Compliance
How the PAYG Withholding Rule Change Helps Company Directors and Office Holders
Australia has finalised a major change to the PAYG withholding regime that eliminates withholding tax and reporting duties in certain director payments—significant relief for individuals who act as intermediaries or for entities receiving such payments.
By NomadicTax Research Team • 5-8 min read • March 31, 2026
## Overview
On 6 March 2026, Australia’s ATO finalised **Legislative Instrument F2026L00198**, which replaces the earlier PAYG Withholding Variation (F2016L00222). Under this change, payments made to individuals who are directors, committee members, or other office holders—**but who must pass the full amount to another related entity**—are now exempt from PAYG withholding. Additionally, the requirement for **issuing payment summaries and reporting through Single Touch Payroll (STP)** is removed. ([au.andersen.com](https://au.andersen.com/wp-content/uploads/2026/03/AA_AU_AUSTRALIA_TAX_UPDATE_MARCH_2026.pdf?utm_source=openai))
## Who Benefits
- **Company directors or office holders** who receive payments they do not retain—e.g. when they invoice through a separate entity and must forward the full amount.
- **Entities associated with such individuals**, since the payments will be treated as payments to the entity rather than the individual.
- Businesses will save on administrative burden—no payment summaries for these kinds of transactions, and exemptions from STP reporting obligations.
## Actionable Insights
- Organizations paying individuals in this arrangement **must ensure documentation clearly requires full remittance to the entity**, establishing the associate relationship.
- Maintain clear contracts or agreements reflecting that the individual acts merely as a pass-through, so ATO can verify that the payment aligns with F2026L00198.
- Review internal payroll and reporting systems for STP and payment summaries—some obligations may now be unnecessary; remove or adjust accordingly.
## Example Scenario
Sarah acts as a director for consulting projects. She works under an arrangement where her company receives the payment, but pays her personally, and then she remits the entire sum onward to her consulting firm. Until now, Sarah was subject to PAYG withholding and needed to report under STP. After this change:
- PAYG withholding is reduced to **nil** in her case.
- She no longer needs to issue payment summaries for those payments from which she forwards the full amount.
- Her payments should be treated as funds received by her company rather than personally kept by her.
## Key Dates & Compliance
- **Effective Date**: 6 March 2026. ([au.andersen.com](https://au.andersen.com/wp-content/uploads/2026/03/AA_AU_AUSTRALIA_TAX_UPDATE_MARCH_2026.pdf?utm_source=openai))
- Earlier instrument (F2016L00222) sunsets on **1 April 2026**, so arrangements should align. ([au.andersen.com](https://au.andersen.com/wp-content/uploads/2026/03/AA_AU_AUSTRALIA_TAX_UPDATE_MARCH_2026.pdf?utm_source=openai))
## Caveats & Considerations
- This variation **only applies** where all payment, minus any allowed deductions like fees, is forwarded to another entity with which the individual is associated. If any portion is retained by the individual, the exemption may not apply.
- Proper documentation and clarity in contracts is essential to avoid audit or dispute.
## Summary
This policy change offers substantial **compliance ease and cash flow benefit** for certain office holders and directors who forward full payments to associated entities. If you fall into this category—or engage such individuals—it’s time to review your arrangements and ensure you meet the criteria under F2026L00198 to take full advantage.