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  • Introduction to annual PAYG instalments

    Overview

    This fact sheet explains the annual pay as you go (PAYG) instalment option.

    PAYG instalments is a system for paying instalments towards your expected tax liability on your business and investment income for the current income year.

    Your actual tax liability is worked out when your annual income tax return is assessed. Your PAYG instalments for the year are credited against your assessed tax to determine whether you owe more tax or are owed a refund.

    PAYG instalments are generally paid four times a year (quarterly). Some taxpayers pay two instalments a year, and some are eligible to make a payment using an annual instalment option.

    If you have to pay PAYG instalments, we will write and tell you.

    Attention

    The dates in this fact sheet are for people whose financial year ends on 30 June. If you have been granted a substituted accounting period (SAP), the due dates to lodge and pay your PAYG instalment notice will be different.

    End of attention

    Am I eligible to pay my instalments annually?

    The annual instalment is a single, lump sum payment of your PAYG liability for the year. You may be eligible to pay using the annual instalment option if, at the end of your first instalment quarter in the income year, you meet the following criteria:

    • your most recent notional tax# as advised by the ATO is less than $8,000
    • you are registered for the goods and services tax (GST), and you report and pay GST annually
    • you are a partner in a partnership registered for the GST, and the partnership reports and pays GST annually
    • in the case of a company, you are not part of an instalment group*, a participant in a GST joint venture, or a head company of a consolidated group.

    If our records indicate that you meet these criteria, we will write to you advising you how to select the annual payment option.

    # Generally speaking, notional tax is the tax that would have been payable on your business and investment income (excluding capital gains) in your latest income tax assessment based on current income tax rates. We notify you of this amount.

    * An instalment group is a group of companies controlled by a head company, unlike consolidated groups, which can include trusts/partnerships as well as companies.

    How do I elect to make annual instalments?

    If you are eligible to pay annually and wish to do so, you must advise us by the date on which your first quarterly instalment would otherwise be due. If you don't advise us by the due date, you must continue to pay quarterly instalments.

    If you choose to take up the annual payment option, this will continue for future years, unless you no longer meet the eligibility criteria or you advise us that you no longer wish to pay annually. Usually, you cannot change payment options during the year but you can change to quarterly or annual payments for the next income year.

    If you want to choose to pay annually, you can do this by using the interactive voice response (IVR) self help services - phone 13 72 26 and follow the verbal prompts.

    If your request is successful, you will receive a letter confirming that your choice has been accepted. This letter will be sent to the same postal address used for the delivery of your activity statements/instalment notices.

    If your request is unsuccessful, you may be transferred to an operator who will ask you for further information.

    Attention

    The IVR self-help applications in the ATO enable you to enter into self-service arrangements on various tax matters by phone. The applications aim to provide you with faster, easier, and more personalised help with your enquiries.

    Where you are using a self-help service, you must provide some proof of identity, including your tax file number (TFN) and/or an Australian business number (ABN).

    End of attention

    What do I receive once I choose to go annual?

    Most taxpayers that choose to pay an annual instalment will receive an annual PAYG instalment notice. This notice will be sent to the same postal address used for the delivery of your activity statements/instalment notices. In some cases this may be the address of your registered agent.

    However, there are some taxpayers who are not required to pay an annual instalment, even though they have elected to do so. If you are not required to pay an annual instalment, we will write and tell you.

    If you are required to pay an annual PAYG instalment, you or your registered agent should receive an instalment notice in early July. This gives you an opportunity to lodge and pay your annual instalment before you lodge your income tax return.

    When are annual PAYG instalments due?

    You must lodge and pay your annual PAYG instalment by 21 October.

    What are the annual PAYG instalment options?

    You have three options for paying your annual PAYG instalment:

    • pay an amount calculated by us
    • vary the amount calculated by us
    • work out your own instalment, using the instalment rate provided.

    How do I pay an amount calculated by the ATO?

    The PAYG instalment amount calculated by the ATO is shown at label T5 on your annual PAYG instalment notice. This amount is based on the income tax payable on your business and investment income shown in your most recent income tax return.

