Pay As You Go (PAYG) instalments are the ATO's system for pre-paying your expected income tax liability throughout the year, so you don't face a large lump sum when you lodge your return. In 2026, PAYG instalments apply to individuals and businesses whose investment or business income is above ATO thresholds. Understanding how to manage your instalments — including varying them — can significantly improve your cash flow.

What Are PAYG Instalments?

PAYG instalments are advance payments of your income tax on business and investment income. They are separate from the PAYG withholding tax deducted from wages by employers. The ATO enters you into the PAYG instalment system automatically when your tax liability (excluding PAYG withholding credits) exceeds $1,000 in any assessment. Once enrolled, you pay quarterly or annually depending on your income level.

Who Must Pay PAYG Instalments in 2026?

  • Individuals with business or investment income where the tax payable on lodgement exceeds $1,000
  • Companies (except those entering the simplified imputation system)
  • Trusts that are not exempt
  • Self-managed super funds (SMSFs) with taxable income

Wage and salary earners with no significant investment or business income are generally not required to pay PAYG instalments — their tax is collected through withholding by their employer.

PAYG Instalment Rates and Amounts in 2026

The ATO provides two options for calculating your instalment amount:

  • Instalment amount: The ATO calculates a dollar amount based on your prior year income and sends it to you on your BAS or instalment notice. You simply pay this amount.
  • Instalment rate: You apply an ATO-calculated rate to your actual quarterly income. This is the T method and is more accurate when your income varies significantly.

How to Vary Your PAYG Instalments

If your 2026 income will be significantly lower than the prior year (due to a business downturn, loss year, or reduced investment income), you can vary your PAYG instalments to a lower amount by lodging a variation through myGov or your tax agent. Be careful: if you vary too low and your actual liability exceeds your payments by more than 15%, the ATO applies a general interest charge on the shortfall.

PAYG Instalment Due Dates in 2026

  • Q1 (July-September): Due 28 October
  • Q2 (October-December): Due 28 February
  • Q3 (January-March): Due 28 April
  • Q4 (April-June): Due 28 July

Frequently Asked Questions

Can I opt out of PAYG instalments?

You can exit the PAYG instalment system if your circumstances have changed — for example, if you no longer have significant business or investment income. Contact the ATO or your tax agent to request removal from the system. Note that if you exit and still have a tax liability at lodgement, you will receive a new instalment notice.

What happens if I don't pay PAYG instalments?

Unpaid PAYG instalments accrue the ATO's General Interest Charge (GIC), currently calculated at approximately 11% p.a. (compounding daily). This charge is tax-deductible for businesses and investors but still represents a significant cost. The ATO may also take recovery action for overdue amounts.

Are PAYG instalments deductible?

No — PAYG instalments are not deductible; they are advance payments of your income tax, which is itself not deductible. However, they are credited against your final tax liability when you lodge your return. If total instalments exceed your liability, you receive a refund.

Want to optimise your PAYG instalments and cash flow? Contact AWTS — we can vary your instalments to match your actual income position.