PAYG instalments (Pay as You Go)
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PAYG Instalments is a system that allows individuals to make regular payments to the Australian Taxation Office (ATO) to cover their annual tax liability. To be eligible for the instalment system, an individual’s income from their business and/or investments must be greater than $4000, and the amount due on their most recent Notice of Assessment must be greater than $1000 estimated (notional) tax of $500 or more.

There are two ways to pay the PAYG instalment. The first option is to pay the amount suggested by the tax office, which is based on a calculation from the previous year’s tax return. The second option is to use the percentage figure suggested by the ATO, multiplied by the instalment income for that period. As a Registered Tax Agent, I mostly see the first option used by my clients.

Any payments made throughout the year are factored into the end of year tax return calculations. If an individual has paid too many PAYG Installments, they will receive a refund. If they have not paid enough, they will receive a bill.


However, some exclusions apply. Individuals will not be placed on the system if their notional tax (an estimate of tax payable on investment and business income, calculated by the ATO, is less than $500, or they are entitled to the senior’s and pensioner’s tax offset.

Automatic Entry

Once an individual meets the eligibility criteria, the ATO will automatically place them on the PAYG instalment system, and they will receive a notification after receiving their current year’s Notice of

Voluntary entry

Quite often you will know in advance that you will be put on the instalments system when your next tax return is lodged. If this is the case you can request voluntary entry by contacting the ATO. For some, this can be helpful when budgeting for the end of year tax liability.

When contacting the ATO you will need to know an estimate of the amount of tax that will need to be paid, let’s say you calculate $8000 per year in tax then $2000 will need to be paid each quarter which amounts, to approximately $155 per week.

Varying the amount you pay

If an individual’s income changes from the previous year’s tax return, they can vary their quarterly PAYG amounts. The instalment rate can be varied up or down, but most variations are downward (of course). After the tax return is lodged, the ATO will check if the varied amount is greater than 85% of the tax payable. If it is less, the individual may be subject to a general interest charge on the difference.

Frequency of Instalments

The default for many taxpayers is a quarterly instalment cycle where 25% of the notional annual amount due is paid quarterly. The first instalment is due on October 28, and the following instalments are due on February 28, April 28, and July 28. Individuals can request to pay annually if the notional amount of tax is less than $8000, with a payment due on October 31 after the end of the financial year.

Some primary producers and special professionals such as sports professionals and authors may qualify for a two-instalment option. They must pay 75% of their annual PAYG liability by April 28 and the remainder by July 28.

Exiting the PAYG Instalment system

Individuals will exit the PAYG instalment system if their instalment income is less than $4000, the amount of tax due is less than $1000, the notional tax is less than $500, they are entitled to the seniors and pensioners tax offset, they lodge a final tax return, their accountant lodges a ‘further return not necessary,’ or they notify the ATO that they do not need to lodge a return. They can also contact the ATO if their circumstances have changed sufficiently for them not to be on the system, but simply wanting to pay the tax at the end of the year and not quarterly is not a sufficient reason.

What is Instalment Income?

Below is a list of income that is classed as being instalment income, if the total of any of these combined is greater than $4000, this part of the criteria is met:

  • gross rent
  • dividends received or reinvested on your behalf (do not include imputation credits)
  • royalties
  • foreign pensions that are assessable in Australia
  • your share of the income from a partnership or trust
  • foreign income
  • interest received or credited to an account
  • gross sales (excluding GST)
  • gross fees for services (excluding GST)
  • income earned from the sale of goods or services you sell or supply
  • the gross amount of income if tax was withheld because you did not provide your tax file number (TFN) or Australian business number (ABN)
  • withdrawals from farm management deposits – if you make a farm management deposit, this reduces your instalment income for that period
  • fuel tax credits

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