We often get questions about PAYG (or Pay As You Go) Instalments. Here are some of the frequent ones answered.
As many of you with business or investment income may already be aware, once that income reaches a certain level, the ATO will automatically put you into the PAYG instalment system.
In that system, you pay instalments towards your annual tax liability, with the basic goal being that you prepay your annual tax liability throughout the year, rather than having a large tax bill at the end of the year, upon lodging your tax return.
Who pays instalments?
The PAYG instalment system applies to tax paying entities, which are generally individuals, companies and super funds.
When will you enter the PAYG instalment system?
This will generally happen following the lodgement of your Income Tax Return, where your business or investment income exceeds the relevant threshold.
The ATO will contact you to notify you of this, and will then issue you with quarterly (or in some cases, annual) instalment notices. If you’re already lodging Business Activity Statements, a new label for PAYG instalments will be included on your quarterly BASs.
How much will you have to pay?
The instalment rate or amount issued to you by the ATO is generally based on historical information, being your most recent Income Tax Return lodged. It’s also based on the number of periods remaining in the current financial year – for example, if $10,000 in annual instalments is spread over only 2 remaining quarters of the financial year, you can expect to pay instalments of $5,000 per quarter for those 2 quarters.
What if things have changed this year?
If your circumstances are a bit different this year (for example, your income is lower), you are able to vary your instalment amount or rate. However, if you’re varying down, you must be able to accurately estimate your tax liability for the year, and be careful not to vary too low, as you can be penalised for doing so.
At GTC Financial, we help our clients manage their PAYG instalments to ensure that they’re paying the right amount. We catch up with some of our clients quarterly for tax planning, and some annually, to stay on top of this, and to help them understand their estimated tax positions for the year.
If you’d like help with PAYG instalment planning, or if you’d just like to know a bit more about the PAYG instalment system, please get in touch with us.
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