Do you want to manage your cashflow throughout the year to avoid a large tax bill? If you answered yes and have investment and business income, pay as you go (PAYG) instalments might be for you!
PAYG instalments are prepayments you can make during the year. These will be credited against your expected tax bill, leaving you with little or no tax to pay when you lodge your tax return.
How will I know if I’ve been automatically entered into PAYG instalments?
You will enter the PAYG instalments system automatically if you meet the following criteria:
instalment income from your latest tax return of $4,000 or more
estimated (notional) tax for the income year of more than $500
a tax debt on your latest notice of assessment of $1,000 or more.
We’ll send you a letter through our ATO Online service or by post. This will let you know how much you need to pay and when, and the dates you need to lodge by.
Do you think you’re going to earn business and investment income over the threshold? Minimise the risk of a large tax bill by voluntarily entering into PAYG instalments.
You can simply enter by using your myGov account linked to our online services:
select Tax
select Manage
then enter PAYG instalments.
You can also enter through your registered tax agent.
What does instalment income include?
Instalment income is your gross business and investment activities (excluding GST), this includes:
When reporting your instalment income make sure to take your time and be accurate to avoid any penalties.
How are PAYG instalments worked out?
Your PAYG instalments are calculated using two methods.
The easiest and most popular option is to pay using the instalment amount option. This will be shown on your business activity statement or instalment notice before your PAYG instalments are due.
The other option is the instalment rate option. This works best if your business income fluctuates each period (for example, seasonal business income). This option can help you manage your cash flow, because the amounts you would pay change in line with your income for that period.
Typically, most people will pay quarterly instalments. this opens in a new window The letter we send may give you different options, depending on your circumstances – like paying 2 instalments per year or one annual instalment.
If you pay more in instalments than you owe, you’ll be refunded the excess when you lodge your tax return. If you haven’t paid the required instalments, you will receive a tax bill. By paying it in full and on time you'll avoid any interest charges on it.
If you’re unsure on how to lodge and pay you can use a registered tax or BAS agent.
Can I change my PAYG instalment options?
Yes, you can! But only before the due date on your first business activity statement or instalment notice of your financial year.
You can’t change your instalment option mid-financial year. You’ll need to wait for the start of your next financial year to change your instalment option.
How do I manage and pay my instalments?
The easiest way to manage your PAYG instalments is by using our ATO online services. You can view, lodge, pay and vary your PAYG instalment obligations in one place. Instalments can be paid electronically by BPAY®, credit card or debit card.
You’ll find all your payment details, including your payment reference number, in your online services account.
How does PAYG instalments work with my tax return?
PAYG instalments are designed so you can make regular payments during the financial year, rather than as a lump sum when you lodge your income tax return.
Instalments you have paid are credited when your tax return is processed, and if you’ve paid too much, you’ll receive a refund.
If your tax bill is larger than you expected, you’ll need to pay the outstanding amount. We encourage you to review your PAYG instalments regularly, so you don’t get caught out.
How do I exit PAYG instalments?
You’ll be automatically removed from PAYG instalments when you no longer meet the entry criteria. This is based on your most recent tax return lodged.
If you’re no longer earning business and investment income, you can choose to exit PAYG instalments.
Cancelling your ABN or ceasing business won’t exit you from PAYG instalments. You’re still required to lodge and pay any outstanding instalment notices and business activity statements.
Why have I been automatically removed from paying PAYG instalments when my instalments are over $28,000? Pointing this error out to the ATO has no effect because they say that PAYG instalments cannot be reinstated.
