PAYG Instalments Explained

The Pay as You Go (PAYG) instalments system is used for paying instalments during the income year towards your expected income tax liability on your business and investment income.

PAYG instalments can be affected by both assessable income (see this post for details and checklist of eTax and Assessable Income) or allowable deductions (see this post for details and checklist of eTax and Allowable Deductions).

The instalment, where it applies, is worked out from the tax liability of the previous year when your annual income tax return is assessed. The PAYG instalments for the year are credited against your assessment to determine whether you owe more tax or are due for a refund. The ATO writes to tell you if you have to pay PAYG instalments.

How often you pay: PAYG instalments are generally paid either four times per year (quarterly) or twice a year (two instalments). However, some taxpayers are eligible to take up the option to pay one annual instalment per year. The PAYG letter from the ATO will tell you how often to pay – quarterly, two instalments per year or one annual instalment.

Am I eligible to pay my instalments annually? The annual instalment is a single, lump sum payment of your PAYG liability for the year. You may be eligible to pay using the annual instalment option if at the end of your first instalment quarter in the income year you meet the following criteria:

  • you are not registered, nor required to be registered, for goods and services tax (GST)
  • you are not a partner in a partnership that is registered, or required to be registered, for GST
  • your most recent notional tax amount notified by the Commissioner is less than $8,000, and
  • you are a company taxpayer that is not part of a consolidated group or a participant in a GST joint venture.
How much to pay: As a PAYG instalment payer, you can choose between:
  • paying an amount calculated by the Tax Office, or
  • working out your own instalment amount, based on the Tax Office notified instalment rate multiplied by your business and investment income.
If your circumstances change, you can vary the amount you pay in the Business Activity Statement (BAS) or Instalment Activity Statement (IAS). However, the variation option is only available if your BAS or IAS is lodged by the due date for lodgment.
Updating your address: You need to keep your address with the ATO up to date to received the BAS/IAS notice. We have seen some clients who didn't know they had outstanding instalment notices because they were mailed to an old address.

Failure to lodge (FTL) penalty: A failure to lodge (FTL) penalty is an administrative penalty which may be applied where you are required to lodge a return, statement, notice or other document with the ATO by a particular day and you fail to do so.

FREE Fact sheet on ==> Failure to Lodge Penalty

For help with your eTax return see our eTax Return Checklist.

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