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  • How much you need to pay

    When you prepay your income tax using pay as you go (PAYG) instalments, you can usually choose between two options to work out how much you pay:

    Using the instalment amount (option 1)

    The instalment amount is an amount we calculate from information you reported on your latest tax return. This is the simplest option as you don’t need to work anything out.

    On this page:

    Who can pay using the instalment amount?

    You can pay your instalments using the instalment amount if you are:

    • an individual (including sole traders)
    • a trust
    • a super fund that  
      • is an annual payer
      • has business and/or investment income of $2 million or less
    • a company that  
      • is an annual payer
      • has business and/or investment income of $2 million or less
      • is a small business entity with an aggregated turnover of less than $10 million.

    If you're eligible for this option, your amount will be shown at option 1 on your activity statement or instalment notice. If your only obligation is PAYG instalments we'll send you an instalment notice instead of an activity statement.

    To pay using the instalment amount, complete the details under option 1 on your first activity statement or instalment notice for the income year. You’ll then pay using an instalment amount for the rest of the year.

    If you later want to change to option 2, you‘ll need to wait until the first quarter of the next income year.

    You need to pay your instalment amount by the date shown on your activity statement or instalment notice.

    If you have an instalment notice, you only need to pay the amount by the due date shown on the notice. You don't need to return the notice to us unless you want to vary the amount.

    If you think your PAYG instalment amount will result in you paying too much or too little tax for the current income year, you can vary the amount.

    See also:

    How we calculate your instalment amount

    We calculate your PAYG instalment amount using information from your most recent tax return.

    We adjust this amount to take into account any likely growth in your income. The adjustment is made based on changes in Australia’s gross domestic product (GDP).

    If you vary your instalment amount or lodge an income tax return, it’s likely the instalment amount on your next activity statement will change. This is because we will re-calculate your instalment amount (with the GDP adjustment) to take into account your most recent information.

    Why we adjust your instalment amount

    Your PAYG instalment amount is intended to reflect your expected tax liability for the year. We adjust it for expected changes in the economy – as measured by changes in GDP – as these may affect your income.

    If your instalment amount was solely based on your previous tax situation without any adjustment, it might not cover your actual tax liability meaning you could have to pay extra tax when you lodge your tax return.

    How we calculate the GDP adjustment

    We update the GDP adjustment factor at the start of each income year using data provided by the Australian Bureau of Statistics. The adjustment is based on GDP activity over the previous two calendar years. The GDP adjustment for the 2019–20 income year is 5%.

    The 5% GDP adjustment factor:

    • applies to PAYG instalments for the 2019–20 income year for taxpayers whose income year starts on or after 1 April 2019
    • is used in the calculation of your PAYG instalments if you pay quarterly (or twice yearly for PAYG instalments) instalment amounts we work out for you
    • does not affect you if you choose to work out your own instalments or pay annually, because it is not applied to your instalments.
    When your instalment amount is too high or too low

    If you think the instalment amount we calculate will be too high or low, you can:

    Paying the instalment amount worked out by us

    If you pay the PAYG instalment calculated by us, your actual income tax will be worked out when your tax return is processed. Any overpayments will be refunded to you, provided you have no other tax debts.

    See also:

    Work out your PAYG instalment amount

    If you want to work out your PAYG instalment amount yourself, you need to fill out the details for 'instalment rate' (option 2) on your activity statement and lodge it by 28 October.

    Once you’ve chosen this option, you‘ll use it for the remainder of the income year. You can change your option in the first quarter of the next year. You can make this change:

    • online  
    • by phone  
      • 13 28 66 – for businesses
      • 13 28 61 – for individuals not in business
    • through your registered tax agent.

    Using the instalment rate (option 2)

    When you pay using the instalment rate option, you work out your instalment amount yourself using:

    • the instalment rate we provide
    • your instalment income.

    On this page:

    Who can pay using the instalment rate?

    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 advantage of using this option is that your payments are based on your income as you earn it (for example, in the quarter or month just gone). This helps with your cash flow management. For example, if your income decreases in a quarter, you apply the instalment rate to that lower income and therefore pay a lower instalment amount.

    How we calculate your instalment rate

    We calculate your PAYG instalment rate using information from your most recently lodged tax return.

    The instalment rate calculation is:

    • (Estimated tax ÷ instalment income) × 100.

    See also:

    Reasonable instalment rates

    When we calculate your PAYG instalment rate, if it’s more than the highest income tax rate for your entity type we‘ll automatically reduce it to a more reasonable rate (see table below). This adjusted rate will appear on your activity statement.

    Your instalment rate may be high before our adjustment because:

    • you received employee share scheme income
    • you reported a HECS/HELP debt in your last tax return
    • you have reported income at the wrong label in your last tax return
    • your return is amended to include excess superannuation contributions.

    We adjust the rate because, although the calculation is correct, it may not reflect your circumstances.

    Table: Reasonable instalment rates by entity type

    Entity type

    Reasonable rate

    Individuals (including sole traders)

    55%

    Trusts

    55%

    Superannuation funds and self-managed superannuation funds

    45%

    Corporate tax entities

    30%

    If you want to change your instalment rate

    If your instalment rate doesn't reflect your current financial circumstances, and will result in you paying too much or too little tax for the year, you can vary it.

    You don't have to vary. If the rate we calculate results in you paying too much, you will receive a refund of any overpayment after your tax return is assessed. If it’s not enough to meet your income tax for the year, you simply pay the balance owing after you receive your assessment.

    When you vary your instalments, it's important not to underestimate your amount, rate or instalment income. We compare your instalments to the total tax payable on your instalment income for the income year. If the value of your varied instalments is less than 85% of that total, you may be subject to a general interest charge (GIC) on the difference, as well as penalties.

    Next step:

    Work out your instalments

    You work out the amount to pay using:

    • your instalment income for the period (usually a quarter). Enter this at T1 on your activity statement
    • the instalment rate. We provide this at T2 on your activity statement.

    Multiply T1 by T2 to work out the instalment amount. Enter this at 5A on your activity statement.

    It’s important you include all the instalment income you earned from your business and/or investment activities for the quarter. This includes all ordinary income you earned (excluding GST). See PAYG instalment income – T1 for a list of applicable income. If you're a partner in a partnership or beneficiary of a trust, there are special rules for working out your instalment income.

    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: working out 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 calculated as:

    T1 × T2 = 5A or $106,000 × 11% = $11,660.

    End of example

    See also:

    Last modified: 26 Jul 2019QC 45458