Should I enrol into Pay As You Go (PAYGI) instalments

Pay As You Go (PAYG) instalments is a system that allows individuals and businesses to pay their income tax in instalments throughout the year where the income coming in is not otherwise taxed. This helps to spread the cost of tax over a longer period of time and can help to avoid a large tax bill at the end of the financial year.

PAYG instalments are calculated based on your expected, untaxed income for the year. The trigger could be as low as $500 of notional income. The Australian Taxation Office (ATO) will send you a letter telling you how much you need to pay and when. You can also choose to pay more than the minimum amount if you want to reduce your chances of owing a large amount of tax at the end of the year.

So it’s really the same as Pay As You Go Withholding (PAYGW). That’s what your employer takes out of your pay every week and gives to the Australian Tax Office. Instead of your employer doing it out of your wages – you’re doing it yourself out of money you have earned yourself.

You can vary the rate of instalments or even end it. This is handy if your circumstances change and you think you will get less (or more) income during the year. Be aware that there is the potential for penalties if you vary down but end up being wrong. The ATO will be very suspicious of people who have massively under reported and therefore underpaid their instalments.

If you are self-employed or have a business, you will have to register for PAYG instalments if your annual turnover is over $75,000.

You can pay your PAYG instalments online, by phone, or by mail. The ATO has a number of payment options available, so you can choose the one that is most convenient for you.

Keep in mind that if you do not pay your PAYG instalments on time, you may be charged interest and penalties. Even if you volunteered for it – it is a tax debt like any other. The ATO will also take action to recover any outstanding amounts.

This is not just for the self employed. If you have a rental property, a market stall, do odd jobs for people for money or have a hobby that brings in some extra cash – in other words, any income that is not taxed, consider enrolling into PAYGI.

PAYGI normally happens after you do your tax return and there is a debt. If your tax bill was big enough (and the trigger could be as low as $500 of notional tax) – you will automatically be enrolled in PAYGI by the ATO.

But that is really too late. That means you are already facing a (possibly very large) debt. If you are earning any income other than wages subject to PAYGW then you should consult with your tax agent and find out if it would be a good idea to enrol in PAYGI voluntarily.

If you are starting a new business it can be hard to calculate what you might make (but you can vary up – or down each installment). If your business really takes off you might start slow but end up making really substantial amounts of money. And then face a crippling tax debt at the end of the year. PAYGI lets you forstall that. If you over estimate then you will get a refund when you do your taxes.

It really is better for you to make small payments across the year and avoid a large tax bill at the end of the year. You can go on a repayment plan with the ATO if that happens but you get charged interest until it is paid off. If you are unsure whether you need to pay PAYG instalments, you should contact a tax agent or the ATO.

Your tax agent can enrol you. Or you can ring the ATO on 13 28 66 for businesses or 13 28 61 for individuals . Or, even easier, enrol online via the Business Portal . Or, if you are an individual or sole trader you can also do it via MyGov (once you have added the ATO portal to MyGov).

Here are some of the benefits of paying PAYG instalments:

  • It can help you to spread the cost of tax over a longer period of time. You are essentially paying your tax throughout the year instead of all at once at the end of the financial year. This can help you to manage your cash flow.
  • It can help you to avoid a large tax bill at the end of the year. This can be a financial burden and can also lead to penalties and interest charges. The ATO will get it’s money and it will cahrge interest until you have paid in full.
  • It can help you to stay on top of your tax obligations. Taxation is a normal business expense and you should treat it the that way. Don’t put it off for the future.

You can work out how much you should pay HERE

Here is the page on the ATO website to read all about it: PAYGI Instalments

Don’t forget to get professional advice about PAYGI (or anything to do with taxation). You can always call us on 1300 268 800 for a word of advice.