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  • Reasonable PAYG instalment rates

    We calculate your instalment rate using your most recently lodged income tax return.

    At times, this calculation can produce a high instalment rate which may not reflect your circumstances. If your instalment rate is high, this may be because:

    • you received employee share scheme income
    • you reported a HECS/HELP debt in your last income tax return
    • you have reported income at the wrong label in your last income tax return
    • your return is amended to include excess superannuation contributions.

    While this calculation is correct, you've told us this can be confusing. From 1 July 2017, if your calculated instalment rate exceeds your highest applicable income tax rate, we will automatically adjust it to a more reasonable rate (see table below).

    How your instalment rate is calculated

    Your PAYG instalment rate is calculated as follows:

    1. Notional tax is divided by base assessment instalment income.
    2. The result is multiplied by 100.
    3. The instalment rate is expressed as a percentage.
    4. If the instalment rate exceeds the highest applicable income tax rate (depending on your entity type), it is adjusted to a reasonable rate (see table below). This rate will appear on your activity statement.

    Note:

    • Notional tax is the estimated tax payable on business and/or investment income (or non-withholding income) for the next financial year, based on income reported for the last financial year.
    • Base assessment instalment income is business and/or investment income not including statutory income based on the income reported for the last financial year.
    Table 1

    Entity type

    Reasonable rate

    Individuals (including sole traders)

    55%

    Trusts

    55%

    Superannuation funds and self-managed superannuation funds

    45%

    Corporate tax entities

    30%

    What you can do

    You can vary your instalment rate if you or your agent believe it is still too high (or too low). For example, if your financial circumstances have changed.

    Next step:

    Example: High rate due to employee share scheme income

    John lodges his income tax return and includes income at the following employee share scheme labels.

    12 Employee share schemes

    • Discount from taxed upfront schemes – not eligible for reduction (label 12E): $1,250 (this is ordinary income and included in base assessment instalment income).
    • Discount from deferral schemes (label F): $49,850 (this is statutory income and not included in the base assessment instalment income, but it is included in the notional tax calculation).

    John's taxable income is $95,250 including $41,250 in salary and wages, $1,500 in unfranked dividends and interest of $1,400.

    John’s notional tax is $19,316. His base assessment instalment income is $4,150, made up as follows:

    • Dividends – unfranked amount ($1,500)
    • Interest ($1,400)
    • Discount from taxed upfront schemes – not eligible for reduction ($1,250).

    John’s rate calculation:

    His notional tax ($19,316) is divided by his base assessment instalment income ($4,150). The result is then multiplied by 100.

    His instalment rate would be calculated as 465%, which we will adjust to a reasonable rate of 55%. This reasonable rate will appear on his activity statement.

    What can John do?

    If his adjusted rate is still too high, John can vary it to better reflect the expected tax liability on his instalment income.

    End of example
    Last modified: 30 Jun 2017QC 45461