There’s nothing worse than being caught out by a large tax bill when you lodge your tax return.
If you receive business or investment income which results in a taxable position the ATO will automatically register you for ‘Pay As You Go’ (PAYG) Instalments.
PAYG Instalments are regular tax instalments paid throughout the year. These payments are then offset against any tax that is owed when you lodge your return.
The benefits of PAYG Instalments
PAYG Instalments are designed to make paying your income tax less taxing.
If you pay each instalment when it’s due, ‘paying as you go’ can be as simple as paying any other bill.
Although registration under the PAYG Instalment regime is not ordinarily optional, many people prefer to pay tax through instalments because it allows them to better budget for next year’s income tax and maintain a healthy cash flow throughout the year. Ultimately this makes paying any liability arising from lodgement of your tax return more manageable.
How do I make PAYG Instalments?
With the ATO moving away from paper forms and focusing on electronic delivery (myGov being the chosen platform to facilitate this for individual taxpayers). We strongly recommend all our clients set up and maintain their myGov account.
Firstly, make sure that you’re registered with myGov and your account is linked to the ATO. This will allow any notifications regarding your PAYG Instalments to be sent directly to your myGov inbox. Be sure to monitor this inbox regularly and turn your SMS notifications on so that the ATO can notify you.
You should then expect to electronically receive an instalment notice from the ATO. While you don’t need to lodge this notice, you will need to pay the amount by the due date to ensure you avoid interest or penalties.
How will I know how much to pay and when to pay?
Tax is a function of management. Clear expectations will allow for proper planning.
Critical to getting the greatest benefits from the regime is ongoing tax planning and management. To ensure the appropriateness of each instalment an estimate of the likely annual tax liability is required. This requires regular estimates of your annual taxation obligation. For businesses, a well-structured and maintained cloud accounting solution will assist with this.
For new businesses, tax planning and management is even more crucial. Until you report a tax liability arising from business income the ATO will not register you for PAYG Instalments. Calculating estimated taxation obligations is essential to ensure the right amount of funds are planned for and reserved to meet future taxation obligations.
Commonly, PAYG Instalments are paid quarterly. However, there are circumstances where the ATO may require you to pay monthly.
For advice on PAYG Instalments and tax planning & management, engage Acuiti Accounting & Advisory. Our team is passionate about empowering businesses and individuals with the foundations, guidance and services to succeed.
Get in touch with our friendly team today by calling us on (03) 9133 6075.