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<\/figure>\n<\/div>\n\n\nSo they will estimate \u2013 based on past tax returns, how much that future tax debt will be. Then they chop it into four bits and make you pay each of those four bits every three months (every quarter). The idea is that when you lodge your next income tax return \u2013 you have already paid it off during the year.<\/p>\n\n\n\n
(Sparing the poor ATO the chore of chasing you up for big amounts of money).<\/p>\n\n\n\n
If you think about it, this is exactly the same as when you work for a wage. Every time your employer pays you \u2013 you can see on your pay slip that they have deducted a percentage and given it to the ATO for your next income tax.<\/p>\n\n\n\n
When the employer does that it\u2019s called Pay As You Withholding.<\/p>\n\n\n\n
When you do it \u2013 it\u2019s call Pay As You Go Instalments. You can read what the ATO have to say about it HERE<\/a>.<\/p>\n\n\n\n So why do get a bill from the ATO? Usually it\u2019s because you have received some sort of untaxed income. Maybe a rental property, crypto, dividends, royalties or the like. But most commonly it\u2019s because you have started a business of some sort \u2013 either part time or full time.<\/p>\n\n\n\n Tax can be a huge problem for new small business\u2019 and sole traders. Starting a new business is so challenging and is such a huge learning curve that a lot of people put off thinking about tax until it is far too late.<\/p>\n\n\n\n There is nothing worse than thinking you have made a huge profit in your first year and realising that most of it will go to taxes.<\/p>\n\n\n\n Even worse, you\u2019ve already spent it and won\u2019t be able to pay it in full. (If that happens to you \u2013 talk to your accountant about negotiating a payment plan with the ATO).<\/strong><\/p>\n\n\n\n But what happens if your circumstances this year are different from last year? The debt came from a one off event that won\u2019t be repeated. Or your business is not doing as well as it did last year?<\/p>\n\n\n\n Talk to your tax agent about this. Because they can do what is called a \u201cvariation\u201d. You can do it too. From the Online Services for Business portal if you are a company. Or MyGov if you are a sole trader or individual.<\/p>\n\n\n\n In some circumstances you can leave the PAYGI system but you should discuss that one with your accountant.<\/p>\n\n\n Every instalment you get (quarterly for most people) is sent to you as an BAS (Business Activity Statement). If you are enrolled for other tax roles (GST, for example) those roles are part of the same BAS.<\/p>\n\n\n\n But even if you don\u2019t have any other tax roles, don\u2019t have an ABN or have ever had a business \u2013 it will still be sent to you as a BAS.<\/p>\n\n\n\n In the online portals you will see the amount the ATO have decided you should pay on that BAS. Click the \u201cAccept\u201d button and that amount you see on the page is what you need to pay. Click on the \u201cVary\u201d button just underneath and you can vary down (or up) to what ever you think the right amount is.<\/p>\n\n\n\n Remember, you have to do this before the due date of the BAS.<\/p>\n\n\n\n Be careful. The ATO is not pedantic about this but you can\u2019t just put in $0 because you don\u2019t feel like paying tax right now. You have to make sure you have paid the ATO enough to cover your actual income tax debt when you get around to lodging your income tax return for that year.<\/p>\n\n\n\n If you have varied everything to nil on every quarter but you end up with a $20,000 income tax debt \u2013 the ATO will not be happy!<\/p>\n\n\n\n There is a handy calculator on the ATO website that lets you estimate what to vary to. You can find it HERE.<\/a><\/p>\n\n\n\n You might wonder what happens if I haven\u2019t varied your last couple of BAS \u2013 but should have. Since you can\u2019t really revise – you can claim a \u201c5 B credit\u201d on your current BAS instead.<\/p>\n\n\n\n![\"\"](\"https:\/\/wealthpathaccountants.com.au\/wp-content\/uploads\/2022\/09\/coins.jpg\")
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