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  • Getting your PAYG instalments right

    It's important to get your pay as you go (PAYG) instalments right. Calculating and paying the right amount will help you keep a healthy cash flow and avoid interest and penalties.

    We have identified some common errors made when reporting PAYG instalments on activity statements. Here are some tips to help you get it right.

    On this page:

    Reporting all your instalment income

    If you pay your instalments using 'Option 2 instalment rate', you need to work out your instalment income and enter this on your activity statement (at T1).

    If you don’t report all of your instalment income, you may be liable for a penalty for making a false or misleading statement.

    If you have made a mistake reporting your instalment income, you can correct it by revising your activity statement before lodging your tax return.

    Include all your instalment income

    Make sure you include all your instalment income on your activity statement.

    Instalment income includes:

    • gross rent
    • dividends paid or reinvested on your behalf (do not include imputation credits)
    • royalties
    • foreign pensions that are assessable in Australia
    • your proportion of any partnership or trust income
    • foreign income
    • interest received or credited to an account
    • gross sales (excluding GST component)
    • gross fees for services (excluding GST component)
    • income earned from the sale of goods or services you sell or supply
    • gross amount of income where tax has been withheld because you did not provide your tax file number (TFN) or Australian business number (ABN)
    • withdrawals from farm management deposits – if you make a farm management deposit, your instalment income for that period is reduced
    • fuel tax credits
    • capital gains (only if you are a superannuation fund or self-managed super fund).

    Do not include any of the following as instalment income:

    • GST, wine equalisation tax (WET) or luxury car tax (LCT) you collected
    • GST credits
    • any income – such as salary, wages or income subject to a PAYG voluntary agreement – where amounts have been withheld or should have been withheld (other than income that an amount has been withheld from because you did not provide your TFN or ABN)
    • loans received
    • owner's capital
    • grants under the energy grants credits scheme, including the fuel sales grant, the product stewardship (oil) benefit and the cleaner fuels grant scheme
    • capital gains (except if you are a superannuation fund or self-managed super fund)
    • amounts transferred between accounts
    • imputation (franking) credits.

    Report your gross instalment income

    Your instalment rate is calculated using gross income. Make sure you include your gross instalment income (not your net income, taxable income or income reduced by any deductions) on your activity statement at T1 'PAYG instalment income'.

    Report instalment income even when you have a nil instalment rate

    You need to report your gross instalment income on your activity statement, even if your instalment rate (at T2) is nil.

    Monthly GST payers who report PAYG instalments quarterly

    If you pay your PAYG instalments quarterly and your GST monthly, make sure you calculate your gross instalment income for the full quarter and report this at T1 'PAYG instalment income' on your activity statement.

    Varying your instalments

    If your financial circumstances change, you may need to vary your instalment rate or amount on your activity statement.

    You can only vary your most recently issued activity statement; you cannot vary previous activity statements.

    If your variation is too low, you may be liable for a general interest charge (GIC).

    Next step:

    Vary your instalment rate, not your instalment income

    If you pay your instalments by 'Option 2 – instalment rate', you need to vary your instalment rate, not your instalment income.

    Vary your instalment amount correctly

    If you pay by 'Option 1 – instalment amount', remember that your quarterly instalment is an equal portion of your expected annual tax liability, so only vary your amount if your total business or investment income for the year changes.

    If you need to change your instalment amount regularly because your business or investment income fluctuates throughout the year, you may wish to choose to pay by 'Option 2 – instalment rate' on your first activity statement in the next financial year.

    See also:

    Last modified: 05 Apr 2018QC 52879