Pay-as-you-go (PAYG) instalments are regular tax prepayments on your business and investment income.
They’re a way to offset your tax bill at the end of the financial year by paying regular instalments. This way, you should not have a large tax bill when you lodge your tax returns.
If your financial situation has changed, your expected tax may also change. This means your current PAYG instalments may add up to more or less than your tax at the end of the year.
When Do You Have To Pay PAYG Instalments?
If you are an individual (including a sole trader) or trust, you will automatically enter the PAYG instalments system if you have all of the following:
- instalment income from your latest tax return of $4,000 or more
- tax payable on your latest notice of assessment of $1,000 or more, and
- an estimated (notional) tax of $500 or more.
A company or super fund will automatically enter the PAYG instalments system if any of the following apply:
- it has instalment income from its latest tax return of $2 million or more
- it has an estimated (notional) tax of $500 or more, or
- it is the head company of a consolidated group.
PAYG Varying Instalments
You can vary your PAYG instalments if you think your current payments will result in you paying too much or too little tax for the income year. Variations must be made on or before the payment due date (28 days after the end of each quarter, generally).
You do not have to vary your PAYG instalments at all. It will not change how much income tax you pay for the year.
After you lodge your tax return, if your instalments were:
- too high, the excess is refunded to you
- too low, you pay the shortfall.
Your varied amount will apply for all your remaining instalments unless you make another variation before the end of the income year.
You might need to vary your PAYG instalments if the 2022 floods or other disasters impacted you.
If you cannot pay your instalment amount, you should still lodge your instalment notice and discuss a payment arrangement with the ATO. You may wish to obtain advice from a tax agent on whether you should vary your instalments.