Okay, so here’s what happens when the financial year ends.
Here’s the tax office. In a bank account somewhere they have all the taxes you’ve paid over the year, but now they need a final count so they can issue a tax assessment. In other words, they need to figure out whether you owe them more taxes, or if they owe some back to you. So they ask you for a tax return.
A tax return is just a list of all your information for that year, including how much money you earned. You include all your wages, whether you have just one job or three, maybe you have lots of other income from the stock market or real estate, write down all the money you made, no matter how you made it. Then write down all the taxes you’ve paid and some other information as well, then send it off to the ATO.
Your boss is required to keep those records for you (the ones about your wages!). So at the end of the financial year it’s his job to send you that information promptly after July first. He prepares a PAYG Summary with all the information you need and he sends it to you in the post. If you have more than one boss, they each send you a summary of the year past, which includes a total of how much you’ve been paid for the whole year for that job, and how much tax has been taken out for the whole year for that job, which are both very important pieces of information for the tax office.
Your PAYG Payment Summary is a summary of all your PAYG, or pay-as-you-go tax payments for the whole year. It’s sent out specifically for you to use in completing your tax return.
That’s where it gets boring. Then you have to sit down and read through those summaries and write them into your tax return before sending it off to the tax office. Unless there’s a service that does it for you. This is called doing your taxes.
Some bosses don’t call them a PAYG Payment Summary. Some might tell you they’re sending you your group certificate. A group certificate is exactly the same thing as a PAYG payment summary, it’s just old terminology. Ages ago, it was officially called a group certificate, and everyone’s so used to calling it that that people still do ten years later.
So your boss sends your PAYG Payment summary once a year, but he sends your payslips many times throughout the year. What’s the difference between a PAYG Payment Summary and a payslip? Whilst they have similar information on them, they’re different summaries used for different purposes. A payslip is given to you each time you’re paid, whether that’s weekly, fortnightly or monthly, and it’s your way of checking that you’ve been paid correctly for the work you’ve done. It’s a fantastic way to see the breakdown of your wages because it lists the hours you worked, your total pay (also known as gross pay), and it lists the taxes taken out of that pay, and then gives your final pay (also known as net pay). But it only contains information for one pay-cycle. The PAYG payment summary arrives once a year and summarises the whole year, which is why it’s perfect for our tax returns. It arrives in July, just after the end of the financial year, and during the 4-month window for tax returns to be completed.
Take a look at this example of a PAYG payment summary. This is what most summaries look like. You can see in this box is the total amount of taxes paid during the year. And in this box is the total wages you earned for the year. These other boxes are for other types of payments or benefits received from that employer.
These documents can be technical, and most people don’t ever learn much of the terminology or system. If you hire a tax agent to prepare your returns, you don’t need know much more than the information provided in these videos. That’s why tax agents are so useful: they know all the stuff none of us have the time or energy to learn.
A tax assessment is what the ATO does at the end of the year to check your taxes.
A notice of assessment is the official name of the document they send you with the results.
A tax return is the form you fill out for the tax office so that they can check your taxes.
A PAYG payment summary is the summary your boss sends to you, so that you have the information you need to fill out your tax return.
A group certificate is another name for a PAYG Payment summary.
And a payslip is your wages summary for one pay-cycle, so that you can check your earnings.
And that’s a basic overview of how it works.