PAYG Instalments

Pay As You Go (PAYG) Instalments is a system for paying instalments during the income year towards an entity’s or individual’s expected tax liability on business and investment income. The actual tax liability is worked out at the end of the income year when the annual income tax return is assessed. PAYG instalments paid during the year are credited against the assessment to determine whether the entity or individual owes more tax, or is owed a refund.

The Australian Taxation Office (ATO) will contact entities and individuals who are required to pay PAYG instalments, notifying them of their instalment rate. This is calculated according to information in the last assessed income tax return. PAYG instalments may be included as part of an activity statement, or a separate instalment notice may be issued. The ATO may now issue the PAYG notices electronically.

The instalment is calculated as the instalment rate multiplied by business and investment income for the instalment period. The main advantage of this method is that instalments are based on income as the entity or individual earns it, instead of a projection based on the previous tax situation. Some entities, and all individuals, may however choose to pay an instalment amount calculated by the ATO, which is based on the most recent tax assessment plus an uplift factor (this is the default method for all individuals, certain trustees, and certain other entities). This decision needs to be made before the due date for payment of the first instalment for each income year, and then applies for the remainder of that year.

Entities and individuals can vary an instalment if they believe the instalment rate, or the ATO calculated instalment, will result in paying more or less than the expected tax liability for the year.

Instalments are generally payable quarterly, but some entities may be able to pay annually and certain large taxpayers are required to pay monthly.