Tax tips, accounting, PAYG Instalments, bookkeeping, small business, nudge accounting, startupsSo you have been organised this year and have prepared the Income Tax Return for your small business. Last year was a great year, which means that you are stuck with a tax bill. At first you think lets lodge it on the last day so I can defer paying the tax as late as possible.

What does this mean for the quarterly PAYG Instalments you have to pay?

Lets look at an example:
A small business works out the taxable income for the year ended 30 June 2014 is $100,000. Company income tax on this is $30,000.

The company has paid quarterly PAYG Instalment of $2,000 per quarter. The total PAYG Instalments is $8,000.

On this basis, the balance of the income tax payable when the return is lodged is $22,000.

Depending on when the income tax return is lodged, the small business will need to make a catch up PAYG Instalment in that quarter. What this means for the PAYG Instalments is as follows:

(a) If the income tax return is lodged in the September 2014 quarter, the quarterly PAYG Instalments going forward will be approximately $7,500 per quarter.

(b) If the income tax return is lodged in the December 2014 quarter, the quarterly PAYG Instalment for the December quarter will be approximately $13,000, then $7,500 for the following quarters.

(c) If the income tax return is lodged in the March 2015 quarter, the quarterly PAYG Instalment for the March quarter will be approximately $18,500, then $7,500 for the following quarter.

(d) If the income tax return is lodged in the June 2015 quarter, the quarterly PAYG Instalment
for the June quarter will be approximately $24,000.

Bear in mind for the above example that the quarterly instalments remain at $2,000 per quarter until the income tax return is lodged.

So in summary, once a return is lodged, the ATO will reassess the quarterly PAYG instalments. We just need to be aware of how this is calculated so business cash flow for the rest of the financial year is not so lumpy.

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.