Have you received a PAYG instalment notice?

In Australia, the PAYG (Pay-As-You-Go) system helps individuals and businesses meet their tax obligations gradually throughout the year, reducing the burden of a large lump sum at tax time. The system has two key components: PAYG instalments and PAYG withholding tax, each affecting different groups of taxpayers.

PAYG Instalments primarily apply to businesses, sole traders, and individuals with substantial investment income. If you are in this bracket, you are required to make regular payments on your expected tax liabilities for the year, ensuring you stay ahead of your tax obligations. PAYG instalments often apply to those earning income outside the traditional employment model, such as self-employed individuals, freelancers, or investors with rental or dividend income.

The Australian Tax Office (ATO) will notify taxpayers if they are required to enter the PAYG instalment system. This generally occurs when a taxpayer’s annual income from business or investment exceeds a certain threshold or if they have a significant tax bill in the previous year. Commonly, sole traders, freelancers, or individuals earning income from rent, dividends, or capital gains fall into this category.

PAYG instalments are calculated based on your most recent tax return. The ATO either uses a set rate determined by your income or offers the option to choose your instalment amount, depending on your forecasted income for the current year.

If you have received a PAYG instalment notice, you must make quarterly instalments, typically in September, December, March, and June. These payments go towards covering income tax. You will receive an Instalment Activity Statement (IAS) each quarter, which details how much you need to pay and when. If your income fluctuates, the PAYG system offers flexibility. You can adjust your instalment amount if you expect a significant increase or decrease in your income.

The PAYG instalment system is designed to make tax management easier for those whose income isn’t taxed at the source. By paying taxes in regular instalments throughout the year, you help spread the financial burden, ease cash flow concerns, and reduce the likelihood of an unexpected tax bill.

If you’ve received a PAYG notice, it’s based on the tax payable from your last income tax return. The ATO uses this as an estimate of your expected tax obligations for the current year.

However, if your income situation has changed—such as a decrease in earnings or major shifts in your business activity, you’ve sold investments or have been on maternity leave —the amount you’re required to pay may no longer be accurate. This is where we can help! We can review your circumstances and work with the ATO to adjust your instalments. There’s no need to worry if your financial situation has shifted; adjustments can be made to ensure you’re not overpaying.

Let us know if your circumstances change. Perhaps you’re on maternity leave, business activity has decreased, or you’ve transitioned from a sole trader to an employee. Please let us know if your income will be lower than last year. We can review the figures and help you adjust your instalments accordingly. Remember, the number on your PAYGI notice is not set in stone. Give us a call, and we can work through the details.

If you are a company, the PAYGI may be included as part of your Business Activity Statement (BAS) if your business is registered for it. If your income projections for this year are lower than expected, adjusting your instalments is crucial. Just like with individual taxpayers, we can assist with varying your payments to reflect your current financial position.

It’s important to remember that while the quarterly instalment system is mandatory, we can still work within it. If your financial circumstances change, we’re here to ensure that your PAYGI is fair and reflects your current situation.

North Advisory, located on Sydney’s Northern Beaches, is ideally positioned to assist you and your business with expert financial management, taxation planning, and implementing financial strategies tailored to your needs and industry. We specialise in small to medium businesses across various sectors and have a diverse financial team with expertise at every touchpoint.

Marius Fourie, Director and Accountant, is a leading business accountant and advisor. He has helped many Australian business owners maximise their financial position and leverage opportunities leading to sustained and profitable growth.

Contact Marius today and secure your business’s financial future.