Mastering the PAYG Instalment System

Let’s talk PAYG instalments Australia's way of helping you stay ahead on tax for your business and investments, without the dreaded lump-sum shock at tax time.

What are PAYG Instalments? In simple terms, the ATO asks you to make steady payments during the year towards the tax on your business and investment income. Think of it as spreading out the tax load, so payday feels a little less taxing.

Who is eligible to join the PAYG instalment system?

Once your business and investment income exceeds $4,000 and your tax payable on that income is more than $1,000 (according to your latest lodged tax return), the ATO will likely invite you to join the instalment system.

How often do you pay?

Quarterly is the norm. Some can opt for annual payments, while the big players (think large practices or groups) might pay monthly.

How do they crunch the numbers?

Your instalments are based on an estimate of tax from your latest tax return related to business and investment income. You’ve got two ways to calculate what you owe:

• Option 1: Stick with the fixed amount the ATO calculates for you, the easy option.

• Option 2: Use the instalment rate multiplied by your gross business and investment income (e.g., $15,000 x 20% = $3,000).

  
  

You decide which fits best when you make your first instalment of the financial year (usually September). Whichever path you pick, it stays the course for the year.

What’s the best fit for you?

Most people play it safe with the ATO-calculated fixed amount, as it's less hassle and less head scratching. However, if your income fluctuates significantly from quarter to quarter, the rate method may be your secret weapon for a smoother cash flow.

What counts as instalment income?

• Gross business income

• Gross rent

• Interest income

• Dividends (after imputation credits)

• Foreign income (including assessable foreign pensions)

Can you adjust your instalments?

Absolutely. If the ATO’s estimate feels off and your predicted tax changes, you can manually change your instalment amount. But here’s the fine print: if you reduce it too much and end up with a tax shortfall bigger than 15% at tax time, the ATO might charge interest. So, no sneaky underpayments!

Need a hand navigating PAYG instalments?

Tax can be tricky, but you don’t have to go it alone. Drop us a line for expert guidance that keeps your practice’s finances on the up-and-up, minus the jargon and stress. After all, your focus should be on patients, not paperwork.