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
• Making payments
• Stopping your PAYG instalments
• Getting help

Starting PAYG instalments

When you start PAYG instalments, you may need to know about:

• Terms we use
• Why you have entered PAYG instalments
• How to start paying PAYG instalments voluntarily
• How we will contact you about PAYG instalments

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 superannuation fund or self-managed super fund.

Instalment amount: Your instalment amount 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 you 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.

When you need to pay your income tax by instalments, we'll let you know:

• the different methods you can use to work out how much you need to pay
• how often you need to lodge and pay.

Before your PAYG instalments are due, we'll send you 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 and/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 will contact you about PAYG instalments

If you're an individual taxpayer (including if you're in business as a sole trader) and you:

• have registered for myGovExternal Link and linked your account to the ATO, we send
  • your PAYG instalments correspondence to your myGov Inbox
  • an email or SMS to let you know when an item is available in your myGov inbox.
   
• receive paper mail from us
  • we'll send your activity statements and letters 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:

• ATO and the myGov Inbox

Making payments

When you are reporting and making payments, you may need to know about:

• Calculating your PAYG instalments
• Reporting and paying your PAYG instalments
• Changing the amount you pay
• Managing your instalments online

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 just 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:

• Small business webinars – activity statement essentials
• Tips for getting your PAYG instalments right

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:

• partnerships
• trusts
• primary producers and special professionals
• consolidated groups.

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:

• How to vary your PAYG instalments

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.

You can also use the Business Portal to revise, print and list previous activity statements, check accounts, update business registration details and send secure messages.

Find out about:

• How to create a myGov account and link to the ATOExternal Link (video, 3:56)
• Forgotten your myGov usernameExternal Link or passwordExternal Link?
• Business Portal

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 more:

• Stopping your PAYG instalments

Getting help

For help, or more information about PAYG instalments, you can talk to your registered agent or contact us.