PAYG Installments

Are you tired of having hefty bills to pay down the road? Do you wish paying your taxes could be done more easily and flexibly? Fret not! Pay as you go Installments are going to completely change the way you manage your finances.

ATO (Australian Taxation Office) has introduced a more flexible option PAYG Instalments (Pay As You Go Installments) for people to pay their huge tax liabilities in relatively small installments to avoid larger bills later on.

Pay As You Go Installments

Pay As You Go Installments Introduction

Pay As You Go Installments is a system in which a small portion of expected tax payments of the income year are paid quarterly.  An entity’s or an individual’s estimated tax burden on business and/or investment income, excluding GST, is paid for in part by the Pay As You Go (PAYG) Instalment system during the income year. 

To calculate the tax liability, the gross sales, service fees, interest and rent earned, trust and partnership payments, dividends, and royalties are added up. When the yearly income tax return is assessed after the fiscal year, the real tax liability is calculated. To ascertain whether an organization or individual owes tax or is entitled to a refund, PAYG installments paid during the year are credited against the assessment.

Two Main Options of PAYG

PAYG offers two payment options: PAYG withholding and Pay As You Go Installments. Let’s find out how each of them works:

  1. PAYG Withholding: A pre-payment of the personal income tax liability on behalf of your employees.
  1. PAYG Installments: A Pre-payment of you’re your own business or investment income tax liability. 

The main difference between PAYG withholding and PAYG installments is that the first one is a tax provision paid on behalf of your employees and the other one is paid on behalf of your own business. In this blog, we will focus on PAYG installments: How the PAYG Installments are calculated, How can you get yourself registered and when are the installments due?

PAYG Eligibility

When an individual’s or entity’s total income tax liability for a fiscal year exceeds the limit specified by ATO is automatically eligible for the PAYG installments system. This includes income generated by business and investments only, GTS and capital gains are excluded. 

People with all of the following are automatically enrolled in the PAYG Instalment System:

  • Revenue from installments of at least $4,000 from your most recent tax return filed.
  • Tax due in the amount of $1,000 or more on your most recent assessment notice.
  • A notional or estimated tax of at least $500.

Businesses and super funds that meet any of the following criteria are immediately added to the PAYG Installments System:

  • $2 million or more in installment revenue from your most recently filed tax return.
  • $500 in estimated (notional) tax.
  • if the organization is the leading business inside a unified group.

After a taxpayer is enrolled in the PAYG Installments System, the ATO will send them a letter.

Pay As You Go Installments

It Is Possible To Voluntarily Register For The PAYG Installments System?

Yes, you can apply for the registration by following these steps to register for PAYG Installments:

  1. Obtain an ABN or Australian Business Number.
  2. If your company generates at least $75,000 in sales tax, you must register for the Goods and Services Tax.
  3. Get into the Business Portal
  4. Pick Your PAYG Installments
  5. Give the Required Information
  6. Select the Calculation Method
  7. Send in the Registration Form

PAYG Installments Calculation

ATO is responsible for contacting and informing the entities and individuals who are required to pay PAYG installments before their due date. ATO notifies them about their current installment rates. The installment rate is calculated by gathering and processing information from the previously assessed income tax returns and the ongoing business activity statements. However, the entities or individuals can vary these installments rated calculated by ATO if they feel their installment rate will result in paying more or less than their expected tax liability. 

The default formula to calculate the PAYG installment for the specified quarter/period is to multiply the calculated installment rate by the business or investment income for the installment period (quarter). The main advantage of this payment method is that tax liability is calculated based on the current income rather than projections based on previous income tax situations.

Alternatively, the taxpayer (individual or entity) may choose to pay the installment amount calculated by the ATO (Australian Taxation Office) which is calculated from the recent tax assessment and an uplift factor. 

However, this decision has to be made by the taxpayers before the due date of their first installment of the fiscal year. The same manner will be followed for the remaining installments.

PAYG Installments Due Date

Usually, taxpayers pay the PAYG Installments every quarter. Businesses with installment revenues over $20 million are required to submit and pay monthly PAYG installments. Whether you are an individual running a major production business or a special professional as defined by the ATO, the ATO may offer you the option to pay in two payments per year or in one installment per year. Your PAYG Installments will be sent to you by the ATO via an Instalment Activity Statement (or, if you submit a BAS, your Business Activity Statement) at the end of each quarter. For most taxpayers, the deadline for quarterly PAYG installments is 28 days after the end of the quarter (quarterly PAYG Instalment cycle). 

1st Quarter: Installments are due for July – September on October 28.

2nd Quarter: Installments are due for October – December on February 28.

3rd Quarter: Installments are due for January – March on April 28.

4th  Quarter: Installments are due for April – June on July 28.

Due Dates For Quarterly Instalments
(standard income year)

QuarterPeriodDue Date
1July – September28 October
2October – December28 February
3January – March28 April
4April – JuneApril – June

If you would like assistance with PAYG or would like to discuss any other business issues, please make sure to address your case with us. Being Wollongong accountants who service the whole country of Australia, our team is always available to assist and will provide solutions that are customized to meet your specific needs.

Read Our Some Of Previous Articles:
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(Tax Return Mistakes)
(Public Ancillary Funds)
(Different Types Of Taxes)

Information and statistics for This Post provided by My Tax Daily.