At this time of year, I often get asked about PAYG income tax instalments – mostly because you’ve just lodged your return and the Tax Office have sent you a letter. So if you’re in that position, here are the answers to some of the frequently asked questions.
What is a PAYG instalment?
PAYG stands for “pay as you go”. It’s the Tax Office’s system for getting taxpayers to make regular payments towards their income tax liability. It will only apply if you have significant investment or business income – that is, income from “untaxed sources” (except capital gains). It can apply to individuals, companies or superannuation funds.
How do I know if I need to pay a PAYG instalment?
This one’s easy – the Tax Office will tell you! You will receive notification from the Tax Office that you are required to pay PAYG instalments. Then, depending on your circumstances, you will receive an Instalment Activity Statement (IAS) or an instalment will appear on your quarterly Business Activity Statement (BAS).
How is the PAYG instalment calculated?
If you earned more than $4,000 in income from untaxed sources, it is likely you will have to pay instalments. The Tax Office calculates your instalment from your last lodged tax return – the notional tax payable on your business and investment income and uses this as a proxy for the tax you will have to pay in the next year.
How often and when do I pay my PAYG instalment?
Usually instalments are paid quarterly. If you are an individual and the notional amount of tax you will have to pay is less than $8,000 you can choose to pay annually. However you must make this election when you initially enter the PAYG system or before the financial year’s first quarter instalment is due.
Quarterly instalments are due 28 August, 28 October, 28 February and 28 April.
Monthly instalments are due by the 21st day after the end of each month.
Annual instalments are due by 21 October each year.
My circumstances have changed, can I vary my PAYG instalment?
Yes. If you anticipate that you income to either be larger or smaller than the previous year, you can apply to vary your instalment on the next IAS/BAS. However, the following should be noted:
- If the payment due date has passed, you cannot vary the instalment.
- There are penalties if you vary your instalment down when your income has not decreased. I usually therefore recommend being conservative in your estimates when varying your instalment.
- You can increase your instalment after an initial reduction if circumstances change again.
- If you income fluctuates significantly and is unpredictable, consider leaving your instalments at the Tax Office set level.
What happens if I’ve paid too much tax?
When you lodge your tax return, the Tax Office will take into account your PAYG income tax instalments. If it is found that you have overpaid tax, you will receive a refund of the overpaid tax. When you lodge your return, the Tax Office will automatically vary your instalment from the next one that is due. So, if your income has significantly decreased, it is definitely worthwhile to lodge your return early.
I’ve paid all my instalments, do I still need to lodge a tax return?
Yes you still need to lodge a tax return.
How can I see what my PAYG instalment obligations are?
If you are an individual with a MyGov account, you can view, lodge pay, vary and manage all your PAYG instalment obligations.
If you are a business, you can do the same through the Business Portal.
Your tax agent can also help with all these details.
The Tax Office have resources on line.
If you need help with lodging or varying your PAYG instalments, I offer a FREE 30 minute initial consultation. You can easily book online here and I look forward to helping you sort your finances!