Got a Letter About Your PAYG Withholding Cycle?
Every April, the ATO reviews how much tax each business withholds from staff pay. If your numbers have grown, you’ll get a letter telling you your cycle is changing.
Many business owners open that letter, don’t fully understand it, and put it in a drawer. That’s the wrong move. Here’s what it actually means.
What a Withholding Cycle Actually Is
Your PAYG withholding cycle decides how often you report and pay the tax you withhold from employee wages. There are three tiers, based on how much you withhold across your whole business each year.
Withhold less than $25,000 a year, and you report and pay quarterly. Withhold between $25,000 and $1 million, and you move to monthly reporting through your activity statement. Withhold more than $1 million, and you become a “large withholder,” paying electronically within six to eight days of each pay run.
The ATO checks this every year. If your withholding has grown past a threshold, your cycle changes automatically.
Why You Might Be Getting This Letter Now
Growth is the usual trigger. Hire more staff, give pay rises, or simply grow your payroll, and your total withholding climbs with it.
If that growth pushes you past a threshold, the ATO writes to you in April. The new cycle takes effect from 1 July 2026.
This isn’t a penalty. It’s just the system catching up to the size your business has become.
What Changes If You Become a Large Withholder
This is the tier that catches people out. Large withholders don’t report through a normal activity statement anymore.
Instead, you get a unique Payment Reference Number, or PRN. You pay electronically within six to eight days of each pay run, and that payment has to match exactly what you’ve already reported through Single Touch Payroll.
There’s no more quarterly buffer. Payment timing becomes tied directly to your pay cycle, not a calendar date.
What to Do Before 1 July 2026
Read the letter properly. It states your new status and the date it takes effect. Don’t assume check the exact threshold you’ve crossed.
Update your payroll software before the change date. Most platforms can handle the new reporting cycle, but the setting doesn’t change itself. Confirm it before your first pay run under the new cycle.
Check your PRN is being used correctly, if you’ve become a large withholder. The amount you pay against that PRN has to match your STP reporting exactly, or you’ll create a mismatch the ATO will follow up on.
Apply to stay on your current cycle if you genuinely qualify. If your withholding will reasonably drop next year, you can request to remain on your existing cycle. You need to apply within 21 days of the letter’s issue date.
Don’t ignore the letter. Missing the new due dates after a cycle change can trigger penalties, even if the change wasn’t your fault.
Frequently Asked Questions
Can I dispute a cycle change? Yes, but only within 21 days of the letter. You’ll need to show your estimated withholding for the coming year will genuinely fall back under the threshold.
What if I miss the new payment dates by accident? The ATO can still apply penalties, even for a genuine misunderstanding. It’s worth confirming your new dates as soon as the letter arrives, not closer to 1 July.
Does this affect how much tax I withhold from each employee? No. The amount withheld per employee doesn’t change. Only how often you report and pay that total to the ATO changes.
Who is most likely to be affected this year? Any business that’s grown its payroll, hired new staff, or given pay rises over the past year is the most likely to cross a threshold.
Let Us Handle the Compliance Side Talk to Edulink
Cycle changes, PRNs, STP matching this is exactly the kind of detail that’s easy to miss and costly to get wrong.
Edulink Payroll Services charges $750 per employee, per year, covering payroll, compliance, and reporting, for small and medium businesses across greater Sydney and Campbelltown.
Have more employees? Call us for a discounted rate.
📞 Call us today: 04 044 71 816
Edulink Payroll Services | Campbelltown & Greater Sydney | Call 04 044 71 816
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