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  • How to vary your PAYG instalments

    If your pay as you go (PAYG) instalments don't reflect your current financial circumstances, and will result in you paying too much (or too little) tax for the income year, you can vary them. There are certain rules that apply.

    On this page:

    See also:

    When you can vary PAYG instalments

    You can vary your instalments if you think using the current amount or rate will result in you paying too much or too little tax for the year.

    You lodge your variation on your business activity statement (BAS) or instalment notice. There's no limit to the number of variations you can make, but they must be lodged:

    • on or before the day your instalment is due
    • before you lodge your tax return for the year.

    Your varied amount or rate will apply for all your remaining instalments for the income year, or until you make another variation.

    You don't have to vary. If the instalment amount or instalment rate we calculate results in:

    • you paying too much – you will receive a refund of any overpayment after your tax return is assessed
    • you not paying enough – you pay the balance owing after you receive your assessment.

    Interest and penalties

    When you vary your instalments it's important not to underestimate your PAYG instalment amount, income or rate. We compare your instalments to the total tax payable on your instalment income for the financial 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 steps:

    How to vary your instalment amount (option 1)

    If you pay using the amount we calculate for you it will be shown at item T7 on your activity statement or instalment notice.

    If you varied your instalment amount in a previous quarter of the financial year, the amount shown at T7 will be your varied instalment amount.

    We work out your estimated tax using the business and/or investment income you reported on your most recently lodged tax return, and apply current income tax rates.

    We make adjustments for likely increases in your business and/or investment income, based on growth in Australia's Gross domestic product (GDP).

    Calculating your varied amount

    Use the following steps to calculate your variation:

    Step 1: Estimate your instalment income for the year

    Your instalment income is generally your gross business and/or investment income, excluding any capital gains. See PAYG instalment income – T1 for a list of what it includes.

    Step 2: Estimate the tax on your instalment income

    You can use the PAYG instalments calculator or our instructions to estimate the tax on your instalment income.

    Step 3: Work out how much of your estimated tax to pay for this instalment

    The amount you pay depends on the quarter you are paying for, and how much you paid in previous quarters. In most cases, you'll divide your yearly tax amount by four.

    If you are paying four quarterly instalments for the year, use Table 1 to work out how much to pay.

    If you started paying instalments for the first time during the second, third or fourth quarter of the income year, you’ll pay a lesser amount. Use Table 2, Table 3 or Table 4 to work out how much to pay.

    If you pay two instalments per year, use Table 5 to work out how much to pay.

    In most cases, you'll divide your yearly tax amount by four.
    Table 1: Four instalments – how much to pay each quarter

    Instalment quarter

    How much to pay – your varied amount

    First quarter in the income year that you are liable to pay an instalment

    • 25% of your estimated tax for the income year
     

    Second quarter for the income year

    • 50% of your estimated tax for the income year

    minus

    • the amount of your first quarter instalment
     

    Third quarter for the income year

    • 75% of your estimated tax for the income year

    minus

    • the amount of your first and second quarter instalments

    plus

    • any PAYG instalment credits you claimed for the second quarter
     

    Fourth quarter for the income year

    • 100% of your estimated tax for the income year

    minus

    • the amount of your first, second and third quarter instalments

    plus

    • any PAYG instalment credits you claimed for the second and third quarters
     

     

    Example: vary quarterly instalment amount

    Jane receives income from her investments. Her quarterly PAYG instalment amount is $1,000. Jane pays this amount in her first quarter (1 July to 30 September) and second quarter (1 October to 31 December).

    In January, Jane sells a portion of her investments and decides to vary her PAYG instalment amount on her third quarterly activity statement (1 January – 31 March) to take into account her new situation.

    Jane uses the PAYG instalment calculator and estimates the total tax payable on her instalment income for the financial year will be $3,100. Jane works out her varied PAYG instalment as follows: 

    Estimated tax

    $3,100

    Multiplied by 75% (how much to pay for the third quarter)

    $3,100 × 75% = $2,325

    Minus amounts paid for the first and second quarters

    $2,325 − ($1,000 + $1,000) = $325

    The varied amount Jane needs to pay in the third quarter is $325.

    End of example
    Table 2: How much to pay if you’re given an instalment rate in the second quarter (October – December)

    Instalment quarter

    How much to pay – your varied amount

    Second quarter for the income year

    • 25% of your estimated tax for the income year
     

    Third quarter for the income year

    • 50% of your estimated tax for the income year
     

    Fourth quarter for the income year

    • 75% of your estimated tax for the income year

    minus

    • the amount of your second and third quarter instalments.
     
