PAYG Instalments — paying tax in advance

After you lodge a return showing business or investment income over about $4,000, the ATO will issue a notice for the next year setting an instalment amount or rate. Companies are usually put on instalments from year one. The amount is based on the prior year's tax outcome scaled to your current quarter's income.

Two methods: instalment amount (the ATO tells you a fixed dollar figure each quarter — simplest, but doesn't adjust for changes in your income) or instalment rate (a percentage applied to your actual quarter's income — adjusts automatically). You can switch methods once per year. Most businesses with variable income choose the rate method.

If your income drops materially mid-year — a contract ends, a tenant leaves, an injury halts the business — you can vary the instalment down. The variation needs to be reasonable: significantly under-varying triggers GIC if year-end tax exceeds 85% of what the instalments would have produced. We help clients model the variation rather than guess.

Different beasts. Instalments are paid by you on your own income. Withholding is tax taken out of payments you make to others (employees, contractors). Both can appear on a single BAS or IAS, but they're separate fields with separate logic.

· Not varying down when income obviously drops — paying the ATO money you'll get back six months later as a refund · Varying down too aggressively and getting a GIC charge on top of the under-payment · Forgetting that PAYG instalments don't replace the annual return — they're credited against the year-end tax bill · Treating an instalment as a final tax — it isn't, it's a pre-payment

Whenever the instalment number doesn't match your reality. Variations are usually simple and we include them in our quarterly BAS / IAS service. Reviewing the instalment annually is part of the year-end engagement.