PAYG Instalments In A Nutshell

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ATO PAYG Instalments

Whether you run your own business or earn investment income, planning ahead for your income tax is important to help you keep a healthy cash flow.

PAYG instalments help you do this, this is how it works:

  1. You enter the PAYG instalments system. You may be entered automatically, or you can voluntarily enter.
  2. You make regular payments (instalments) during the year, usually once every 3 months. The amount you pay is based on your business and investment income.
  3. When you lodge your tax return, the PAYG instalments you have paid during the year are offset against your tax, leaving you with little or no tax to pay.

PAYG instalments are different to PAYG withholding. With PAYG withholding, employers collect tax from the payments they make to their employees, and send it to the ATO, so employees don’t have a big tax bill at the end of the year.

Automatic entry to PAYG instalments

If you lodge a tax return with instalment income above the entry threshold, you may be required to pay PAYG instalments.

Entry thresholds

The ATO work out whether you need to pay PAYG instalments based on information you reported in your latest tax return.

One of the things they look at is your instalment income. This is your gross business and investment income, excluding GST and any capital gains.

If you are an individual (including a sole trader) or trust, you will automatically enter the PAYG instalments system if you have all of the following:

  • instalment income from your latest tax return of $4,000 or more
  • tax payable on your latest notice of assessment of $1,000 or more
  • estimated (notional) tax of $500 or more

A company or super fund will automatically enter the PAYG instalments system if any of the following apply:

  • it has instalment income from its latest tax return of $2 million or more
  • it has estimated (notional) tax of $500 or more
  • it is the head company of a consolidated group

Voluntary entry to PAYG instalments

If you are new to business, or you think you will earn business or investment income over the threshold, it’s a good idea to voluntarily enter PAYG instalments.

Prepaying your tax through PAYG instalments will help you smooth out your cashflow and avoid a large tax bill when you lodge your tax return.  To request to start PAYG instalments just log in to your myGov account, which is linked to the ATO’s Online services.  Select Tax > Manage > Tax Registrations > Add New Registration then select PAYG Instalment from the drop down menu.   You can also call the ATO on 13 28 61 to set this up.

 

Author

Peta Stephen