PAYG (Pay-As-You-Go) instalments are a form of pre-payment for your income tax obligations. The amounts you paid in your instalments will be credited to you on your tax return. If your instalments (along with any other credits) exceed your tax obligation, the extra money will either be refunded to you or used towards your other tax office debts.
What is an Instalment?
Instalments are routine payments made during the financial year. They are calculated based on your past year tax return. PAYG instalments are issued after the lodgement of your return, usually in quarterly or annual instalments. Each instalment is dated, tying it to a respective financial year regardless of when you make the actual payment.
When setting up your PAYG instalments, you can choose to pay either:
- A fixed amount or
- A percentage of your revenue
PAYG instalments are for entities with business/ABN or investment income, not for people with salaries and wages. The aim of the system is to help people in business manage their tax and avoid a big tax bill at the end of the year.
PAYG instalments can cover:
- Bank interest income
- Dividend income
- Business income
- Rental property income
- Other forms of income
Entering The PAYG System
Entities can be entered into the PAYG system automatically or manually. For individuals and trusts, automatic addition can be triggered based on the following factors:
- Your business and investment income totalled $4000 or more
- You had a ‘tax payable’ on your notice of assessment of $1000 or more
- A notional (estimated) tax for the next financial year of $500 or more
Companies and superfunds may be added automatically if:
- Their instalment income totalled $2 million or more
- They have a notional (estimated) tax for the next financial year of $500 or more
- They are the head company of a consolidated group
Many choose to also enter the system voluntarily if they believe that they will hit the business and investment income threshold. You can do this through MyGov, or by speaking to a tax agent.
You can choose to enter, or be automatically entered, once your tax return has been lodged.
How Do I Lodge and Pay PAYG Instalments?
You can lodge and pay your PAYG instalments through your ATO online services account or through MyGov. You can also lodge your instalment through the mail using a paper form, which will be addressed to your activity statement account. It is important to note that sometimes, the ATO will address an instalment to your current or past business name. It is important not to disregard these notices and to pay them on time regardless.
Exiting and Variations
If you want to leave the PAYG instalment system, you need to contact the ATO prior to the 28th of October (the due date for the first instalment). If you find that your trading conditions change during the year, instalments can also be varied to suit your tax situation. You can also do this yourself, or through your tax agent. You must provide a reason and new amount or percentage and return the completed form by its due date.
It is important to understand that PAYG instalments are based on your past year financial activity. You may have stopped trading under your ABN or your other business activities, but unless you inform your accountant or the ATO, you will still be charged for these instalments.
If you need a professional consultation regarding your PAYG instalments, our chartered tax advisors are ready to help. Book your appointment today.