What on Earth are PAYG Instalments?
Imagine PAYG instalments as your trusty sidekick in the epic quest to conquer your tax obligations. PAYG stands for “Pay As You Go,” and basically, these are all about making regular prepayments towards the tax on your business and investment income. Think of it as paying off a lay-by purchase – by the time you pick up your item, most of the payments are already made, and you avoid a big lump sum payment at the end.
What is the point exactly?
Paying the right PAYG instalments can help you maintain a healthy cash flow and avoid a massive tax bill surprise when you lodge your tax return. Ultimately, the ATO would like you to pay your annual tax spread throughout the year – in instalments.
How Do You Get Started?
If your business or investment income crosses the entry threshold, the ATO will automatically enrol you in the PAYG instalment program. Lodging an income tax return in a payable position due to non-salary & wage income will usually trigger your entry. Examples: A new sole trader business, or the sale of an asset.
I don’t agree with the ATO’s instalment, can I vary this?
Sometimes, your PAYG instalments might need a tweak. Maybe your income level has changed, or perhaps (quite common) you’ve been sent an instalment notice as a result of your last tax return lodgement which included some non-salary & wage income that you won’t receive again (eg investment sale income).
You can adjust your instalments to avoid overpaying or underpaying—just be sure to make any changes by the due date listed on your notice. At Freshwater Tax, we leave your postal address on all ATO correspondence, so we don’t receive physical mail on your behalf. We recommend regularly checking your MyGov inbox for notifications. If you’ve received a PAYG instalment notice, you’ll find it in your MyGov account.
Tools of the Trade
To help you on your quest, the ATO provides a nifty PAYG instalment calculator. When you’re ready to lodge your variation, you can do it through myGov, Online services for business, or with the help of your trusty tax or BAS agent.
I’m not yet in the PAYG Instalment system – can I make voluntary tax payments?
Yes, you can make voluntary payments towards your annual tax liability even if you are not yet on the PAYG instalment system. This can be a proactive way to manage your tax obligations and avoid a large tax bill at the end of the financial year.
To make voluntary payments, you can use the ATO’s online services through myGov or Online services for business. You can also make payments via BPAY, credit card, or direct debit. When making a payment, ensure you use the correct payment reference number (PRN) to ensure the payment is correctly allocated to your account.
If you later become eligible for the PAYG instalment system, the ATO will notify you and provide details on what you need to pay and your lodgment dates.
The Grand Finale
By paying regular PAYG instalments, you’ll avoid the shock of a giant tax bill when you lodge your tax return.
Word of warning: your tax return is required to display all of your PAYG instalments, regardless of if they have been paid. Therefore, when looking at your tax outcome please ensure that you deduct any unpaid instalments from your total refund (or add to your final payable).
For more information, don’t hesitate to get in touch with our team.
