Pay As You Go (PAYG) Instalments are Income Tax Instalments paid by Individuals and Companies to the Australian Taxation Office (ATO) on a regular basis.
Below we will discuss the following:
- What are PAYG Instalments
- Why me?
- Payment frequency
- How to vary the instalment amount
- How do I pay PAYG Instalments
What are PAYG Instalments?
PAYG Instalments are a pre-payment towards your financial year income tax, similar to how PAYG Withholding tax is withheld from employees wages.
When you lodge your Income Taxation Return, your PAYG Instalments will show as a credit towards Income Tax Payable.
If you have paid more PAYG Instalments than you are required to, you will receive a Tax Refund.
PAYG Instalments are not an additional tax.
Company: If your notional tax is $500 or more in the previous financial year, and you have utilised all your income tax losses carried forward.
Individual: You have reported $4,000 or more of income on your last Taxation Return which has not been subject to withholding tax. Examples of this is business income as a sole trader, and investment income, including distributions from a related Family Trust.
PAYG Instalments are generally paid quarterly, however the following payment cycles may be applicable:
- Monthly (determined by the ATO)
- Annual (eligibility criteria applies)
- Two instalments (eligibility criteria applies)
You may be eligible to pay Annual Instalments if you are not registered for GST or if your Income Tax Payable is less than $8,000.
You may be eligible to pay Two Instalments if you are a primary producer or a special professional, such as an author, inventor, performing artist, production associate or sportsperson.
The reporting and payment dates for Quarterly Instalments are as follows:
|1 July to 30 September||28th October|
|1 October to 31 December||28th February|
|1 January to 31 March||28th April|
|1 April to 30 June||28th July|
How to vary the instalment amount?
You may vary your PAYG Instalment amount by completing the following sections of your PAYG Instalment Notice:
- Option 1: Pay a set PAYG Instalment – T8, T9 and T4
- Option 2: Calculate using income times rate – T3, T11 and T4
It is highly recomended that you discuss PAYG Instalment variations with your Accountant to ensure that you are reporting the correct amounts.
The benefits to varying your PAYG Instalment to a greater amount, is that you are paying an accurate amount of Income Tax, which will reduce the amount of Income Tax payable when your Income Taxation Return is lodged. This also assists your cashflow by paying higher instalments throughout the financial year, and not requiring a larger lump sum at the end of year.
Varying your PAYG Instalment down to a lower amount can assist with cashflow, to ensure you are not overpaying Income Tax to the Australian Taxation Office, instead keeping it in your business bank account for cashflow and operational expenses.
The negatives to varying your PAYG Instalment is the risk of reporting the incorrect instalment amount. The ATO have implemented a temporary measure to allow to PAYG Instalments due to COVID-19, however this must still be discussed with your Accountant.
You may be fined and have interest applied if you incorrectly vary your PAYG Instalment amount.
How do I pay PAYG Instalments?
You will be issued with a PAYG Instalment Notice from the Australian Taxation Office, or your Instalment will be noted on your Instalment Activity Statement (IAS) or Business Activity Statement (BAS) if applicable.
All these docuemnts will contain payment details for the Australian Taxation Office, including your unique payment identification details.
There is never a silly question when it comes to Accounting and Taxation. All questions are relevant and it is our role to assist business owners and individuals understand their Taxation obligations.
Reach out to us if you have any questions or would like to have a chat with us about your Business and Taxation matters.
1300 408 716