When you prepay your income tax using pay as you go (PAYG) instalments, you may have a choice between:
- paying an amount we calculate for you
- calculating your instalment yourself.
You may have a choice between 2 options:
- Option 1: instalment amount
- We calculate the instalment amount you pay.
- You do not need to calculate anything.
- Option 2: instalment rate
- This option is best if your business or investment income changes a lot, and you want to manage your cashflow. The amounts you pay will go up and down in line with your income.
- You calculate the amount to pay by multiplying your instalment rate by your business and investment income. Your instalment rate is a percentage. We tell you what rate to use.
If you are eligible to choose between these options, they will both be shown on your activity statement or instalment notice.
- Choose your preferred option when you lodge. You will then keep using that option for the rest of the financial year.
- If you want to change options, you can do it on your first activity statement of the next financial year.
Whichever option you choose, it will not change how much income tax you pay for the year. When you lodge your tax return, your PAYG instalments are credited against your income tax liability. We refund any excess, and you pay any shortfall.
You do not need to calculate anything. You simply pay the instalment amount shown on your activity statement or instalment notice.
We calculate your instalment amount from the information you reported in your latest tax return.
You can vary the amount if you think it is too high or low.
- Enter your instalment income for the period (usually a quarter) at T1 on your activity statement.
- Generally, your instalment income is your gross business and investment income, excluding GST.
- If you pay instalments monthly, you can use the additional method to estimate income for monthly instalments.
- Your instalment rate is pre-filled at T2 on your activity statement.
- We calculate your instalment rate from the information you reported in your latest tax return. If you varied the rate in a previous quarter, the varied rate is shown at T2.
- Multiply T1 by T2 to work out the amount to pay.
- Enter this amount at 5A on your activity statement.
You can vary your instalment rate if you think it is too high or low.
If we provide you with an instalment rate of nil, you still need to report your instalment income (even if that is also nil) on your activity statement.
Example: calculating instalments
Julie Co's instalment income for the quarter is $106,000. The instalment rate provided by us is 11%.
Julie Co's PAYG instalment amount for the quarter is:
- T1 × T2 = 5A
- $106,000 × 11% = $11,660.
At times you may think your PAYG instalments will add up to more, or less, than your expected income tax liability for the year.
If so, you can either:
- pay the instalments anyway
- vary your instalment amount or instalment rate.
Either way, it won't change how much income tax you pay for the year. When you lodge your tax return, your PAYG instalments are credited against your income tax liability. We refund any excess, and you pay any shortfall.
However, if you vary your instalments downwards, and it turns out you have a significant tax shortfall at the end of the year (15% or more), you may be charged interest.You can pay an instalment amount we calculate for you, or calculate your payment using an instalment rate we give you.