    If you choose this option, simply pay the amount using one of the payment options described on your annual PAYG instalment notice. You do not need to lodge your instalment notice - keep it with your records.

    How do I vary the amount calculated by the ATO?

    You can vary your annual PAYG instalment amount if your situation has changed since your last income tax return and you believe that paying the amount calculated by us will result in you paying more, or less, than your actual income tax liability for the year.

    To use this option, you must reliably estimate the tax payable on your business and investment income for the year.

    If you choose this option, you must complete labels T6, T4 and 5A on the back of your annual PAYG instalment notice and return it to us before you lodge your income tax return or by 21 October, whichever is earlier. You will also need to pay your varied amount by 21 October.

    Attention

    You may be liable to the general interest charge (GIC) if you vary your PAYG instalment amount down, and end up paying less than 85% of the actual tax payable on your business and investment income.

    End of attention

    Calculate the amount using the instalment rate

    You can pay an amount based on your actual business and investment income by calculating your annual liability using the instalment rate provided.

    The instalment rate is calculated from your last assessed income tax return, and is an accurate approximation of the income tax payable on your business and investment income for this assessment period.

    If you choose this option, you will need to complete labels T1, T2, T11 and 5A on the back of your annual PAYG instalment notice and return it to us before you lodge your annual income tax return or by 21 October, whichever is earlier. You will need to pay the instalment amount by 21 October.

    General interest charge

    You may be liable to pay the general interest charge (GIC) if you vary your PAYG instalment amount and end up paying less than 85% of the actual tax that you should have paid on your business and investment income for that income year.

    Further Information

    For more information on the GIC, refer to About penalties and interest charges.

    End of further information

    Credit for annual PAYG instalment

    Your annual PAYG instalment will be credited against your income tax return to determine whether you owe more tax or are owed a refund.

    If you pay your annual PAYG instalment before you lodge your income tax return, you will receive the correct amount of PAYG instalment credit when your income tax return is assessed. This will minimise the need for us to contact you about your tax affairs.

    If your annual PAYG instalment is outstanding when you lodge your income tax return, you will receive credit for the amount notified at label T5 on your annual PAYG instalment notice. However, in most circumstances you will still be required to pay your annual PAYG instalment amount by 21 October.

    What if I have already lodged my income tax return?

    As the due date for the annual instalment is almost four months after the end of the income year, you may already have lodged your income tax return before finalising your annual PAYG instalment.

    You are entitled to a credit for your annual PAYG instalment in your income tax assessment - regardless of whether or not you have paid the instalment amount owing.

    If you lodge your income tax return before finalising your annual PAYG instalment, you will receive credit for the PAYG instalment amount at label T5 on your annual PAYG instalment. This credit appears on your notice of assessment. The obligation to pay the annual PAYG instalment liability by the due date remains. GIC will apply to any amount not paid by the due date.

    Attention

    If you have already lodged your income tax return, do not vary your annual PAYG instalment amount to equal your assessed tax.

    End of attention

    Do I need to update my address?

    You can elect to have different postal addresses for some of your dealings with us. For example, your postal address for income tax purposes may be different to that for activity statement/instalment notice purposes.

    Lodging your income tax return will automatically keep your income tax address up-to-date but will not automatically update other addresses.

    To update your address for receiving activity statements/instalment notices, you can phone the business help line on 13 28 66.

    More information

    If you need more information about annual PAYG instalments, you can:

    • visit our website
    • phone 13 28 66 between 8.00am and 6.00pm, Monday to Friday
    • write to us at

    Australian Taxation Office
    PO Box 1032
    ALBURY  NSW  2640

    If you do not speak English well and want to talk to a tax officer, phone the Translating and Interpreting Service on 13 14 50 for help with your call.

    If you have a hearing or speech impairment and use a TTY or modem, phone the National Relay Service on 13 36 77.

    If you have a speech impairment and do not use a TTY or modem, phone the Speech to Speech Relay Service on 1300 555 727.

    • Last modified: 04 Jan 2012QC 17558