PAYG instalments
What are PAYG Instalments?
PAYG instalments, or Pay As You Go instalments, are regular prepayments made towards your expected tax liability on your income. These prepayments help you manage your tax responsibilities by spreading your tax payments throughout the year rather than paying a lump sum at the end.
Who needs to pay PAYG Instalments?
Typically, PAYG instalments are required for individuals, businesses, and superannuation funds that earn income that isn’t subject to withholding, like self-employment earnings or investment income. The tax authority will notify you if you need to start making instalments.
How are PAYG Instalments calculated?
PAYG instalments are generally calculated based on your previous year’s tax return or your projected income for the current year. The tax authority will provide an instalment rate or a fixed amount that you need to pay.
When are PAYG Instalments due?
PAYG instalments are usually due quarterly, though some taxpayers may have the option to pay annually. The specific due dates will be provided by the tax authority, and it’s essential to keep track of these dates to avoid penalties.
Can I vary my PAYG Instalment amount?
The following is an extract from the ATO website in relation to the very common query we receive in relation to varying quarterly PAYG instalments:
What happens if you underestimate
When you vary your PAYG instalments, it is important to not underestimate your instalment amount or rate.
If you underestimate, you could be left with a substantial tax bill when you lodge your tax return at the end of the year.
Also, when we receive your tax return, we compare your actual instalments to the total tax payable on your instalment income for the income year.
If your varied instalments are less than 85% of your total tax payable, you may have to pay a general interest charge on the difference, in addition to paying the shortfall. Depending on the circumstances there may also be penalties.
If you are not sure, it is best to not vary your instalments. Any overpaid instalments will be refunded to you after you lodge your tax return.
This indicates the important of understanding how your business is trading each quarter, not only for revenue & growth but profit and expected taxable income.
What happens if I overpay my PAYG Instalments?
If you overpay your PAYG instalments, the excess amount will generally be credited towards your annual tax assessment. This means you may receive a refund or a reduced end-of-year tax liability.
Are there penalties for missing PAYG Instalment payments?
Yes, failing to pay your PAYG instalments on time can result in penalties and interest charges. It’s vital to adhere to the due dates and maintain accurate records to avoid these additional costs.
How do I lodge my PAYG Instalments?
PAYG instalments can be lodged online via the tax authority’s website, by mail, or through your tax agent. Most prefer the online option due to its convenience and speed.
Can I stop PAYG Instalments if my income changes?
If your income significantly decreases, you may be eligible to stop PAYG instalments. You will need to notify your tax authority and provide evidence to adjust or cease your instalments accordingly.
What records should I keep for PAYG Instalments?
It’s important to keep detailed records of all your PAYG instalment payments, calculations, and any correspondence with the tax authority. Proper record-keeping will help ensure accuracy in your tax reporting and ease any future reviews or audits.
What is the difference between PAYG withholding and PAYG instalments?
The video explains the difference between PAYG withholding and PAYG instalments. It also explains how PAYG instalments can help you avoid a large tax bill when you lodge your tax return.
If you have questions about PAYG instalments and your business, talk to us now – we can help you navigate the requirements.