• 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 in box 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 in box 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 the worksheet 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 x 100 = xx.xx
    estimated instalment income for the year

    Example 2

    Harmander is a sole trader. We have calculated his instalment rate 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 that 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 x 100 = 12.27%

    $82,480

    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 the below table to work out the amount you may be entitled to claim.

    Previous instalment credit worksheet

    Step 4.1

    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 in box 5A on your previous activity statements for the income year.

    Previous instalments $

     

    Step 4.2

    Add up any credits you have claimed for the income year. These are the amounts you have recorded in box 5B on your previous activity statements for the income year.

    minus Previous credits $

     

    Step 4.3

    Subtract the amount at step 4.2 from the amount at step 4.1.

     

    equals = Net previous instalments $

    Step 4.4

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

     

     

    Step 4.5

    Write down your varied instalment rate (this is the rate you worked out at step 4.4).

    Previous instalment income $   times Varied instalment rate %

     

    Step 4.6

    Multiply the amount at step 4.4 by the varied instalment rate at step 4.5.

     

    equals = Previous instalments at varied rate $

    Step 4.7

    Subtract the amount at step 4.6 from the amount at step 4.3. If the result is a positive amount, this is the amount of the credit you can claim.

     

    Net previous instalments – minus Previous instalments at varied rate equals = Credit (if any) +/− $

    Example 3

    Tom is a sole trader and his notified rate is 16%. He has an instalment income for the first quarter (1July 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 previous instalment credit worksheet (step 5) Tom completes his worksheet as follows:

    Step 4.1 $7,680 ($4,800 + $2,880)

    Step 4.2 $ NIL

    Step 4.3 $7,680

    Step 4.4 $48,000 ($30,000 + $18,000)

    Step 4.5 12%

    Step 4.6 $48,000 x 12% = $5,760

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

    End of example

    Step 5 Complete your activity statement

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

    You can also go online and use the business portal to revise, print and list previous activity statements, check accounts, update business registration details and send secure messages. You will also receive instant confirmation that you have lodged. Going online is the fast, convenient and secure way to do business with us.

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      Last modified: 18 Apr 2017QC 16159