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  • PAYG instalments – how to complete your activity statement

    You report and pay your pay as you go (PAYG) instalments through your activity statement or instalment notice. Once you lodge your tax return, they are offset against any tax you owe for the year.

    It's important you lodge your activity statements and pay all your PAYG instalments before you lodge your tax return to make sure the instalments you paid throughout the year are taken into account in your tax assessment.

    Find out about:

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    Choosing an option for calculating your instalments

    Your first activity statement for the income year will include the options available to you for working out your PAYG instalments. You must choose an option by the due date of this activity statement. You can't change your option until the first quarter of the next income year.

    If you haven't made a choice by the due date of your activity statement, and:

    • you paid PAYG instalments last year – you will pay using the same option you used last year
    • this is the first year you’re paying PAYG instalments – you will pay using the instalment amount (option 1) if you’re eligible.

    Filling in the PAYG instalment amount (option 1) fields

    If you pay using the PAYG instalment amount (option 1), use these instructions to help you fill in your activity statement or instalment notice.

    On this page:

    ATO instalment amount – T7

    T7 (ATO instalment amount) on your activity statement or instalment notice shows the instalment amount worked out by us or your most recent varied amount.

    If you don't want to change the amount, and:

    • you don't have any other obligations that require a business activity statement, just pay the amount. You don't need to lodge the activity statement/instalment notice.
    • you do have other obligations on an activity statement (for example GST), copy the amount to 5A (PAYG income tax instalment).

    If you think that using the amount will result in you paying more or less tax than your expected tax for the year, you can vary it. To vary your instalment amount, fill in T8 (estimated tax for the year), T9 (varied amount) and T4 (reason code for variation).

    See also:

    Varying the instalment amount

    If you want to vary your instalment amount, see How to vary your instalment amount (option 1) to calculate your variation. Then fill in fields T8, T9 and T4 on your activity statement or instalment notice:

    Estimated tax for the year – T8

    Enter the tax you expect to pay on your business and/or investment income for the year.

    Varied amount – T9

    Enter your varied amount. If this is nil or a negative amount, enter 0.

    If it's a negative amount, you can claim a credit at 5B (see Credit from PAYG income tax instalment variation ).

    Reason code for variation – T4

    Choose a reason code from the table below that best describes why you varied your PAYG instalment amount.

    Reason codes for variation of instalment amount

    Reason

    Code

    Change in investments

    21

    Current business structure not continuing

    22

    Significant change in trading conditions

    23

    Internal business restructure

    24

    Change in legislation or product mix

    25

    Financial market changes

    26

    Use of income tax losses

    27

    Consolidations

    33

    See also:

    PAYG income tax instalment – 5A

    The amount of your PAYG instalment for the period is shown at 5A (PAYG income tax instalment). If you're lodging a paper statement, you'll need to fill in this field. Enter the amount from T7, or T9 if you are varying the amount.

    Credit from PAYG income tax instalment variation – 5B

    If your varied amount for the period (entered at T9) is negative, you may be entitled to a credit from earlier instalments in the same income year.

    First, we offset any credit against other liabilities on your activity statement. This will be included in your net obligations amount at 9 in the 'Payment or refund?' section of your activity statement.

    If this is your first instalment of the income year, and you've varied your amount, you can't claim a credit for this period.

    To claim a credit, enter the negative amount that you worked out at T9.

    You don't have to claim a credit it in your activity statement. You can wait until you lodge your tax return and we will take any credit into account when we work out your assessment.

    Next step:

    Filling in the PAYG instalment rate (option 2) fields

    If you pay using the PAYG instalment rate (option 2), use these instructions to help you fill in your activity statement.

    On this page:

    PAYG instalment income – T1

    Work out your instalment income for the period and enter this at T1 (PAYG instalment income). If you don't have any instalment income for the period, enter '0'.

    Your instalment income is all the ordinary income you earned from your business and/or investment activities for the quarter (excluding GST). Make sure you include your gross income (not your net income, taxable income or income reduced by any deductions).

    Instalment income includes:

    • gross rent
    • dividends received or reinvested on your behalf (do not include imputation credits)
    • royalties
    • foreign pensions that are assessable in Australia
    • your proportion income from a partnership or trust
    • foreign income
    • interest received or credited to an account
    • gross sales (excluding GST component)
    • gross fees for services (excluding GST component)
    • income earned from the sale of goods or services you sell or supply
    • gross amount of income where tax has been withheld because you did not provide your tax file number (TFN) or Australian business number (ABN)
    • withdrawals from farm management deposits. If you make a farm management deposit, your instalment income for that period is reduced.
    • fuel tax credits
    • net capital gains or net losses if you are a super fund or self-managed super fund.

    Instalment income does not include:

    • GST, wine equalisation tax (WET) or luxury car tax (LCT) that you charge your customers, clients or tenants
    • income such as salary and wages, where amounts have been withheld or should have been withheld under the PAYG withholding system (except income where amounts have been withheld because you did not provide your TFN or ABN)
    • any franking credit recorded on a dividend statement
    • any amount that is deemed to be a dividend under a specific provision of the income tax laws
    • capital gains. However, capital gains should be included if you are a superannuation fund or self-managed super fund.
    • exempt income such as the family tax benefit or child care benefit payments
    • payments made and non-cash benefits provided in relation to the National Rental Affordability Scheme
    • grants under the energy grants credits scheme, including the product stewardship (oil) benefit.

    See also:

    Instalment rate – T2

    The rate at T2 (instalment rate) will be either:

    • the instalment rate worked out by us
    • your most recent varied rate, if you have varied the instalment rate in a previous quarter in the same income year.

    If you think that using the rate will result in you paying more (or less) tax than your expected tax for the year, you can vary it. To vary your instalment rate, fill in T3 (new varied rate) and T4 (reason code for variation).

