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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.

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    Reporting all your instalment income

    If you don’t report all of your instalment income on your activity statement, 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 sales (excluding GST)
    • gross fees for services (excluding GST)
    • interest received or credited to your bank account
    • 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
    • fuel tax credits
    • gross income where tax has been withheld because you did not provide your tax file number or Australian business number
    • withdrawals from farm management deposits (if you make a farm management deposit, your instalment income for that period is reduced)
    • taxation of financial arrangements (TOFA) made up of total TOFA gains less TOFA losses (but only include if this is a positive amount).

    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, 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 use our PAYG instalment calculator to help you work it out.

    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).

    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 and/or investment income for the year changes.

    If you need to change your instalment amount regularly because your business and/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: 12 Jul 2017QC 52879