    Table 3: How much to pay if you're given an instalment rate in the third quarter (January – March quarter)

    Instalment quarter

    How much to pay – your varied amount

    Third quarter for the income year

    • 25% of your estimated tax for the income year
     

    Fourth quarter for the income year

    • 50% of your estimated tax for the income year

    minus

    • the amount of your third quarter instalment.
     
    Table 4: How much to pay if you're given an instalment rate in the fourth quarter (April – June quarter)

    Instalment quarter

    How much to pay – your varied amount

    Fourth quarter for the income year

    • 25% of your estimated tax for the income year 
     
    Table 5: Two instalments – how much to pay

    Instalment period

    How much to pay – your varied instalment amount

    Instalment due in April (third quarter instalment)

    • 75% of your estimated tax for the income year
     

    Instalment due in July for the income year

    • 100% of your estimated tax for the income year

    minus

    • the amount of your third quarter instalment.
     

    Step 4: Complete your activity statement or instalment notice

    On your activity statement, enter at:

    • T8 – the estimated tax for the year (from step 1). If this is nil enter 0.
    • T9 – the varied instalment amount for the quarter (from step 2). If this is nil enter 0.
    • T4 – the variation reason code
    • 5A – PAYG income tax instalment amount. If you're filling in a paper form, enter the amount from T9.

    If the varied instalment amount you worked out at Step 2 is negative, you can claim a credit for PAYG instalments you paid earlier in the income year. At 5B, enter the varied instalment amount for the quarter from Step 2 as a positive amount (do not show the minus sign).

    You do not have to claim your credit on your activity statement. If you overpay your PAYG instalments we will credit them to you after your tax return is processed.

    Complete any other labels on your activity statement as required.

    If you are satisfied the information you have provided is not false or misleading, sign and date the form.

    Step 5: Lodge and pay

    You must lodge and pay any amounts you owe by the due date on your activity statement.

    Next step:

    How to vary your instalment rate (option 2)

    We calculate your instalment rate using information from your most recent tax return. Your PAYG instalment rate is shown at T2 in option 2 on your activity statement.

    If you varied your instalment rate in a previous quarter of the income year, the rate shown at T2 will be your varied instalment rate.

    If your income has changed since your last tax assessment there's no need to vary your instalment rate. The instalment amount will automatically change when your instalment income changes.

    However, you may wish to vary your instalment rate if there is a significant change in the proportion of your instalment income that needs to be paid as tax.

    For example, if you think you will have:

    • much higher or lower tax deductions than previously expected for your instalment income.
    • higher or lower instalment income for the same level of tax deductions (for example, your running costs are about the same, however you expect your income will decrease a lot).

    Next step:

    Calculating your varied instalment rate

    Use the following steps to calculate your variation.

    Step 1: Estimate your instalment income for the year

    Your instalment income is generally your gross business and/or investment income, excluding any capital gains. See PAYG instalment income – T1 for a list of what it includes.

    Step 2: Estimate the tax on your instalment income for the year

    You can use the PAYG instalments calculator or our instructions to estimate the tax on your instalment income.

    Step 3: Work out your varied instalment rate

    You can work out your varied instalment rate by dividing your estimated tax by your estimated instalment income then multiplying by 100.

    Example: varying instalment rate amount

    Harmander is a sole trader. We have calculated his instalment rate as 16.84%. He uses this instalment rate in the first quarter (1 July to 30 September) and second quarter (1 October to 31 December) to work out his instalment amount.

    Harmander decides to vary his instalment rate for the third quarter (1 January to 31 March) because increased competition has reduced the profit margin on his sales. He uses the PAYG instalment calculator to estimate:

    • his instalment income for the year will be $82,480
    • his estimated tax for the year will be $10,125.

    Harmander works out his varied instalment rate as follows:

    ($10,125 ÷ $82,480) × 100 = 12.27%

    End of example

    Step 4: Work out credits from previous instalments in the current income year

    If you vary your instalment in your first instalment quarter for the current income year, you won't have any credits available. This is because you will not yet have paid any instalment amounts for the current income year.

    If your varied instalment rate is less than the rate you used for earlier quarters in the current income year, you may be entitled to a credit for PAYG instalments paid so far.

    Use the worksheet below to work out if you are entitled to a credit.

    You can claim a credit on your activity statement.

    You don't have to claim your credit on your activity statement. If you overpay your PAYG instalments we will credit you after your tax return is processed. However, you still need to complete your activity statement as usual.

    Table: Working out your instalment credit worksheet

    Step

    Instruction

    Result

    1

    Add up your instalments for the earlier quarters in the income year (even if you have not paid all of them). These are the amounts you have recorded at 5A (PAYG income tax instalment) on your previous activity statements for the income year.

