• Additional method for monthly PAYG instalments

    If you pay your PAYG instalments on a monthly basis, you may be entitled to use the additional simplified method for calculating your instalments. This method is designed to reduce the cost of calculating instalments on a monthly basis.

    If you choose to use this method you will not need to calculate your actual instalment income every month. Instead:

    • For the first two months of each instalment quarter you can make a reasonable estimate of your instalment income and apply your instalment rate.
    • In the third month of each quarter you calculate the total instalment income for the quarter and subtract the estimates used in the first two months. The payment in the third month will be the balance remaining for the quarter, multiplied by your instalment rate.

    Eligibility

    You cannot choose to pay instalments monthly. If you meet the criteria, you will be advised that you must calculate and pay your instalment each month, even if the instalment rate is zero.

    New monthly instalment payers

    If you are a new monthly payer you can choose to use the additional method in either of the following months:

    • 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 to transition to the new reporting and payment cycle and provides some flexibility, particularly if you begin paying monthly instalments part way through an instalment quarter.

    Existing monthly payers

    If you already pay your instalments monthly, you can make the choice to use the additional method at the start of each income year. The method must be applied from the first month of your income year.

    If you choose to use the method in the first month of your income year, you must use the method for the remainder of the income year.

    Electing to use the additional method

    You do not need to formally notify us – just keep a record of your decision and how you applied the additional method to obtain your estimates from a particular reporting period.

    Reasonable estimate

    We do not stipulate how you should calculate the estimate of your monthly instalment income.

    However, if you use one third of the previous quarter's actual instalment income as your estimated instalment income for the first and second months of the next quarter, we accept this as a reasonable estimate, as long as you use it consistently within an income year.

    Example 1

    Company ABC has been advised of the requirement to make PAYG instalments on a monthly basis. The first month they will be a monthly payer is January 2016.

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

    In December 2015, their quarterly instalment income is $300,000,000 and the instalment rate is 14%.

    As the January 2016 instalment will be the first instalment, company ABC estimates their instalment income as $100,000,000 – which is one third of $300,000,000. The PAYG instalment liability will be $100,000,000 times the instalment rate of 14%, which is $14,000,000.

    February’s instalment income will be $100,000,000, being one third of the instalment income from the December quarter. As the instalment rate has not changed the instalment liability will also be $14,000,000.

    Company ABC's actual instalment income for the quarter is $270,000,000. So, the March liability will be the actual instalment income for the quarter ($270,000,000) less the amounts accounted for in the previous two months ($200,000,000), giving $70,000,000 × 14%.

    This approach may be detrimental 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, so we accept that these entities can modify the approach to account for these distributions.

    End of example

    Special rule if the instalment for the third month is negative

    If the instalment for the third month of a quarter is negative when using the additional method, you cannot apply for a refund. Instead you will need to revise your instalment income from 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

    In Example 1, company ABC’s actual instalment income for the quarter is $170,000,000. Using the amounts accounted for in the previous two months ($200,000,000) the company has over stated its instalment income by $30,000,000 for the quarter. Therefore company ABC’s instalment income for March will be zero and the company can revise its February 2016 activity statement (which originally reflected an instalment income of $100,000,000) down to $70,000,000 to balance the overstatement.

    End of example

    Leaving a consolidated group

    You can use the additional method if, after you leave a consolidated group, you become a monthly payer from the beginning of the first month in a quarter. However, if you become a monthly payer from the beginning of the second month in a quarter you must calculate your actual instalment income for the remainder of the quarter. In this case, you can start to use the additional method to calculate your instalment income from the beginning of the next quarter.

    Example 2

    Company XYZ is 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 2016 and assumes a monthly payer status from the beginning of February 2016. Company EFG is a 30 June balancing entity.

    Company EFG must calculate its actual instalment income to determine its instalments for the months of February and March 2016. From April 2016, company EFG can choose to apply the additional method to determine its instalments for each month in the remaining quarters of its 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

    Varying your instalment rate

    The additional method does not change the rules regarding variations. If you choose to use the additional method you can still vary your instalment rate in any month.

    Incorrect application

    If you fail to comply with the rules for applying the additional method, we can require you to calculate your actual instalment income, for example, if you:

    • fail to make a reasonable estimate
    • choose to use the method 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, you may become the subject of a review and we may request information to check that you have correctly applied the additional method.

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      Last modified: 22 Feb 2017QC 38237