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  • Varying your PAYG instalments due to COVID-19

    This advice is if you need to vary your PAYG instalments as a result of COVID-19.

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    What PAYG instalments are

    PAYG instalments is a system that helps you manage your expected tax liability on income from your business or investments for the current income year by making regular payments.

    You can vary your instalments if you think using the current amount or rate will result in you paying too much by instalments when compared to your estimated tax for the year.

    Why vary your instalments

    If you are a pay as you go (PAYG) instalment payer, you can vary your PAYG instalments on your activity statement.

    We will not apply penalties or charge interest on varied instalments that relate to the 2021-22 income year when you have taken reasonable care to estimate your end of year tax liability. This means making a reasonable and genuine attempt to determine your liability. When considering if a genuine attempt has been made, we consider what a reasonable person would have done in your circumstances.

    This applies to 30 June ordinary balancers for the 2022 income year and entities that have been granted a substituted accounting period (SAP). For an entity with a SAP, any variation must relate to instalments made during your 2022 income year.

    We encourage you to review your tax position regularly. You can vary your instalments multiple times throughout the year if your situation changes. Your varied amount or rate will apply for all your remaining instalments for the income year or until you make another variation. You should ensure the total of your instalments for the income year are as close as possible to your tax liability for that year and paid proportionally across the year.

    If you realise you've made a mistake working out your PAYG instalment, you can correct it by lodging a revised activity statement or varying a subsequent instalment.

    If you are unable to pay your instalment amount you should still lodge your instalment notice and discuss a payment arrangement with us to ensure you will not have a debt at the end of the year.

    If you are an amount payer

    As an amount payer, the amount on your activity statement is set as a dollar amount.

    You can vary your instalment amounts for the remainder of the year if either:

    • you expect to have significantly less business or investment income (or both) than expected
    • you expect your deductions against your business or investment income (or both) to be more than the income itself for the full year.

    How to vary your instalment amount

    On your activity statement, enter at:

    • T8 – the estimated tax for the year (if this is nil, enter 0)
    • T9 – the varied instalment amount for the quarter (if this is nil, enter 0)
    • T4 – the variation reason code (use reason code 23 – significant change in trading conditions)
    • 5A – your PAYG income tax instalment amount (if you’re filling in a paper form, enter the amount from T9).

    If you are a rate payer

    The instalment rate is a percentage applied against the income you received for the period. The amount you pay may go up or down.

    You can vary your instalment rate down if either:

    • you expect to have significantly less income than expected
    • you expect your deductions against your business or investment income (or both) to be more than the income itself for the full year.

    How to vary your instalment rate

    Follow these four steps to vary your instalment rate:

    Step 1

    Estimate your instalment income for the year. Your instalment income is generally your gross business or investment income (or both) excluding any capital gains.

    See PAYG instalment income – T1 for a list of what it includes.

    Step 2

    Estimate the tax on your instalment income for the year. You can use the PAYG instalments calculator or our instructions to estimate the tax on your instalment income.

    Step 3

    Work out your varied instalment rate. You can work out your varied instalment rate by dividing your estimated tax by your estimated instalment income then multiplying by 100.

    On your activity statement, enter at:

    • T1 PAYG instalment income – your instalment income
    • T3 Varied instalment rate – your varied instalment rate (if varying to nil, enter 0)
    • T11 – the sum of your instalment amount (multiply T1 by T3)
    • T4 Reason code for variation – reason code 23 (significant change in trading conditions)
    • 5A – your PAYG instalment income amount (if you’re filling in a paper form, enter the amount from T11).

    Step 4

    Complete any other questions on your activity statement as required.

    How to claim a credit on PAYG instalments already paid

    Once you have varied down your rate or amount, you can also claim back a credit from the PAYG instalments you have already paid in your current financial year. To do this, complete the amount at label 5B on your activity statement.

    If you choose to not claim back your credits on your activity statement and you overpay your PAYG instalments, you will be credited with them after your tax return is processed.

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      Last modified: 17 Sep 2021QC 62064