• How to vary your instalment rate (option 2)

    If you pay an instalment that you work out by multiplying the instalment rate by your instalment income, you will find your instalment rate shown at T2 in option 2 on your activity statement.

    Usually, the rate at T2 is the instalment rate we calculated from information in your last assessed income tax return.

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

    Multiply the instalment rate by your business and/or investment income for the quarter to work out the amount to pay.

    On this page:

    Step 1: Estimate your business and/or investment income (also known as instalment income) for the year

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

    Next step:

    Step 2: Estimate the tax on your business and/or investment income for the year

    Use our instructions or the PAYG instalments calculator to help you estimate your tax.

    Next steps:

    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 income, and multiply by 100.

    The formula looks like this:

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

    Example

    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 estimates his income tax for business and/or 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%

    You may be liable to pay the GIC if your varied instalment rate is less than 85% of the instalment rate that would have covered your actual income tax liability for the income year. We will work out that instalment rate when we assess your income tax return based on both:

    • your business and/or investment income
    • the tax attributable to that income (excluding capital gains) for the year.
    End of example

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

    If the instalment you are varying is your first instalment quarter for the current income year, there is no credit available. This is because you will not yet have paid any instalment amounts for the current income year.

    You may be entitled to a credit if the varied instalment rate is less than the rate you used to work out earlier instalments in the current income year.

    Even if you are entitled to a credit, you do not have to claim it in your activity statement. If you overpay your PAYG instalments we will credit you when we assess your income tax return. If you prefer not to claim a credit in your activity statement, just complete your activity statement as usual.

    If you think you may be entitled to a credit and want to claim it in your activity statement, use Table 3 below to work out the amount you may be entitled to claim.

    Table 3: Previous instalment credit worksheet

    Step

    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 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 on your previous activity statements for the income year.

    Previous credits amount

     

    3

    Subtract the amount at step 2 from the amount at step 1.

    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 on your previous activity statements for the income year.

     As applicable

    5

    Write down your varied instalment rate (this is the rate you worked out at step 4).

    As applicable 

    6

    Multiply the amount at step 4 by the varied instalment rate at step 5.

    Previous instalments at varied rate amount

    7

    Subtract the amount at step 6 from the amount at step 3. If the result is a positive amount, this is the amount of the credit you can claim.

    Credit (if any)

    Example

    Tom is a sole trader and his notified rate is 16%. He has an 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 5), Tom completes his worksheet as follows:

    Step 1 $7,680 ($4,800 + $2,880)

    Step 2 $0

    Step 3 $7,680

    Step 4 $48,000 ($30,000 + $18,000)

    Step 5 12%

    Step 6 $48,000 × 12% = $5,760

    The variation credit that Tom can claim is $1,920 on his activity statement at 5B.

    End of example

    Step 5: Complete your activity statement

    • Enter your quarterly instalment income at T1.
    • Enter your varied instalment rate at T3.
    • Work out the instalment amount by multiplying T1 by T3. Enter the answer at T11 and 5A.
    • Enter your variation reason code at T4. Do not leave T4 blank.
    • If you wish to claim a credit for one or more previous instalments, enter the credit amount at 5B.
    • Complete any other questions you are required to complete.
    • 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 shown on the activity statement.

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

    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:

    Variation reason codes

    When you vary a PAYG instalment on an activity statement or instalment notice, you must enter a reason code at T4.

    Use Table 4 below to choose the reason that best describes why you decided to vary your instalment amount or rate.

    Table 4: Variation reason codes

    Code

    Reason

    Description

    21

    Change in investments

    Your investment strategy or policy has changed and this will significantly affect your annual tax liability. For example, you sold shares.

    22

    Current business structure not continuing

    Your current business has stopped trading or has changed its structure. For example, you have permanently closed your business.

    23

    Significant change in trading conditions

    Abnormal transactions relating to your business income or expenses will significantly affect your annual tax liability. For example, you have bought a major piece of machinery.

    24

    Internal business restructure

    You have restructured your business. For example, you have expanded or contracted it and this will significantly affect your annual tax liability.

    25

    Change in legislation or product mix

    A change in legislation or the product mix of your business will significantly change your annual tax liability.

    26

    Financial market changes

    Your business has been affected by domestic or foreign financial market changes. This reason code is for businesses involved in financial market trading, including those whose income is affected by changes in financial products. For example, banks, finance and insurance businesses.

    27

    Use of income tax losses

    You will be using income tax losses, including capital losses transferred from another entity, that will significantly affect your annual tax liability.

    33

    Consolidations

    A head company can vary its consolidated instalment based on its estimate of the expected consolidation outcomes for the year. When varying as a result of consolidation, use the special variation code 33 on the consolidated activity statement.

      Last modified: 17 Nov 2017QC 16159