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PAYG income tax instalments (Australia)

If you're having to think about PAYG instalments, congratulations! While you might begrudge having to pay them, it means you're earning enough to be on the ATO's radar for these instalment payments.

So what are they exactly, and how to do they work?

First up, PAYG instalments are quite different than PAYG withholding tax, which relates to your employees and which you can read about here.

PAYG instalments can apply to:

  • Your startup company or business
  • Your family trust (if you have one)
  • You personally, as a startup founder

Basically, if any of these entities earn over a certain amount, the ATO says you need to pay income tax instalments to go towards your end-of-year tax obligations.

The ATO lists these income thresholds on its website here.

You will then have to pay PAYG instalments as part of your quarterly BAS.

This usually comes about after the annual tax return has been lodged. If your annual income has reached the ATO's threshold, the ATO will then include a PAYG instalment requirement in your next BAS, as either:

  1. a fixed quarterly amount, calculated based on your income from your last tax return
  2. a percentage amount using a multiplier that the ATO provides

Most of our clients prefer option 1, so we will use that when doing your BAS calculations and will send you the Activity statement for e-signing.

But if you prefer to use the percentage method instead (option 2 above), which can be the better option if your income fluctuates significantly during the year, just let us know and we'll send you a revised Activity Statement to sign off on.

So why are PAYG instalments not all bad?

No one likes paying tax but this system spreads it out during the year, which is usually a better way to manage your cashflow. And we all know how important that is!

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