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  • How to vary your instalment rate (option 2)

    If you pay instalments by multiplying your instalment rate by your instalment income (business and/or investment income), your PAYG instalment rate is shown at T2 (instalment rate) in option 2 on your activity statement.

    We calculate your instalment rate to approximate the proportion of your business and investment income that you need to pay as tax, using information from your last tax return.

    If you varied your instalment rate in a previous quarter of the income year, the rate shown at T2 will be your varied instalment rate.

    There's no need to vary if your income has changed since your last tax assessment. As the instalment rate is a percentage multiplied against your income, your instalment amount will change when your income changes.

    However, you may wish to vary your instalment rate if there is a significant change in the proportion of your instalment income that needs to be paid as tax. For example, if you anticipate you'll have:

    • much higher or lower tax deductions than previously expected for your instalment income.
    • less or more instalment income for the same level of tax deductions (for example, your running costs are about the same, however you expect your income will decrease a lot).

    No instalment income for the period

    If you have no instalment income (business or investment income) for the period, report a nil amount at T1 (PAYG instalment income) on your activity statement.

    If you have nil amounts at all labels (including instalment income) on your activity statement, you can lodge quickly and easily:

    • using online services for individuals and sole traders
    • over the phone by calling 13 72 26.

    Calculating your varied instalment rate

    Use the following steps to calculate your variation.

    Step 1: Estimate your instalment income for the year

    Your instalment income is generally your gross business and/or investment income, excluding any capital gains.

    Step 2: Estimate the tax on your instalment income for the year

    You can estimate the tax on your instalment income for the year by using the PAYG instalments calculator.

    Step 3: Work out your varied instalment rate

    To work out your varied instalment rate as a percentage (to two decimal places), divide your estimated tax by your estimated instalment income, and multiply by 100.

    It works like this:

    • (estimated income tax for the year × 100) ÷ estimated instalment income for the year

    Example 1

    Harmander is a sole trader. We have calculated his instalment rate as 16.84%. He uses this instalment rate in the first quarter (1 July to 30 September) and second quarter (1 October to 31 December) to work out his instalment amount.

    Harmander decides to vary his instalment rate for the third quarter because increased competition has reduced the profit margin on his sales. He uses the PAYG instalment calculator to estimate his income tax for business and investment income for the year will be $10,125 and his instalment income for the year will be $82,480. Harmander works out his varied instalment rate as follows:

    ($10,125 × 100) ÷ $82,480 = 12.27%

    End of example

    Step 4: Work out credits from previous instalments in the current income year

    If you vary your instalment in your first instalment quarter for the current income year, you won't have any credits available. This is because you will not yet have paid any instalment amounts for the current income year.

    If your varied instalment rate is less than the rate you used to work out earlier instalments in the current income year, you may be entitled to a credit for PAYG instalments you paid earlier in the year.

    If you are entitled to a credit, you can claim it in on your activity statement. Use Table 6 below to work out the amount.

    You don't have to claim your credit on your activity statement. If you overpay your PAYG instalments we will credit you after your tax return is processed. You'll still need to complete your activity statement as usual.

    Table 6: Working out your instalment credit worksheet

    Action number

    Instruction

    Result

    1

    Add up your instalments for the earlier quarters in the income year (even if you have not paid all of them). These are the amounts you have recorded at 5A (PAYG income tax instalment) on your previous activity statements for the income year.

    Previous instalments amount

     

    2

    Add up any credits you have claimed for the income year. These are the amounts you have recorded at 5B (credit from PAYG income tax instalment variation) on your previous activity statements for the income year.

    Previous credits amount

     

    3

    Subtract the total Previous credits amount (step 2 in this table) from the Previous instalments amount (step 1 in this table).

    Net previous instalments amount

    4

    Add up your instalment income for all earlier quarters in the income year. These are the amounts you have recorded at T1 (PAYG instalment income) on your previous activity statements for the income year.

    Previous instalment income

    5

    Write down your varied instalment rate (this is the rate you calculated above at step 3 Work out your varied instalment rate).

    Varied instalment rate 

    6

    Multiply your Previous instalment income (from step 4 in this table) by your varied instalment rate (from step 5 in this table).

    Previous instalments at varied rate amount

    7

    Subtract your Previous instalments at varied rate amount (from step 6 in this table) from the Net previous instalments amount (from step 3 in this table). If the result is a positive amount, this is the credit amount you can claim.

    Credit (if any)

    Example 2

    Tom is a sole trader and his instalment rate is 16%. He has instalment income for the first quarter (1 July to 30 September) of $30,000 and second quarter (1 October to 31 December) of $18,000. He pays $4,800 in instalments for the first quarter and $2,880 for the second quarter.

    His business is experiencing difficulties so he wants to reduce his instalment rate. He works out that his new rate should be 12% as he expects his instalment income to decrease over the next two quarters.

    Using the instalment credit worksheet in Table 3 above (Step 4: Work out credits from previous instalments in the current income year), Tom works out his credit as follows:

    1: Previous instalment amount = $7,680 ($4,800 + $2,880)

    2: Previous credit amount = $0

    3: Net previous instalment amount = $7,680

    4: Previous instalment income = $48,000 ($30,000 + $18,000)

    5: Varied instalment rate = 12%

    6: Previous instalment at varied rate amount = $48,000 × 12% = $5,760

    7: Credit = $7,680 - $5,760 = $1,920

    Tom can claim a variation credit of $1,920 at 5B (Credit from PAYG income tax instalment variation) on his activity statement.

    End of example

    Step 5: Complete your activity statement

    Enter the following on your activity statement at:

    • T1 – your quarterly instalment income
    • T3 – your varied instalment rate
    • T11 and 5A –your instalment amount (multiply T1 by T3)
    • T4 – your variation reason code, do not leave this blank
    • 5B – any credits you wish to claim for previous instalments

    Complete any other questions on your activity statement as required.

    If you are satisfied the information you have provided is not false and misleading, sign and date the activity statement.

    Step 6: Lodge and pay

    Pay any amounts you owe and lodge your activity statement by the due date.

    If you lodge online you will receive instant confirmation you have lodged. Online lodgment is fast, convenient and secure.

    If you're an individual (including sole traders) you can use your myGovExternal Link linked to the ATO to view, lodge, pay, vary and manage all your PAYG instalment obligations.

    You can also use the Business Portal to revise, print and list previous activity statements, check accounts, update business registration details and send secure messages.

    Next step:

      Last modified: 14 Mar 2018QC 16159