PAYG Instalments are regular tax prepayments towards a taxpayer’s expected income tax liability, due to their business and investment income.
PAYG Instalments paid during the year are credited against your income tax liability when your tax return is lodged.
In general, the purpose of the PAYG Instalments System is to ensure the efficient collection of income tax and to avoid instances of taxpayers paying large tax bills after lodgement of their tax returns (i.e. paying their entire income tax all at once after lodgement).
By prepaying your income tax throughout the year, you are reducing the amount of income tax payable when lodging your tax return.
Taxpayers are automatically entered into the PAYG Instalments System if their instalment income (business and investment income, excluding GST and any capital gains) is above the ATO’s entry thresholds.
Individuals (including sole traders) are automatically entered into the PAYG Instalments System if they have all of the following:
Companies and super funds are automatically entered into the PAYG Instalments System if any of the following apply:
The ATO will issue a letter to taxpayers when they have been enrolled into the PAYG Instalments System.
Voluntary registration to the PAYG Instalments System is available.
PAYG Instalments are calculated by the ATO based on a formula using the information from your most recent tax return lodged.
There is also another option to calculate your PAYG Instalments based on an instalment rate provided by the ATO.
You may be able to vary your PAYG Instalments if your total PAYG Instalments will be more, or less than your expected tax for the year (i.e. if your financial situation or circumstances have changed). Please note that varying your PAYG Instalments too low may result in interest charges and/or penalties.
Also, please note that the lodgement of subsequent tax returns will result in a change to your PAYG Instalments. The ATO will recalculate your PAYG Instalments based on the subsequent tax return lodged (most recent tax return lodged).
Most taxpayers pay their PAYG Instalments quarterly. Businesses with instalment incomes of more than $20 million are required to lodge and pay their PAYG instalments monthly.
Depending on your circumstances (i.e. an individual carrying on a primary production business or a special professional according to the ATO), the ATO may offer an option to pay 2 instalments per year or one annual instalment.
The ATO will issue your PAYG Instalments via your Business Activity Statement (for those who lodge BASs) or an Instalment Activity Statement at the end of each quarter.
For most taxpayers (quarterly PAYG Instalment cycle), the due date for quarterly PAYG Instalments is generally 28 days after the end of the quarter. Please see below the ATO’s due dates for quarterly instalments (in a standard income year).
| Quarter | Period | Due Date |
| 1 | July - September | 28 October |
| 2 | October - December | 28 February |
| 3 | January - March | 28 April |
| 4 | April - June | 28 July |
If you would like help with PAYG or have other business matters you would like to discuss please make sure you talk with us about your situation. BLG Business Advisers are Wollongong Accountants who service all across Australia, so our team are always available to guide you and will provide solutions that are specific to your needs.