• # Option 2 – instalment rate

If you pay using Option 2 'instalment rate', you'll work out the pay as you go (PAYG) instalment amount yourself using the rate we provide and your instalment income.

All taxpayers can use this option. However, you must use this option if you're a:

• super fund with business and/or investment income over \$2 million
• company with business and/or investment income over \$2 million and you do not qualify as a small business entity.

The main advantage of Option 2 is that your instalments are based on your income as you earn it (for example, in the quarter or month just gone), instead of a projection based on your previous tax situation. This helps with cash flow management. For example, if your income in a quarter is zero, the amount to pay for that quarter is zero.

You work out the amount to pay using the instalment rate, which is shown at T2 on your activity statement.

It works like this:

• instalment income (T1)
• multiplied by ATO instalment rate (T2)
• equals instalment amount (5A).

Example

Julie Co's instalment income is \$106,000 and the ATO instalment rate is 11%, so Julie Co's tax instalment amount will be calculated as follows:

\$106,000 (T1) multiplied by 11% (T2) = \$11,660 (5A).

End of example

## PAYG instalment rate calculation

We work out your instalment rate (shown at T2) using your most recently lodged tax return. The rate is based on both your:

• notional tax, which is the amount of tax payable on business and/or investment income in your latest income tax assessment based on current income tax rates
• base assessment instalment income

The rate is then worked out using the formula:

Notional tax ÷ base assessment instalment income × 100

### Instalment rate of nil

If you decide to pay using Option 2 'Instalment rate', and we provide you with an instalment rate that is nil, you will still need to provide details of your instalment income on your activity statements because a nil rate is a valid rate.

If you prefer to use this option you simply complete the details under Option 2 on your activity statement. If the instalment rate does not reflect your expected tax liability for the current income year, you can vary the instalment rate.