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  • How to start paying PAYG instalments

    There are two ways to start paying pay as you go (PAYG) instalments:

    • You will automatically enter the system once you lodge a tax return that has business and/or investment income above the entry threshold.
    • You can voluntarily start prepaying your income tax by instalments if you think you're going to make a profit from your business and/or investment income (after allowable tax deductions are taken into account).

    Automatic entry

    If you lodge a tax return with business and/or investment income above the entry threshold, you‘ll need to start paying PAYG instalments. We'll let you know:

    • when you need to pay
    • how often you need to pay
    • the options available for calculating your instalments.

    You'll start making payments once we send you an activity statement or instalment notice.

    Voluntary entry

    If you're new to business, or you think you're going to make a profit from your business and/or investment income (after allowable tax deductions are taken into account), it's a good idea to voluntarily enter into PAYG instalments.

    This will help you budget for next year's income tax, smooth out your cashflow, and you won’t have to pay a large tax bill when you lodge your tax return.

    To start prepaying your income tax using PAYG instalments, you need to:

    The Voluntary registration for PAYG instalments video is a guide on how you can start paying instalments.

    Media: [Voluntary registration for PAYG instalments]
    http://tv.ato.gov.au/ato-tv/media?v=bd1bdiubtf8ncqExternal Link (Duration: 06:23)

    Estimating the amount of tax to pay

    You need to estimate your annual business and/or investment income and your allowable tax deductions so you can work out the amount of tax to pay by instalments.

    You can use one of our PAYG instalment calculators containing up-to-date tax rates. There are different calculators for individuals (including sole traders), companies and superfunds.

    Once you have worked out your PAYG instalment amount, you can work out how much money to put aside to cover your tax instalments.

    It's important to plan ahead so you can pay the right amount at the right time. Our research shows you‘re more likely to stay on top of your instalments if you put money aside to cover them when they are due. If you don’t pay on time you may have to pay interest.

    Example: estimating PAYG instalments

    Danielle is running a business as a sole trader. She estimates she will earn business income of $100,000 for the financial year with allowable business tax deductions of $10,000.

    Danielle uses the PAYG instalments individuals calculator and enters her:

    • business income of $100,000
    • taxable income of $90,000 (business income less business tax deductions).

    The calculator estimates her PAYG instalment amount to be $22,732 per year.

    Danielle divides her estimated instalment amount by 52 to work out how much to put aside each week for PAYG instalments: $22,732 ÷ 52 weeks = $437.15

    When she receives her quarterly business activity statement (BAS), Danielle has enough money put aside to pay her PAYG instalment for the quarter.

    When she lodges her tax return, the PAYG instalments she has paid throughout the year will be offset against her tax liability, meaning she has little or no extra tax to pay.

    End of example

    Requesting voluntary entry

    If you’re an individual taxpayer or sole trader, you can voluntarily enter into PAYG instalments using a myGov account linked to the ATO. Go to 'Tax', select 'Manage' then 'Enter PAYG instalments. See 'help' if you need assistance.

    Log in to myGov

    You can also request voluntary entry through your registered tax agent or by phone:

    • 13 28 66 for businesses
    • 13 28 61 for individuals not in business.

    If you or your agent phones us, we will ask a few questions about your circumstances.

    Paying your instalments

    Once you've entered the PAYG instalments system, you will receive activity statements or instalment notices showing your instalment rate or amount. This can sometimes be zero.

    Make sure you pay your instalments by the due date.

    If you think you might end up paying too much (or too little) tax for the year you can vary your PAYG instalments.

    Last modified: 29 Jul 2019QC 45456