Varying PAYG instalments for the new financial year

With the new financial year well under way, the first quarterly instalment notices for 2022–23 are just around the corner.

The PAYG instalment system helps you manage your expected tax liability by making regular payments. You can vary your instalments if you think you will be paying too much when compared to your estimated tax for the year.

What is a PAYG instalment?

The Pay As You Go (PAYG) instalment system requires certain taxpayers deriving business or investment income to pay instalments progressively towards their income tax liability. When the taxpayer lodges their tax return, these instalments are credited against their income tax liability and any excess amounts paid are refunded.

PAYG instalments are different to PAYG withholding, which refers to the tax withheld by payers from payments to payees.

The calculation of these PAYG instalments, and the number of instalments required in a year, is dependent upon a taxpayer’s circumstances.

Who is required to pay PAYG instalments?

A taxpayer only needs to pay PAYG instalments if they have been notified by the ATO, typically through myGov, Online services for business or by mail.

Taxpayers whose assessable income has only consisted of withholding payments (other than non-quotation withholding payments) are not required to pay PAYG instalments.

Taxpayers are automatically required to pay PAYG instalments if:

– For an individual, they have:

business and investment income in their most recent tax return of $4,000 or more
tax payable on their latest notice of assessment of $1,000 or more, and
estimated tax for the current income year of $500 or more.

– For a company, they either:

have business and investment income in their most recent tax return of $2 million or more
have estimated tax for the current income year of $500 or more, or
are the head company of a consolidated group.

How many PAYG instalments are payable?

Taxpayers may be required to make PAYG instalments on a monthly, quarterly or annual basis. The ATO will advise a taxpayer of how often they need to pay PAYG instalments at the time they are first entered into the PAYG instalment system.

Most taxpayers make PAYG instalments on a quarterly basis. Taxpayers with business income of more than $20 million are required to make monthly PAYG instalments. Individuals eligible to make quarterly PAYG instalments that carry on a primary production business or are special professionals may have the choice to pay in 2 instalments.

Taxpayers may be eligible to change the frequency of their PAYG instalments (eg from a quarterly to annual basis).

PAYG Instalment Payment Options

The amount of a PAYG instalment is either:

predetermined by the ATO, or
calculated by a taxpayer by applying an instalment rate to their business and investment income.

Companies with business and investment income over $2 million that are not small or medium business entities are not eligible to pay using the predetermined instalment amount.

Varying PAYG instalments

Taxpayers can vary their PAYG instalments if the total instalments for the year will not reflect their expected income tax liability. For taxpayers that pay a predetermined instalment amount, varying the instalment amount may be appropriate where a significant change is expected in the level of business and investment income or associated deductions.

Balanced Beans Bookkeeping and Tax Agents take the time to evaluate whether the instalment amount or the instalment rate is appropriate to help avoid the distress of an unexpectedly large instalment later in the year.

We ensure that our clients understand what their PAYG instalment amount represents and how it might affect their future tax liability.