If you earn income from investments such as interest, dividends, rent or royalties, it’s important to plan ahead. Use PAYG instalments to help reduce any potential tax bill when you lodge your tax return.
How PAYG instalments work?
Pay as you go (PAYG) instalments allow you to make regular payments during the income year towards your expected end of year tax liability. By making regular payments, you will reduce any potential amount you may have to pay when you lodge your tax return at the end of the income year.
Automatic entry
ATO will enter you into PAYG instalments if you meet all of the following criteria:
- your instalment income – including investment income – from your latest tax return is $4,000 or more
- the tax payable on your latest notice of assessment is $1,000 or more
- your estimated (notional) tax is $500 or more (your estimated or notional tax is the amount payable after applying current income tax rates to your instalment income, excluding capital gains, in your most recent tax return).
ATO will send you a letter explaining how PAYG instalments work and what you have to do.
Voluntary entry
If you’re expecting to make a profit from your investments, it’s a good idea to voluntarily enter PAYG instalments. You will need to estimate your annual instalment income and your allowable tax deductions so you can work out how much to pay.
You can voluntarily enter using your myGov account linked to the ATO:
- go to Tax
- select Manage
- then Enter PAYG instalments.
You can also enter through your registered tax agent by phoning ATO on 13 28 61.
For more information on how to start paying PAYG instalments voluntarily, visit ato.gov.au/paygientry or speak to us on 08 6333 0364, 08 6333 0375.
Calculating your PAYG instalments
You can choose from two options to work out how to pay:
- instalment amount is the simplest option as you pay the amount ATO calculate for you
- instalment rate is when you work out the amount you pay using your investment income and allowable tax deductions and the rate ATO provide. Calculating by instalment rate is best if your instalment income changes regularly. You will need to apply the rate to your income for each period.
Varying PAYG instalments
You can vary your PAYG instalments on your instalment notice if you think using the current amount or rate will result in you paying too much or too little in instalments for the year. This may happen if your investment income reduces or increases compared to the prior tax year. Your variations must be lodged:
on or before the day your instalment is due before you lodge your tax return for the year
Review your tax position regularly as you can vary your instalments multiple times throughout the year. The varied amount or rate will apply for the remaining instalments for the income year or until you make another variation.
For more information on varying PAYG instalments, visit ato.gov.au/varypaygi or speak to us.