    Varying the instalment rate

    If you want to vary your instalment rate, see How to vary your instalment rate (option 2) to calculate your variation. Then fill in T3 (new varied rate) and T4 (reason code for variation) on your activity statement.

    New varied rate – T3

    Enter your varied rate.

    You don’t have to vary your instalment rate just because your income has changed since your last quarter. The instalment rate is a percentage, so the amount you pay will change in line with your income. For example, if your income decreases in the quarter, you'll report lower instalment income, so you'll pay a lower instalment amount for that quarter to better reflect your financial circumstances.

    Reason code for variation – T4

    Choose a reason from the list below that best describes why you varied your PAYG instalment rate and enter the code at T4.

    Reason code for variation of instalment rate

    Reason

    Code

    Change in investments

    21

    Current business structure not continuing

    22

    Significant change in trading conditions

    23

    Internal business restructure

    24

    Change in legislation or product mix

    25

    Financial market changes

    26

    Use of income tax losses

    27

    Consolidations

    33

    Instalment amount − T11

    Your instalment income (at T1) is multiplied by your instalment rate (at T2 or T3) to work out your instalment amount for the period (T11).

    PAYG income tax instalment – 5A

    The amount of your PAYG instalment for the period is shown at 5A (PAYG income tax instalment). If you're lodging a paper statement, enter the amount from T11 into 5A.

    You can enter '0' at 5A instead of your instalment amount if:

    • you are not claiming a credit at 5B
    • PAYG instalments is your only obligation on your activity statement.

    Example: calculating an instalment using the instalment rate

    In the first quarter (1 July to 30 September) of the current income year you are offered a choice of reporting options. You choose to pay using the instalment rate (option 2).

    Your income for the quarter includes:

    • total sales of $22,000 (including $2,000 GST)
    • interest and dividends received of $100.

    Your instalment income is $20,100 ($22,000 less $2,000 GST plus $100 other income).

    At T1 you enter 20,100.

    The instalment rate on your activity statement shown at T2 is 1.7%.

    You calculate the instalment amount as follows:

    T1 × T2 = $20,100 × 1.7% = $341.70

    Enter 341 at both T11 and 5A.

    Then lodge your activity statement and pay $341 by 28 October (the due date for the first quarter).

    End of example

    Credit from PAYG income tax instalment variation – 5B

    If your varied instalment rate (entered at T3) is less than the instalment rate at T2, you may be entitled to a credit from earlier instalments in the same income year.

    A credit will only be available if your earlier instalments were worked out using a higher instalment rate.

    We offset this credit against any other liabilities on your activity statement. It will be included in your net obligations amount at 9 in the 'Payment or refund?' section of your activity statement.

    If you vary your rate on your first instalment of the income year, you can't claim a credit for this period.

    To claim a credit, enter the amount at 5B.

    You don't have to claim a credit it in your activity statement. You can wait until you lodge your tax return and we will take any credit into account when we work out your assessment.

    Use the following table to calculate the amount of credit you can claim at 5B.

    Table: Calculate the amount of credit you can claim

    Step

    Calculation

    1

    Add up your earlier instalments (the amounts reported at 5A) even if you haven't paid all of them

    2

    Add up any credits claimed in previous quarters of the income year (amounts reported at 5B on previous activity statements)

    3

    Subtract the amount at step 2 from step 1

    4

    Add up instalment income for all earlier quarters of the income year

    5

    Multiply the amount at step 4 by the varied instalment rate

    6

    Subtract the amount at step 5 from the amount at step 3

    7

    If the result is a positive amount, this is the amount of credit you can claim at 5B

    Example: claiming a credit

    Your instalment rate is 10% for the first quarter (1 July to 30 September) of the current income year. You multiply this rate by your instalment income of $10,000, resulting in an instalment payment of $1,000.

    For the second quarter (1 October to 31 December), you vary the instalment rate to 5%. You multiply your instalment income of $10,000 by the varied rate, resulting in an instalment payment of $500.

    You then choose to claim a credit so as to put you in the position that you would have been in if your instalment rate had always been 5%. Using the table below to work it out, your claim at 5B would be $500.

    Table: example of calculating the amount of credit you can claim

    Step

    Calculation

    Amount

    1

    Add up your earlier instalments (the amounts reported at 5A) even if you haven't paid all of them

    $1,000

    2

    Add up any credits claimed in previous quarters (amounts reported at 5B on a previous activity statement)

    $0

    3

    Subtract the amount at step 2 from step 1

    $1,000

    4

    Add up instalment income for all earlier quarters of the income year

    $10,000

    5

    Multiply the amount at step 4 by the varied instalment rate

    $10,000 × 5%
    = $500

    6

    Subtract the amount at step 5 from the amount at step 3

    $1,000 − $500
    = $500

    7

    The amount of credit that may be claimed at 5B

    $500

     

    End of example

    See also:

    Tips for completing your activity statement

    Here are some tips to help you complete and lodge your activity statement correctly:

    Make sure you:

    • fill in the PAYG instalment (and other) fields that apply to you
    • check your calculations
    • round down to whole dollars
    • lodge and pay by the due date. If you can't pay on time, contact us as soon as possible
    • update your details if needed. You can't add extra information to your activity statement.

    If you're filling out a paper activity statement, you'll also need to:

    • use a black pen
    • leave boxes blank if they don't apply to you, unless we ask you to write '0'.
    • copy amounts correctly between fields
    • make sure you haven't reported negative figures or used symbols such as +,−, /, $
    • copy the totals for all sections to the summary section
    • calculate whether you must make a payment or if you're entitled to a refund, then complete the 'Payment or refund?' section
    • sign and date your activity statement.

    See also:

    Last modified: 26 Jul 2019QC 27149