Tax tips, accounting, PAYG Instalments, bookkeeping, small business, nudge accounting, startupsPay As You Go Instalments (PAYG Instalments) is the Australian Tax Office’s way of making us prepay our income tax during the year. This means that when you lodge your Income Tax Return for your small business, any PAYG Instalments paid during the year will be a credit against the Income Tax calculated.

So, although no one likes to pay tax, PAYG Instalments helps avoid or reduce the lumpy tax payments at year end. Generally, this is paid through the Business Activity Statements each quarter and the ATO gives two options to calculate how much to pay:

  • PAYG Instalment Amount (this is a fixed dollar amount they provide)
  • PAYG Instalment Method (this is a % that you apply to business or investment income)

Registration for PAYG Instalments will be triggered once the ATO sees your income tax return includes business or investment income (eg dividends, interest, partnership or trust distributions) and, if you are a sole trader, when your income from these sources is more than $4,000.

If you trade through a company, then it will be registered for PAYG Instalments if the notional income tax payable is $500 or if the ATO calculates an instalment rate greater than 0%.

You don’t need to register for PAYG Instalments as it is something that the ATO will do once the tax return is lodged. If you are already registered, then the ATO will revise how much you have to pay or the instalment rate every income year.

This Tax Tips Tuesday is brought to you with love by Nudge Accounting. You can read other Tax Tips here.