PAYG (Pay as You Go) instalments play a crucial role in managing your tax obligations when you have business, rental or investment income. In this article, we will delve into what PAYG instalments are, when you are required to make these payments, and the reasons behind their necessity.
What Are PAYG Instalments?
PAYG instalments are essentially advance payments of the tax you owe on your business, rental and/ or investment income. These payments are made quarterly, and their amounts are determined based on your anticipated taxable income.
Calculating Your PAYG Instalment
To calculate your PAYG instalment, you have two options: the instalment amount or the instalment rate.
- Instalment Amount:
The Australian Taxation Office (ATO) calculates this amount for you, providing you with a specific figure to pay. This calculation relies on the information reported in your most recent tax return.
- Instalment Rate:
Alternatively, you can calculate your PAYG instalment using the instalment rate. The ATO will provide you with this rate, which is derived from your tax return data. This option is beneficial if your income experiences significant fluctuations, as your instalment amounts will adjust in sync with your income.
Changing Your PAYG Instalments
If your circumstances change, you have the flexibility to vary or stop your PAYG instalments. This adjustment is crucial if your expected taxable income significantly differs from the original estimate, which, in turn, affects your income tax.
It’s important to note that modifying your PAYG instalments will not alter the total income tax you owe for the year. Instead, if you’ve overpaid, the ATO will refund the excess, while any shortfall will be your responsibility. Be cautious, though: if you reduce your instalments excessively and this leads to a tax shortfall of 15% or more, the ATO may charge you interest.
Important Due Dates
PAYG instalments are generally due within 28 days after the end of each quarter. You can conveniently lodge these payments online through your ATO Online Services Account, or you will receive a mailed notice for payment.
In conclusion, PAYG instalments serve as a proactive means of managing your tax obligations for business and investment income. Understanding your options for calculating and adjusting these instalments can help you maintain accurate financial records and avoid unexpected tax liabilities.