PAYG instalments explained: who pays them, how the amount is set, and when

What PAYG instalments are

PAYG instalments are prepayments of expected income tax. They are required for taxpayers who have business or investment income that exceeds certain prescribed thresholds. These instalments are paid either quarterly or monthly. compliance calendar tool

The Australian Taxation Office administers the PAYG instalments system. The instalments are credited towards the taxpayer’s final income tax assessment. Any difference between the instalments paid and the final assessed tax is reconciled when the annual tax return is lodged.

• Payments are made quarterly or monthly.
• The system applies to taxpayers with business or investment income.
• The Australian Taxation Office manages the system.

Who is in the system

The PAYG instalments system applies to taxpayers the ATO considers likely to owe a material amount of income tax, based on their previous year’s tax return. This determination triggers their inclusion in the system.

Various entity types can be part of the PAYG instalments system. These include individuals, companies, trusts, and super funds. Eligibility depends on the taxpayer’s income profile.

Generally, those who only receive salary and wages are not required to pay PAYG instalments. Their income tax liability is typically covered by the PAYG withholding from their employer.

Two calculation methods

PAYG instalments can be calculated using two methods. Method 1 involves the ATO pre-printing an instalment amount. This amount is based on information from the most recent tax return. Taxpayers pay this printed amount for each instalment period, unless they choose to adjust it.

Alternatively, Method 2 uses a pre-printed instalment rate provided by the ATO. Under this method, the taxpayer applies this rate to their actual instalment income for each period. This means the amount paid can fluctuate depending on the level of income received.

Taxpayers have the ability to vary the instalment amount or rate under either method. However, it is important to recognise that significantly underestimating the amount payable – a variation more than 15% below actual – may result in a general interest charge and a penalty.

Due dates

PAYG instalments are due at regular intervals, depending on the taxpayer’s circumstances. Most employers pay PAYG instalments quarterly.

The standard due dates for quarterly PAYG instalments are 28 October, 28 February, 28 April and 28 July. These dates reflect a payment deadline of 28 days after the end of each corresponding quarter. Registered tax agents and BAS agents may be eligible for concessions to these dates.

Some high-turnover taxpayers are required to pay PAYG instalments monthly. These monthly instalments are due on the 21st of the following month. Failure to meet these due dates will result in the application of penalties and the general interest charge.