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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
    • avoid interest and penalties.

    Here are some key tips to help you correctly calculate and report your PAYG instalments on your activity statements.

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    Reporting all your instalment income

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

    Include all instalment income on your activity statement

    It’s important you include all the instalment income you earned from your business and/or investment activities for the quarter. This includes all ordinary income you earned (excluding GST). See PAYG instalment income – T1 for a list of what you need to include.

    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 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.

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

    See also:

    Report your gross instalment income

    Include your gross instalment income at T1 on your activity statement. Do not report your:

    • net income
    • taxable income
    • income reduced by any deductions.

    When your instalment rate is zero

    Even if your instalment rate at T2 is zero, you still need to report your gross instalment income at T1 on your activity statement.

    Monthly GST payers who report quarterly PAYG instalments

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

    Varying your instalments

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

    When you vary your instalments it's important not to underestimate your PAYG instalment amount, income or rate. We compare your instalments to the total tax payable on your instalment income for the financial year. If the value of your varied instalments is less than 85% of that total, you may be subject to a general interest charge (GIC) on the difference, as well as penalties

    You can use the PAYG instalment calculator to help you work out your instalments and variation.

    Vary your instalment amount correctly

    If you pay using the instalment amount (option 1), you only need to vary if your total instalment income changes for the year.

    If you change your instalment amount regularly because your instalment income fluctuates throughout the year, you may wish to pay using the instalment rate (option 2). You can select this option on the first activity statement of next financial year.

    Vary your instalment rate, not your instalment income

    If you pay your instalments using the instalment rate (option 2), you need to vary your instalment rate, not your instalment income.

    See also:

    Estimating the tax on your instalment income

    When you vary your instalment rate, you'll need to estimate the tax on your instalment income. You can do this using the PAYG instalments calculator or the information below.

    If your instalment income for the year will be zero, you can vary your instalment rate to zero. You do not need to estimate your tax to do this.

    Calculating estimated taxable income

    Your estimated taxable income is your estimated income minus your estimated allowable deductions.

    Estimated income

    When you are estimating your income, include all your estimated gross income, such as:

    • salary, wages or allowances
    • payments made under a labour hire arrangement
    • payments subject to voluntary withholding agreements
    • personal services income attributed to you
    • income from a business (not subject to voluntary agreements)
    • Australian government allowances
    • Australian government pensions
    • assessable foreign income including pensions and annuities
    • interest
    • dividends
    • franking credits
    • partnership distributions
    • trust distributions
    • other assessable income.

    Do not include:

    • net capital gains – These are not included as they are generally one-off payments that you will not receive in the next income year. However, if you are a super fund or self-managed super fund these do need to be included.
    • exempt income – such as the family tax benefit or child care benefit payments.

    Estimated allowable deductions

    When you are estimating your allowable deductions, include:

    • work-related expenses
    • business expenses
    • interest and dividend deductions
    • gifts or donations
    • the deductible amount of an un-deducted purchase price of an Australian pension or annuity
    • the cost of managing tax affairs
    • tax losses of earlier income years
    • other allowable deductions.

    Calculating estimated tax on instalment income

    Use this method to calculate estimated tax on instalment income:

    1. Tax on estimated taxable income
    2. minus estimated tax offsets (other than refundable tax offsets)
    3. equals estimated net tax payable before applying foreign income tax offset and Medicare levy (if negative use zero)
    4. plus estimated Medicare levy
    5. plus estimated Higher Education Loan Program (HELP) repayment
    6. plus estimated Compulsory Financial Supplement repayment
    7. plus estimated Trade Support Loan (TSL) repayment
    8. minus estimated refundable tax offset
    9. minus estimated foreign income tax offset
    10. minus estimated tax credits
    11. equals estimated tax on instalment income.

    Tax on estimated taxable income

    Apply the current tax rates (linked below) to your estimated taxable income.

    See also:

    Tax offsets (other than refundable tax offsets)

    Tax offsets are not deductions. Deductions are subtracted from your income to work out your taxable income. The tax on that taxable income is then reduced by your tax offsets.

    If your tax offsets are greater than the tax on your assessed taxable income, you can generally only use them to reduce the amount of tax on your taxable income to zero. Some tax offsets are refundable.

