Tax Facts - 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 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.
PAYG instalments for individuals are generally paid quarterly. Where the most recent annual tax liability on business and investment income is less than $8,000 and certain other conditions are met, individuals can choose to pay an annual instalment. For more information see Annual PAYG instalments. A special two instalment option is available to some primary producers and special professionals (e.g. sportspersons, artists, inventors and authors).
Partnerships and trusts
Partnerships and most trusts are generally not required to pay PAYG instalments. However, special rules apply to partners and beneficiaries when calculating their own PAYG instalments.
PAYG instalments for companies are generally paid quarterly. Companies can choose to pay an annual instalment if they meet the criteria that apply to individuals, plus some additional conditions. Companies will be required to pay monthly if their income exceeds $100 million ($20 million if they are the head company in a consolidated group or required to remit GST monthly). Companies can pay the amount notified by the ATO if their income is less than $2 million, they are a small business entity (or would be if the turnover limit was $10 million up to 1 July 2021 or $50 million thereafter), or they could pay an annual instalment but chose not to.
PAYG instalments for superannuation funds are generally paid quarterly. Superannuation funds can choose to pay an annual instalment if they meet the criteria that apply to individuals noted above. Superannuation funds will be required to pay monthly if their income exceeds $100 million ($20 million if they are required to remit GST monthly). Superannuation funds can pay the amount notified by the ATO if their income is less than $2 million or they could pay an annual instalment but chose not to.