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  • Starting PAYG instalments

    You use pay as you go (PAYG) instalments to make regular prepayments of the tax on your business and investment income.

    You may automatically enter the PAYG instalments system when you earn business or investment income, or you can voluntarily start PAYG instalments.

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    Using PAYG instalments to manage your tax

    Whether you run your own business or earn investment income, planning ahead for your income tax is important to help you keep a healthy cash flow.

    PAYG instalments help you do this. This is how it works:

    1. You enter the PAYG instalments system. We may enter you automatically, or you can ask to be entered.
    2. You make regular payments (instalments) during the year, usually once every 3 months. The amount you pay is based on your business and investment income.
    3. When you lodge your tax return, the PAYG instalments you have paid during the year are offset against your tax, leaving you with little or no tax to pay.

    PAYG instalments are different to PAYG withholding. With PAYG withholding, employers collect tax from the payments they make to their employees, and send it to the ATO, so employees do not have a big tax bill at the end of the year.

    Automatic entry to PAYG instalments

    If you lodge a tax return with instalment income above the entry threshold, we may contact you about paying PAYG instalments.

    Entry thresholds

    We work out whether you need to pay PAYG instalments based on information you reported in your latest tax return.

    One of the things we look at is your instalment income. This is your gross business and investment income, excluding GST and any capital gains.

    If you are an individual (including a sole trader) or trust, you will automatically enter the PAYG instalments system if you have all of the following:

    • instalment income from your latest tax return of $4,000 or more
    • tax payable on your latest notice of assessment of $1,000 or more, and
    • estimated (notional) tax of $500 or more.

    A company or super fund will automatically enter the PAYG instalments system if any of the following apply:

    • it has instalment income from its latest tax return of $2 million or more
    • it has estimated (notional) tax of $500 or more, or
    • it is the head company of a consolidated group.

    How you start paying instalments

    We will let you know when you have entered the PAYG instalments system.

    • If you are registered for myGov with a linked ATO account, you will receive a letter in your myGov Inbox.
    • If you have Online services for business, or Standard Business Reporting software, you will receive your instalment information 21 days before the due date.
    • If none of the above applies, you will receive a paper letter in the mail.

    If we have your phone number we will also remind you via SMS.

    When we contact you, we will let you know:

    • when to pay
    • how often to pay – this depends on your circumstances, but most people pay quarterly
    • how much to pay, including your options for calculating your instalments.

    You will start making payments once we send you an activity statement or instalment notice.

    Voluntary entry to PAYG instalments

    If you are new to business, or you think you will make a profit from your business or investment income, it's a good idea to voluntarily enter PAYG instalments.

    Prepaying your tax through PAYG instalments will help you smooth out your cashflow and avoid a large tax bill when you lodge your tax return.

    This video shows how you can start voluntarily paying instalments.

    Media: [Voluntary registration for PAYG instalments]
    http://tv.ato.gov.au/ato-tv/media?v=bd1bdiubtf8ncqExternal Link (Duration: 06:23)

    How to start voluntary PAYG instalments

    To get started with voluntary PAYG instalments:

    1. Estimate the amount of tax to pay
    2. Make a request to enter the PAYG instalments system
    3. Pay your instalments

    Step 1: Estimate the amount of tax to pay

    You need to estimate your annual business and investment income, and your allowable tax deductions, so you can work out the amount of tax to pay by instalments.

    To do this you can use the PAYG instalments calculator.

    PAYG instalments calculator

    If you prefer, you can manually estimate the tax on your instalment income.

    Once you have worked out your PAYG instalment amount, you can work out how much money to put aside to cover your tax instalments.

    How often you pay depends on your circumstances.

    Example: estimating PAYG instalments

    Danielle runs a business as a sole trader. She estimates she will earn business income of $100,000 for the financial year, with allowable business tax deductions of $10,000.

    Danielle uses the PAYG instalments individuals calculator and enters her:

    • estimated business income of $100,000
    • estimated taxable income of $90,000 (business income less business tax deductions).

    The calculator estimates her PAYG instalment amount to be $20,437 per year.

    Danielle divides her estimated instalment amount by 52 to work out how much to put aside each week for PAYG instalments: $20,437 ÷ 52 weeks = $393.02

    When she receives her quarterly business activity statement (BAS), Danielle has enough money put aside to pay her PAYG instalment for the quarter.

    When she lodges her tax return, the PAYG instalments she has paid throughout the year will be offset against her tax liability, meaning she has little or no extra tax to pay.

    End of example

    Step 2: Make a request to enter the PAYG instalments system

    Individuals, including sole traders

    If you are an individual taxpayer or sole trader, you can make a request to start PAYG instalments using your myGov account linked to the ATO's Online services.

    Select Tax > Manage > Enter PAYG instalments.

    Sign in to myGov (individuals and sole traders)
    Individuals and businesses

    You can request voluntary entry through your registered tax agent or by phone:

    • 13 28 66 for businesses
    • 13 28 61 for individuals not in business.

    If you or your agent phones us, we will ask a few questions about your circumstances.

    Step 3: Pay your instalments

    Once you have entered the PAYG instalments system, you will receive activity statements or instalment notices showing your instalment rate or amount.

    You can view, manage and pay your instalments online.

    Sign in to myGov (individuals and sole traders)Log in to Online services for business

    Make sure you pay your instalments by the due date.

    If you think you might end up paying too much (or too little) for the year you can vary your PAYG instalments.

    Last modified: 09 Mar 2022QC 45456