Have you recently received a letter from the ATO advising that they have added you to their Pay As You Go Instalment system? You may have questions on what the PAYG instalment system is and why you have been automatically added. Check out our FAQs below.

 

Q: What are PAYG Instalments?

A: PAYG Instalments are a system for paying income tax throughout the year, rather than in one lump sum at the end of the financial year. PAYG stands for "Pay As You Go", meaning that you pay your tax as you earn your income. This system is designed to help people manage their tax obligations more easily and avoid a large tax bill at the end of the year.

 

Q: Who needs to pay PAYG Instalments?

A: PAYG Instalments are generally required for individuals and businesses that earn income that is not subject to Pay As You Earn (PAYE) withholding. This includes people who are self-employed, run their own business, or earn income from investments. If you earn over a certain threshold amount, you may be required to pay PAYG Instalments.

 

Q: How do PAYG Instalments work?

A: PAYG Instalments are based on an estimate of your income for the financial year. The Australian Taxation Office (ATO) will send you a letter or email with your instalment rate and payment due dates. You can choose to pay your instalments quarterly or annually. If you pay quarterly, the ATO will calculate your instalment based on your estimated income for the quarter and the instalment rate. If you pay annually, you will need to estimate your income for the entire year and pay the total amount in one payment.

 

Q: How are PAYG Instalments calculated?

A: PAYG Instalments are calculated based on your estimated income for the year and the instalment rate. The instalment rate is calculated by the ATO and takes into account your previous tax returns and any instalments you have paid in the past. If your income changes during the year, you may need to vary your instalment rate to ensure you are not under or overpaying your tax.

 

Q: What happens if I don't pay my PAYG Instalments on time?

A: If you don't pay your PAYG Instalments on time, you may be charged interest and penalties by the ATO. You may also be required to pay a general interest charge (GIC) on any unpaid amount. It's important to pay your instalments on time to avoid these additional costs.

 

Q: Can I vary my PAYG Instalment amount?

A: Yes, you can vary your PAYG Instalment amount if your income changes during the year. You can vary your instalment rate by contacting the ATO or using the ATO's online services. It's important to keep your instalment rate up to date to avoid under or overpaying your tax.

 

Q: What happens if I overpay my PAYG Instalments?

A: If you overpay your PAYG Instalments, you may be entitled to a refund when you lodge your tax return. The amount of the refund will depend on the difference between your actual income for the year and the amount you have already paid in instalments.

 

Q: Is the PAYG Instalment system voluntary? How can I add or remove myself?

A: If your income is over the threshold, the ATO will automatically add you to the PAYG instalment system. You can also voluntarily add yourself to the PAYG instalment system. If your situation has changed and you would like to remove yourself from the PAYG instalment system, you can apply to the ATO through myGov.

 

As always, if you are in doubt about anything, please feel free to reach out to us and we will be able to assist with any questions.