Pay As You Go Instalments
PAYG-I
PAYG-I stands for Pay As You Go Instalments. They are like instalment or pre payments the ATO kind of make you pay towards your end of year income tax debt.
We like these because they help us (force us) to put money aside for tax. Instead of it sitting in our bank, teasing us and tempting us, it goes to the ATO usually at the end of each quarter. It can help to ease cash flow and to be ahead of the game. It means when you lodge your tax return, you have already paid a decent chunk of the tax debt already. If you paid too much, you get a refund!
I imagine the ATO like this set up much better than chasing everyone after they lodge their tax returns. They have to manage cash flow too!
You can read all the official info on the ATO website, or keep reading here for the much simpler and useful summary.
Who has to pay this?
You can voluntarily sign up to this 'program'. This might be a good idea if you are not too good at managing your money.
Most often times though, the ATO are kind enough to set you up on the program themselves... and send you a confusing letter to notify you. They figure out who should be doing PAYG-I by looking at the last tax return you lodged.
Some key terms, from the ATO:
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"Estimated or notional tax: We estimate your tax by taking the business and/or investment income reported on your most recently lodged tax return and applying current income tax rates to it. We exclude net capital gains from your income, unless you‘re a superannuation fund or self-managed super fund.
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Instalment amount: Your instalment amount is based on your most recent tax return and includes an adjustment based on likely changes in the economy."
Usually you will be signed up if your instalment income was $1,000 or more (or over $2m for a Company), and/or if your estimated or notional tax is more than $500.
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"Instalment income: This is the business and/or investment income you reported on your last tax return, excluding any statutory income (income that's assessable because of tax law, for example, capital gains). Find out what items are included in instalment income.
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Instalment rate: This is the percentage figure you use to work out how much you need to pay. It helps to make sure the total instalments you pay are as close as possible to the tax that will be payable on your business and/or investment income once you lodge your tax return for the year."
When and how much do we pay?
Don't worry, the ATO will let you know this (in that really confusing letter they send you). This might come through snail mail or MyGov.
Once you are signed up, each period (usually each quarter) they will send you a business activity statement ("BAS"), or an instalment notice, to complete. This lets you know when the payment is due and how much it is. The ATO has some handy instructions here.
There are two methods of calculating how much to pay:
- Instalment amount - just pay what the ATO says, basically
- Instalment rate - if you have lumpy income, then apply the ATO set rate to your instalment income to figure it out each period.
If you are registered for GST or PAYG-W then pop the PAYG-I amount in your BAS. It goes in section T7 (or T9 if you are varying it).
If you have nothing else to report (like GST, or PAYG-W), and no variations to make, then you can just pay the PAYG-I amount and you don't need to worry about the paperwork.
If you think that by making these payments you will over or under pay your total tax bill for the year, then you can vary the amount. You do this on the form, but you have to give a good reason!
It might seem like a pain in the bum - more admin, and more payments to make - but let's look at it like an opportunity to get ahead! No longer will you be behind on your tax. No more debts. Better cash flow management. Boss mode engaged.
That's basically it!! If you get a confusing letter from our friends at the ATO and you need a hand understanding your obligations, or want us to take over the reporting for you, just let me know.
You might also like to check out our VIDEO on How To Save For Tax here.
xxx Lauren
