• ## 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 printed 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.

### Step 1: Decide whether you want to vary

There is no need to vary just because your income has gone up or down since your last tax assessment. The instalment rate is a percentage, so the amount you pay will go up or down with your income level. For example, if your business and/or investment income for the quarter is zero, the amount you pay will also be zero, regardless of your instalment rate.

Usually you would vary your instalment rate only if there is a change in the proportion of your business and/or investment income that will be paid as tax. For example, you expect to have a much higher proportion of deductions this year for your business or investment income. If you are not sure, use the worksheet to estimate the tax on your business and/or investment income.

If you vary your instalment rate, continue to use the varied rate for each new quarter in the income year, unless you choose another rate for a later quarter. Your varied rate will not, however, carry over to the next income year.

You can use our PAYG instalments calculator to work out work whether you need to vary or not.

Next step:

### Step 2: 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:

Next steps:

### Step 4: Work out your varied instalment rate

To work out your varied instalment rate as a percentage (to two decimal places), divide your estimated tax (step 3,) by your estimated income (step 2), and multiply by 100.

The formula looks like this:

estimated income tax for the year (step 3)        x  100 = xx.xx
estimated instalment income for the year (step 2)

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:

• the tax attributable to that income (excluding capital gains) for the year.
End of example

### Step 5: 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, go to step 6.

You may be entitled to a credit if the varied instalment rate at step 4 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, go straight to step 6.

If you think you may be entitled to a credit and want to claim it in your activity statement, use steps 5.1 to 5.7 to work out the amount you may be entitled to claim.

Previous instalment credit worksheet

 Step 5.1 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 5.2 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 5.3 Subtract the amount at step 5.2 from the amount at step 5.1. equals = Net previous instalments \$ Step 5.4 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 5.5 Write down your varied instalment rate (this is the rate you worked out at step 4). Previous instalment income \$   times Varied instalment rate % Step 5.6 Multiply the amount at step 5.4 by the varied instalment rate at step 5.5. equals = Previous instalments at varied rate \$ Step 5.7 Subtract the amount at step 5.6 from the amount at step 5.3. If the result is a positive amount, this is the amount of the credit you can claim. Go to step 6. 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 5.1 \$7,680 (\$4,800 + \$2,880)

Step 5.2 \$ NIL

Step 5.3 \$7,680

Step 5.4 \$48,000 (\$30,000 + \$18,000)

Step 5.5 12%

Step 5.6 \$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 6: Complete your activity statement

• Write your quarterly instalment income at T1.
• Write your varied instalment rate (from step 4) 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 (see the list of reason codes on the next page) ). Do not leave T4 blank.
• If you wish to claim a credit for one or more previous instalments (step 5), 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 7: 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.

Next step:

## Variation reason codes

When you vary a PAYG instalment on an activity statement or instalment notice, you must write a reason code in box T4.

Choose the reason that best describes why you decided to vary your instalment amount or rate from the following list.

Table D: 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

23

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

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.

Generally, instalment income is your gross business and/or investment income. Examples of instalment income include:

• gross sales
• gross fees for services
• interest received or credited to a bank account
• gross rent
• royalties.

Your instalment income for the year includes:

• all the ordinary income you earn from your business and/or investment activities
• your proportion of any partnership income
• your proportion of any trust income
• assessable foreign pensions
• income that an amount has been withheld from because you did not provide your tax file number (TFN) or Australian business number (ABN)
• any amount you withdrew from a farm management deposit
• fuel tax credits.

Instalment income does not include:

• GST, wine equalisation tax or luxury car tax you charge your customers, clients or tenants
• any income such as salary and wages, where amounts have been withheld or should have been withheld under the PAYG withholding system (except income where amounts have been withheld because you did not provide your TFN or ABN)
• any imputation credit recorded on a dividend statement
• any amount that is only deemed to be a dividend under a specific provision of the income tax laws
• capital gains
• exempt income
• payments made and non-cash benefits provided in relation to the national rental Affordability Scheme
• grants under the energy grants credits scheme including the fuel sales grant, the product stewardship (oil) benefit and the cleaner fuels grant scheme.

If you are a beneficiary of a trust or in a partnership, there are special rules for working out the amount to include in your instalment income for each quarter.