Demystifying PAYG Instalments What You Need to Know and How to Stay on Top of Your Tax Obligations
- Arnold Shields
- Apr 17, 2023
- 2 min read
Updated: May 16
PAYG (Pay As You Go) instalments are prepayments made throughout the year to the Australian Taxation Office (ATO), helping you manage your tax obligations and avoid large bills at the end of the financial year. These payments go toward your expected tax liability, easing cash flow and reducing the risk of debt.
Who Needs to Pay PAYG Instalments?
You may be required to pay PAYG instalments if:
You're an individual earning income outside of salary and wages (e.g. investment, business, freelance work)
You're a sole trader, partnership, trust or company earning business income
Your income meets the ATO threshold that triggers instalment obligations
If you're new to business or recently earned more than expected, the ATO may notify you that you’ve entered the PAYG instalment system.
How Are PAYG Instalments Calculated?
The ATO uses your prior tax return to estimate what you'll owe and sets your PAYG instalments accordingly. There are three main calculation methods:
Instalment Amount: The ATO calculates a fixed quarterly amount based on your last tax return.
Instalment Rate: You apply a percentage rate (provided by the ATO) to your current income for each quarter.
Estimated Tax: You calculate your own expected tax for the year and divide it into instalments.
You can choose a method that best suits your circumstances, as long as you're eligible.
How to Pay Your PAYG Instalments
Most PAYG instalments are due quarterly in October, February, April, and July. The ATO will send you an activity statement or instalment notice.
Payment options include:
BPAY: Fast and easy via your online banking with the ATO reference number.
Direct Debit: Automatic deductions on the due date.
Credit Card: Pay online using the ATO payment portal.
Cheque: Still accepted, but becoming outdated and slower.
What Happens if You Don’t Pay?
If you miss a PAYG instalment or pay late:
Interest may apply on the unpaid amount
Penalties could be issued
The ATO may issue an amended assessment, estimating your liability, often resulting in a higher tax bill
Your business could be subject to compliance action
Staying on top of PAYG instalments is vital for cash flow and avoiding unnecessary stress.
Don’t Let Tax Bills Creep Up on You
Managing PAYG can be complex, especially when your income fluctuates. Dolman Bateman’s expert team can help you:
Choose the right instalment method
Accurately forecast your tax liability
Stay compliant and avoid penalties
Need help with PAYG instalments? Contact us today or call (02) 9411 5422.
Disclaimer:
The information provided in this article is general in nature and does not constitute personal financial, legal or tax advice. While every effort has been made to ensure the accuracy of this content at the time of publication, tax laws and regulations may change, and individual circumstances vary. Dolman Bateman accepts no responsibility or liability for any loss or damage incurred as a result of acting on or relying upon any of the information contained herein. You should seek professional advice tailored to your specific situation before making any financial or tax decision.
