What is PAYG Instalments and who are they for?

PAYG instalments are amounts you pay to the ATO in advance, based on your expected tax liability for the current financial year. These instalments are generally required if you are self-employed or run your own business, or if you receive other income (such as rental income or capital gains) that is not subject to PAYG withholding.

The ATO uses your previous year’s tax return or an estimate of your current year’s income to calculate your expected tax liability and the amount of your instalments. You can choose to pay instalments on a quarterly or annual basis, depending on your preference.

If you pay more instalments than your final tax liability, you will receive a tax refund at the end of the financial year. If you pay less, you will need to pay the balance at tax time.

In summary, PAYG withholding is a tax collection system for employees, while PAYG instalments are a tax collection system for individuals who are self-employed or receive other income. Both are used to offset your tax bill at the end of the financial year.