    Generally, tax offsets – with the exception of the foreign income tax offset – do not reduce your liability to pay the Medicare levy. We work out the Medicare levy based on your estimated taxable income.

    These tax offsets will not reduce your estimated tax on instalment income. They are only taken into account when we assess your tax return. You should not vary the amount of your PAYG instalment for these tax offsets.

    You will not be able to work out your foreign income tax offset if you estimate either a capital gain or exempt foreign employment income. If you expect to receive any of these, contact us for assistance.

    Tax offsets you can include:

    • super contributions, annuity and pension (except contributions made on behalf of your spouse)
    • zone or overseas forces
    • low and middle income tax offset
    • seniors and pensioners tax offset
    • invalid and invalid carer tax offset
    • beneficiary tax offset
    • net medical expenses tax offset
    • employment termination payment tax offset
    • life assurance bonus tax offset
    • other tax offsets.

    Tax offsets you can't include:

    • franking deficit tax offset
    • private health insurance tax offset
    • child care tax offset
    • low income earners tax offset
    • early stage investors tax offset
    • exploration development incentive tax offset
    • offset for Medicare levy surcharge (lump sum payment in arrears)
    • the super tax offset for contributions made on behalf of your spouse.

    See also:

    Net tax payable before applying foreign income tax offset and Medicare levy

    Your estimated net tax payable is the tax on your estimated taxable income minus your estimated tax offsets.

    If this is a negative amount, your estimated net tax payable will be zero. This is because only the foreign income tax offset and refundable tax offsets can reduce your Medicare levy or compulsory HELP or Financial Supplement repayments.

    If you are entitled to claim an amount of foreign income tax offset, you can use that offset to reduce any net tax payable remaining after applying all your other non-refundable tax offsets, and also reduce your liability to pay the Medicare levy.

    Medicare levy

    Your estimated Medicare levy can be worked out by multiplying your estimated taxable income by 2%.

    Do not include extra amounts payable under the Medicare levy surcharge.

    You may be exempt from paying the Medicare levy or be eligible to pay a reduced amount of Medicare levy. Contact us if you think you may be exempt or eligible to pay a reduced amount.

    Net tax payable after applying Medicare levy and foreign income tax offset

    This is your estimated net tax payable after applying all your non-refundable tax offsets and the Medicare levy.

    If this is a negative amount, your estimated net tax payable will be zero.

    Compulsory HELP, SFSS or TSL repayment

    This item applies to you if you have to repay amounts under the Higher Education Loan Program (HELP), Student Financial Supplement Scheme (SFSS) or Trade Support Loan (TSL).

    If your estimated repayment income is above the minimum repayment threshold, your estimated tax may include an amount for you to pay toward your HELP, SFSS and TSL liability.

    Repayment income is calculated using your:

    • taxable income
    • reportable fringe benefits amounts (as shown on your payment summary)
    • total net investment loss (which includes net rental losses)
    • reportable super contributions
    • any exempt foreign employment income amounts.

    We will only calculate one compulsory repayment for HELP, SFSS and TSL based on your accumulated debt at the time we make the assessment.

    You will not have to make a compulsory repayment for HELP, SFSS or TSL if you have a spouse or dependants and if, due to low family income, you either:

    • are entitled to a reduction of your Medicare levy
    • do not have to pay the Medicare levy.

    To calculate your estimated compulsory repayment refer to the HELP repayment, Financial Supplement repayment and Trade Support Loan thresholds and rates.

    Refundable tax offset

    If you have refundable tax offsets, they can be applied against your Medicare levy, HELP or Financial Supplement debt liabilities. Any excess amounts will be refunded to you after we have assessed your return.

    Refundable tax offsets include the franking credit tax offset.

    Do not include the private health insurance rebate tax offset.

    Tax credits

    These items include amounts that you estimate will be withheld from payments made to you, such as:

    • salary or wages
    • payments subject to voluntary agreements
    • payments made under a labour hire arrangement
    • personal services income attributed to you
    • investments where you have not supplied a TFN
    • sales or services you have provided where you have not quoted an ABN.

    Tax on instalment income

    If this amount is a negative figure, your estimated tax is zero.

    See also:

    Last modified: 26 Jul 2019QC 52879