    Previous instalments amount

     

    2

    Add up any credits you have claimed for the income year. These are the amounts you have recorded at 5B (credit from PAYG income tax instalment variation) on your previous activity statements for the income year.

    Previous credits amount

     

    3

    Subtract the total Previous credits amount (step 2 in this table) from the Previous instalments amount (step 1 in this table).

    Net previous instalments amount

    4

    Add up your instalment income for all earlier quarters in the income year. These are the amounts you have recorded at T1 (PAYG instalment income) on your previous activity statements for the income year.

    Previous instalment income

    5

    Write down your varied instalment rate (this is the rate you calculated at Step 3: Work out your varied instalment rate).

    Varied instalment rate 

    6

    Multiply your Previous instalment income (from step 4 in this table) by your varied instalment rate (from step 5 in this table).

    Previous instalments at varied rate amount

    7

    Subtract your Previous instalments at varied rate amount (from step 6 in this table) from the Net previous instalments amount (from step 3 in this table). If the result is a positive amount, this is the credit amount you can claim.

    Credit (if any)

    Example: working out instalment credit

    Tom is a sole trader and his instalment rate is 16%. He has instalment income for the first quarter (1 July to 30 September) of $30,000 and second quarter (1 October to 31 December) of $18,000. He pays $4,800 in instalments for the first quarter and $2,880 for the second quarter.

    His business is experiencing difficulties so he wants to reduce his instalment rate. He works out that his new rate should be 12% as he expects his instalment income to decrease over the next two quarters.

    Using the instalment credit worksheet in the Table above (Step 4: Work out credits from previous instalments in the current income year), Tom works out his credit as follows:

    • Step 1: Previous instalment amount = ($4,800 + $2,880) = $7,680
    • Step 2: Previous credit amount = $0
    • Step 3: Net previous instalment amount = $7,680
    • Step 4: Previous instalment income = ($30,000 + $18,000) = $48,000
    • Step 5: Varied instalment rate = 12%
    • Step 6: Previous instalment at varied rate amount = ($48,000 × 12%) = $5,760
    • Step 7: Credit = $7,680 − $5,760 = $1,920

    Tom can claim a variation credit of $1,920 at 5B (Credit from PAYG income tax instalment variation) on his activity statement.

    End of example

    Step 5: Complete your activity statement

    Enter the following on your activity statement at:

    • T1 (PAYG instalment income) – your quarterly instalment income
    • T3 (varied instalment rate) – your varied instalment rate
    • T11 and 5A (PAYG income tax instalment) – your instalment amount (multiply T1 by T3)
    • T4 (Reason code for variation) – your variation reason code, do not leave this blank
    • 5B (credit from PAYG income tax instalment variation) – any credits you wish to claim for previous instalments

    Complete any other questions on your activity statement as required.

    If you are satisfied the information you have provided is not false and misleading, sign and date the activity statement.

    Step 6: Lodge and pay

    You must lodge and pay any amounts you owe by the due date on your activity statement.

    Next steps:

    Variation reason codes

    When you vary a PAYG instalment on an activity statement or instalment notice, you must enter a reason code at T4 (reason code for variation).

    Use the table below to choose the reason that best describes why you varied your instalment amount or rate.

    Variation reason codes

    Code

    Reason

    Description

    21

    Change in investments

    Your investment strategy or policy has changed and this will significantly affect your annual tax liability. For example, you sold shares.

    22

    Current business structure not continuing

    Your current business has stopped trading or has changed its structure. For example, you have permanently closed your business.

    23

    Significant change in trading conditions

    Abnormal transactions relating to your business income or expenses will significantly affect your annual tax liability. For example, you have bought a major piece of machinery.

    24

    Internal business restructure

    You have restructured your business. For example, you have expanded or contracted it and this will significantly affect your annual tax liability.

    25

    Change in legislation or product mix

    A change in legislation or the product mix of your business will significantly change your annual tax liability.

    26

    Financial market changes

    Your business has been affected by domestic or foreign financial market changes. This reason code is for businesses involved in financial market trading, including those whose income is affected by changes in financial products. For example, banks, finance and insurance businesses.

    27

    Use of income tax losses

    You will be using income tax losses, including capital losses transferred from another entity that will significantly affect your annual tax liability.

    33

    Consolidations

    You are a head company varying your consolidated instalments based on your estimate of expected consolidation outcomes for the year. Use this code on your consolidated activity statement.

    Last modified: 26 Jul 2019QC 16159