PAYG Instalments - What’s that?
Whether you run your own business or earn investment income, planning ahead for end of year income tax is important to help you keep a healthy cash flow.
“Pay As You Go” (PAYG) instalments can help you do this. By making quarterly payments throughout the year, also known as instalments, you shouldn't have to pay a large tax bill when you lodge your tax return.
Your payments are made based on your business and/or investment income (which is also known as instalment income). When your accountant - hi hello! - lodges your tax return, all the amounts you've paid during the year will be offset against any tax you owe for the year.
Your accountant - hi hello again! - is able to vary the quarterly instalment amounts up or down, however there is only a small window of time between when the instalment is issued and when it can be varied.
If you pay too much, an amount will be refundable to you by the ATO. If you pay too little, you will need to pay the balance owing.
Why am I on this system?
The ATO decides who is eligible for PAYG and who is not; they work out whether you need to pay PAYG instalments based on information reported in your latest tax return. The ATO has outlined in the following tables reasons why you may have entered PAYG instalments:
Individuals & Trusts
Instalment income from your latest tax return - $4,000 or more
Tax payable on your latest notice of assessment - $1,000 or more
Estimated (notional) Tax - $500 or more
Companies & Super Funds
Instalment income from your latest tax return - $2 million or more
Estimated (notional) tax - $500 or more
You're the head of a consolidated group - $0 or more
When you need to pay your income tax by instalments, your accountant - hello! - will let you know. Before your PAYG instalments are due, they’ll send an activity statement or instalment notice letting you know when your payment is due and how much to pay.
How can I get off this system?
The ATO will automatically remove you from the PAYG instalments system when you no longer have to pay instalments.If you think you no longer need to pre-pay your income tax using PAYG instalments, you may be able to exit the system. For more information about seeing whether you’re eligible to stop your PAYG instalments, click here.
If you’ve got any questions about PAYG we’re more than happy to help! Send us an email to info@summerhilltax.com.au. We’d love to hear from you.
