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  • Additional method of calculating monthly PAYG instalments

    If you pay your pay as you go (PAYG) instalments on a monthly basis, you may be able to use the simple 'additional method' for working out your instalments.

    This method is designed to save you time because you:

    • estimate your instalment income for the first two months of every quarter
    • work out your instalment income in the third month, then pay the balance remaining.

    This method may not be suitable for entities that receive large, infrequent but cyclical amounts of instalment income, such as life insurance companies that receive large distributions from resident unit trusts. We accept that these entities can modify the approach to account for these unusual distributions of their income.

    Find out about:

    When to use the additional method

    Who can use the method and when they should apply it varies.

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    Who needs to pay monthly instalments

    We will let you know if you meet the eligibility criteria to pay monthly instalments.

    New monthly instalment payers

    If you are a new monthly payer you can use the additional method in either:

    • the first month of the first instalment quarter in which you become a monthly payer
    • the first month of the second instalment quarter after you become a monthly payer.

    This allows you time to change over to the new reporting and payment cycle, for example, if you have to begin paying monthly instalments part way through an instalment quarter.

    Existing monthly payers

    If you already pay your instalments monthly, you can use the additional method from the first month of your income year.

    You must then continue to use this method for the remainder of the income year.

    Leaving a consolidated group

    If, after you leave a consolidated group, you become a monthly payer from the beginning of:

    • the first month in a quarter – you can use the additional method.
    • the second month in a quarter – you must calculate your actual instalment income for each month remaining in the quarter. You can then use the additional method from the beginning of the next quarter.

    See also:

    How to use the additional method

    Make sure you apply the additional method correctly.

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    Recording your use of the additional method

    If you use the additional method, you don't need to formally notify us – just keep a record of:

    • your decision
    • how you applied the additional method to obtain your estimated instalments.

    Working out your instalments using the additional method

    If you use the additional method, you don't need to work out your actual instalment income every month. Instead:

    • For the first two months of each instalment quarter you:
      • make a reasonable estimate of your instalment income
      • multiply this by your instalment rate to work out your monthly instalment.
       
    • In the third month of each instalment quarter you:
      • work out your total instalment income for the quarter
      • subtract the estimates you worked out in the first two months
      • multiply the balance by your instalment rate to work out your monthly instalment.
       

    Reasonable estimate

    We don't specify how you should estimate your monthly instalment income. However, if you use one-third of the actual instalment income for the previous quarter we accept this as a reasonable estimate, as long as you use it consistently within an income year.

    Example 1: Calculating instalments using the additional method

    Company ABC is required to make PAYG instalments on a monthly basis. They become a monthly payer in January 2019.

    The company decides to use the additional method to work out their monthly instalment and has recorded that decision.

    In December 2018, their:

    • quarterly instalment income is $300,000,000
    • instalment rate is 14%.

    ABC estimates their monthly instalment income as $100,000,000, which is one-third of $300,000,000. Therefore, their PAYG instalment amount for January will be $100,000,000 multiplied by 14%, which is $14,000,000.

    For February, their estimated monthly instalment income is again $100,000,000. As the instalment rate has not changed, their monthly instalment amount will again be $14,000,000.

    At the end of the quarter, Company ABC works out that their actual instalment income was $270,000,000. To work out their March 2019 instalment, they take the actual instalment income for the quarter ($270,000,000) and subtract the income estimate amounts used in the previous two months ($200,000,000), leaving a balance of $70,000,000. They multiply this by their instalment rate of 14%, which works out as $9,800,000 that they must pay for the third month.

    End of example

    If the instalment for the third month is negative

    You can't apply for a refund if the instalment that you work out for the third month of a quarter is negative. Instead, you’ll need to revise your instalment income for the previous month or months, starting with the most recent month.

    You can do this by lodging a revised activity statement for the applicable month or months.

    Example 1 continued: Calculating instalments using the additional method

    Company ABC’s actual instalment income for the January to March 2019 quarter was $170,000,000. However, in both January and February they estimated $100,000,000 in instalment income ($200,000,000 in total). This means they have overstated their instalment income by $30,000,000.

    Therefore they:

    • report their instalment income for March 2019 as zero
    • lodge a revised activity statement for February 2019 in which they record their instalment income for the month as $70,000,000 (down from $100,000,000).
    End of example

     

    Example 2: Using the additional method after leaving a consolidated group

    Company XYZ is the head company of a consolidated group and a monthly payer. Company EFG:

    • ceases to be a subsidiary member of the Company XYZ consolidated group at the end of January 2019
    • becomes a monthly payer from the beginning of February 2019
    • is an entity with a 30 June balancing date.

    For February and March 2019, Company EFG must calculate its actual instalment income to determine its instalments. From April 2019, company EFG can use the additional method to determine its instalments for the rest of the income year. It does not need to wait until the commencement of their new income year in July to apply the additional method.

    End of example

    See also:

    Varying your instalment rate

    If you choose to use the additional method you can still vary your instalment rate in any month.

    See also:

    Incorrect use of the method

    We can require you to calculate your actual instalment income if you:

    • fail to make a reasonable estimate
    • use the additional method for periods when you are not eligible.

    If you use the additional method and consistently report lower instalment income in the first two months of the instalment quarter compared to the third month, we may review your estimates and request information to check that you have correctly applied the additional method.

    See also:

      Last modified: 26 Jul 2019QC 38237