Pay-As-You-Go (PAYG)

Pay-As-You-Go (PAYG) instalments are a system used by the Australian Taxation Office (ATO) to collect income tax from individuals and businesses throughout the income year. Essentially, PAYG instalments work as prepayments towards an individual’s or entity’s expected income tax liability. This system is designed to help taxpayers manage their tax obligations by spreading the tax burden across the year rather than facing a large tax bill at the end of the financial year. PAYG instalments are typically based on the taxpayer’s most recent tax return or income activity, providing a relatively accurate estimation of their income and tax liability for the current year. They can be amended to suit your changing business circumstances.

There are two main methods through which PAYG instalments are calculated: the instalment amount method and the instalment rate method. The instalment amount method involves the ATO determining a fixed amount that the taxpayer must pay in instalments throughout the year, based on their previous tax return. Meanwhile, the instalment rate method calculates the instalment payments based on a percentage of the taxpayer’s actual income for the current year. Individuals and businesses subject to PAYG instalments are required to make these payments either quarterly or annually, depending on their circumstances and the method chosen. Adjustments can be made throughout the year if there are changes in income or tax deductions, ensuring that the PAYG instalments accurately reflect the taxpayer’s liability.

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