Most small business who are in touch with their financials will have an idea if they have a hefty income tax bill looming. Some of these guys will try to get in early with their accountants to find out exactly how much they need to pay in income tax, even though the business tax return might not be due until May of the following year. Once the balance of the income tax has been worked out, the general rule was “lets hold off lodging until the return is due”.
The problem that this creates is the surprise PAYG Instalment, which is also known as the “catch-up” PAYG Instalment.
Once the business tax return is lodged, the ATO will re-assess the quarterly PAYG Instalments the small business needs to make. If the lodgement of the income tax return is deferred until May (the last quarter of the financial year), then the “catch-up” payment will also fall into the last quarter, which means there would be a significant payment in July, which is when the June quarter activity statement is due.
Unfortunately, unless the instalment is varied, the small business will need to make this quarterly payment. Just bear in mind that the earlier the return is lodged, the lower the “catch-up” payment will be as this will be spread across the respective quarters. with your BAS’s This will help reduce any unexpected income tax surprises towards the end of the income year.
This Tax Tips Tuesday is brought to you with love by Nudge Accounting. You can read more about PAYG Instalments and other Tax Tips here.