If you lodge a tax return and you owe tax, you may be asked to pay PAYG instalments. PAYG instalments are down-payments towards your estimated future tax.
Who has to pay PAYG instalments?
You have to pay PAYG instalments if:
- have repeating income, e.g. rent, interest, dividends, employee share grants, business income (but not one-off income such as capital gains tax);
- the income does not have tax taken out of it. So wages, super pensions and other taxed amounts don’t count to PAYG instalment calculations.
- owed over $1,000 on their last tax return (or would have owed over $1,000 if they had not paid PAYG instalments.
- The PAYG income is over $4,000.
If you are on the PAYG instalment system, it’s because of the type of income you have, not the amount of the income.
Recent ATO changes to PAYG instalments
If you have been paying PAYG instalments in the past, you might not need to anymore as the ATO has changed its rules.
From 1 July 2014, PAYG instalment thresholds will increase, which may simplify your tax obligations. Increased thresholds may now mean you no longer need to pay instalments. Source: ATO Website, accessed 1 Sep 2014
The main changes are as follows:
- that taxpayers whose prior year tax assessment was under $1,000 no longer need to pay PAYG instalments. But you need to add back PAYG instalments to work it out.
- you must have PAYG income (business or investment) of more than $4,000For example, a taxpayer had a tax bill of $100 in 2013. But she paid $800 in PAYG instalments. So the assessment, not counting instalments, would have been $900. The assessment is under $1,000, so future instalments are not required. If this is your situation, you would have received a letter in August 2014, or after you lodged your 2014 tax return.
Questions about PAYG instalments
Can I vary a PAYG instalment?
Yes. Every time you get an instalment from the ATO you have the option of varying it to a lower amount, or even nil.
You can do this if your business/investment income is lower, or if it has ceased. For example, you were paying PAYG instalments because you had interest income, and you’ve now spent the money. Or you may have been a sole trader, and are now employed.
Warning: you cannot vary the instalment because you don’t want to pay it, because cash flow is tight or because you’d rather defer your tax to the end of the year. If you vary without reason the ATO can backdate interest from the time you should have paid.
Do I have to pay PAYG instalments quarterly?
If the ATO is asking for less than $8,000 per year in PAYG instalments and you are not GST registered then you can lodge annually. This approach involves less paperwork, and it is easier to do a variation on one instalment notice than on four.
I have a business and I am not getting PAYG instalment notices. Should I be getting them?
If you have just started your business and have not yet lodged a tax return showing income over $4,000 in business income you won’t be required to pay PAYG instalments yet. But you can do so voluntarily by calling the ATO on 13 28 66 and asking them to register you for voluntary PAYG instalments for your business.