actual tax to $17,600. The $900 difference comes back as a refund.
The bit people get wrong
Withholding only accounts for the income that employer pays you. Bank interest, dividends, side income, and capital gains have nothing withheld, so people with investments often owe money despite being on a regular salary.
Common questions
Why did I get a tax bill instead of a refund?
Usually because income was received with no tax withheld — interest, dividends, capital gains, or a second job where the tax-free threshold was incorrectly claimed.
Can I ask for extra tax to be withheld?
Yes. You can request your employer withhold an additional amount each pay, which is a common way to avoid a bill if you have investment income.
Is a big refund a good thing?
It means you overpaid across the year and lent the ATO money at no interest. A small refund or a small bill usually indicates your withholding was set accurately.
Run your own numbers