Making payments towards your income tax
PAYG instalments is a system for individuals and companies to pay instalments towards their income tax.
In your first year of business, you generally don't pay PAYG instalments. After you lodge your first tax return showing a profit from business or investment income, we send you a letter if you must pay PAYG instalments. The letter and additional information will tell you your payment options and how often to pay - usually quarterly, but you may be able to pay annually.
Once you enter the PAYG instalments system, we credit any instalments you pay during the year towards your final tax assessment after you lodge your tax return.
Budgeting to pay your tax
You will need to budget for the total amount of income tax you are liable to pay, especially in your first year of business. This is because we may not receive your tax return and assess your PAYG instalments until some time after the end of the first year.
One way to budget to pay your tax is to make voluntary payments to us during the year. You must be able to estimate the total amount of tax you will be liable to pay to do this.
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For more information about making voluntary payments towards your tax, phone us on 13 28 66.
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Estimating the amount of tax you are liable to pay
Soon after starting business, you should be in a position to work out your taxable income periodically - perhaps weekly, monthly or quarterly - using the following formula:
Assessable income - allowable deductions = taxable income
You can use weekly, fortnightly, monthly or quarterly PAYG withholding tables to see how much tax you need to put aside. If you operate your business as a partnership or trust, refer to the tax rates for individuals to work out the total amount of tax you are liable to pay for the year.
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To view the tax tables and the calculator, refer to:
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Partnerships and trusts
Partnerships do not have to pay PAYG instalments. Instead, each individual partner may be liable to pay PAYG instalments on their share of net income or loss from each partnership they are a member of.
Similarly, trusts are not liable to pay PAYG instalments. Instead, the beneficiaries or trustees may be liable to pay instalments.
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For more information, refer to:
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Example
- business income (assessable income) - $58,000
- investment income (assessable income) - $2,000
- deductions - $19,900.
Alex includes these amounts in his 2010-11 individual tax return. He works out his taxable income for the year as follows:
Assessable income $60,000 − allowable deductions $19,900 = taxable income $40,100
To work out the tax he has to pay, Alex applies the 2010-11 tax rates for individuals to each relevant bracket of his taxable income:
- on the first $6,000 of his taxable income the tax rate is 0%
- on the next $29,000, that is, the taxable income from 6,001 to $35,000, the tax rate is 15%
- on the next $5,100, that is, until he reaches his taxable income of $40,100, the rate is 30%.
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0%
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$6,000
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x
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0%
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=
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$0
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$6,000
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15%
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$31,000
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x
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15%
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=
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$4,650
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$37,000
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30%
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$3,100
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x
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30%
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=
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$930
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$80,000
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37%
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$0
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x
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37%
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=
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$0
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$180,000
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45%
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$0
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x
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45%
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=
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$0
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Taxable income
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$40,100
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Tax payable
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=
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$5,580
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The net tax Alex must pay is $5,580.
Alex must also pay the Medicare levy of 1.5% of his taxable income. The Medicare levy on a taxable income of $40,100 is $601.50.
The total tax and Medicare levy Alex must pay is $6,181.50.
Example
Renee Fashions Pty Ltd (company)
In 2010-11, Renee Fashions Pty Ltd has assessable income of $165,000 and allowable deductions of $152,000, including a salary of $36,000 paid to Renee.
Renee includes these amounts in the company's 2010-11 company tax return.
Renee works out the company's taxable income for the year as follows:
Assessable income $165,000 − allowable deductions $152,000 = taxable income $13,000
To work out the total amount of income tax the company is liable to pay, Renee applies the company tax rate of 30% to all taxable income:
30% (company tax rate) × $13,000 (taxable income) = $3,900 (tax to pay)
Renee reports her salary of $36,000 on her individual tax return and pays tax on this salary at the rates for individuals.
Sections within Working out your income tax
Last Modified: Thursday, 8 September 2011