If you’ve received a notice from the ATO that you are now registered for PAYG Instalments, you might be wondering what that means.

Firstly, it’s good to note that PAYG Instalments are not an extra tax that you have to pay.  Think of it like a pre-payment of tax to help you avoid a giant tax bill when you lodge your return at the end of the year. It’s kind of like paying off your new mobile phone in monthly instalments rather than having a big financial hit all at one.

Why have you been registered?  Usually you will be registered for PAYG Instalments after you lodge a tax return that resulted in a tax bill. Essentially, the ATO wants you to avoid having a similar situation again this year so they’ll ask you to start paying some of the income tax in advance so it’s not such a big chunk all at once.

How much do you have to pay?  The ATO will tell you how much the instalment is, which is usually an estimate based on how much tax you paid on the last tax return.  If your situation is different this year and you’re not earning as much then you can vary the instalment to make it lower.  Just make sure you don’t vary your instalment down and then end up having a tax bill….the ATO will think you were just trying to avoid paying tax and can penalise you.

How do you pay?  If you’re already registered for GST, you’ll pay the instalment on your quarterly Business Activity Statement (BAS).  It will be an additional section on the BAS.  If you’re not already lodging a BAS, then you will be issued an Instalment Activity Statement (IAS) to pay the instalment each quarter.

What are the benefits?  We like to think of PAYG Instalments as a good thing for you and your business because…

• you can avoid big tax bills at the end of the year,
• you can better manage your cashflow with predictable, regular payments,
• if you overpay you get a refund with your tax return,
• you can basically put your tax payments on auto-pilot and not have to stress all year about what you might owe at the end of the year.