PAYG instalments
Whether you run your own business or earn investment income, planning ahead for your income tax is important to help you keep a healthy cash flow.
Pay as you go (PAYG) instalments help you do this. By making regular payments (instalments) throughout the year you won't have to pay a large tax bill when you lodge your tax return.
Your payments are made based on your business and/or investment income (which is also known as instalment income). When you lodge your tax return, all the amounts you've paid during the year will be offset against any tax you owe for the year.
PAYG instalments are different to PAYG withholding. With PAYG withholding, employers collect tax from the payments they make to employees and contractors and send it to the ATO. This helps those people meet their own income tax liabilities.
On this page:
Starting PAYG instalments
When you start PAYG instalments, you may need to know about:
Terms we use
Estimated or notional tax
We estimate your tax by taking the business and/or investment income reported on your most recently lodged tax return and applying current income tax rates to it. We exclude net capital gains from your income, unless you‘re a super fund or self-managed super fund.
Instalment amount
This is based on your most recent tax return and includes an adjustment based on likely changes in the economy.
Instalment income
This is the business and/or investment income reported on your last tax return, excluding any statutory income (income that's assessable because of tax law, for example, capital gains). Find out what items are included in instalment income.
Instalment rate
This is the percentage figure you use to work out how much you need to pay. It helps to make sure the total instalments you pay are as close as possible to the tax that will be payable on your business and/or investment income once you lodge your tax return for the year.
Why you have entered PAYG instalments
We work out whether you need to pay PAYG instalments based on information you reported in your latest tax return.
The following tables outline reasons why you may have entered PAYG instalments.
Table 1: Individuals and trusts
Reason
|
Entry threshold
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Instalment income from your latest tax return
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$4,000 or more
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Tax payable on your latest notice of assessment
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$1,000 or more
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Estimated (notional) tax
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$500 or more
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Table 2: Companies and super funds
Reason
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Entry threshold
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Instalment income from your latest tax return
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$2 million or more
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Estimated (notional) tax
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$500 or more
|
You're the head of a consolidated group
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$0 or more
|
When you need to pay your income tax by instalments, we'll let you know:
Before your PAYG instalments are due, we'll send an activity statement or instalment notice letting you know when your payment is due and how much to pay.
How to start paying PAYG instalments voluntarily
If you're new to business, or you think you're going to make a profit from your business or investment income, it’s a good idea to voluntarily enter into the PAYG instalments system. This will help you budget for next years’ income tax, smooth out your cashflow, and you won’t have to pay a large tax bill when you lodge your tax return.
You can use the PAYG instalments calculator to work out whether you should enter and how much you'll need to pay.
How we contact you about PAYG instalments
How you receive our PAYG instalment communications will vary depending on how you interact with us. If you:
- are registered for myGovExternal Link and linked your account to the ATO, we send our communications to your myGov Inbox – you'll receive an email or SMS to let you know when an item is available in your myGov Inbox
- use Online services for businessExternal Link or Standard Business Reporting (SBR)-enabled software, if we have your email address – we'll send an email with your instalment amount 21 days before the due date
- receive paper mail from us
- we'll send your communications to the address we send your income tax correspondence
- if you want your activity statements or instalment notices sent to a different postal address, contact us.
See also:
Making payments
When you are reporting and making payments, you may need to know about:
Calculating your PAYG instalments
Generally, you can choose from two options to work out how much to pay:
- Option 1 Instalment amount – the simplest option as you pay the instalment amount that we have calculated for you based on your latest tax return.
- Option 2 Instalment rate – you work out your instalment amount using
- an instalment rate we provide
- your instalment income.
Option 2 is best if your instalment income changes regularly, because you will apply the rate to your income in each period.
If you’re eligible to choose between these options, they will both be shown on your activity statement or instalment notice. You'll need to choose one when you lodge and keep using that option for the rest of the financial year. You can change to the other option on your first activity statement of the next financial year.
See also:
Reporting and paying your PAYG instalments
How to complete your activity statement explains how to fill out your activity statement or instalment notice.
There are special rules for reporting and paying PAYG instalments for:
Changing the amount you pay
If your circumstances change and you think the instalment amount or rate we have worked out will mean you'll pay too much or too little tax, you can:
- vary your PAYG instalments on your current activity statement
- lodge a revised activity statement.
Next step:
Managing your instalments online
If you’re an individual (including if you're in business as a sole trader), the easiest way to manage your PAYG instalments is by using our online services.
You can view, lodge, pay, vary and manage all your PAYG instalment obligations in one place. All you need is a myGov account linked to the ATO.
Log in or create a myGov accountYou can also use Online services for businessExternal Link to view, revise, print and list previous activity statements, check accounts, update business registration details and send secure mail.
Log in to Online services for businessWatch:
Find out about:
Stopping your PAYG instalments
We will automatically remove you from the PAYG instalments system when you no longer have to pay instalments.
If you think you no longer need to pre-pay your income tax using PAYG instalments, you may be able to exit the system.
If your circumstances change after you have exited the system, and you expect to earn over the threshold amount or you want to plan ahead and budget again for your income tax, you can re-enter.
Find out about:
Getting help
For help, or more information about PAYG instalments, you can talk to your registered tax or BAS agent or contact us.
Pay as you go (PAYG) instalments is a system for making regular payments towards your expected income tax liability. Find out about the essentials on this page.