← Guides / Australia

Australia PAYG Instalments Guide

the Australian PAYG instalments. The guide covers: the PAYG instalment system (the "pay as you go instalments") — the PAYG instalments are the "regular prepayments of the expected tax on the business and the investment income" (the "income not subject to the PAYG withholding"); the ATO issues the "instalment notice" (the "quarterly activity statement" or the "instalment notice") to the taxpayer who is in the "PAYG instalment system"; the instalment amount is calculated by the ATO based on the "last assessed tax" (the "GDP-adjusted notional tax" — the "adjusted instalment amount" for the GDP growth); the taxpayer must pay the instalment quarterly by the "21st day of the month following the quarter" (the "21 October, the 21 January, the 21 April, the 21 July") or the "28th day" for the quarterly BAS lodgers; the varying the instalments (the "options to adjust the instalment amount") — the taxpayer can vary the PAYG instalment amount if the estimated tax for the current year is lower or higher than the ATO's calculated amount; the variation is made through: (a) the "instalment notice" — the taxpayer enters the "varied amount" in the "Instalment amount" box and the "reason for the variation" code, (b) the "BAS" — the taxpayer varies the PAYG instalment in the "PAYG instalment" section of the BAS; the variation penalty (the "GDP adjustment penalty") applies if the varied amount is less than 85% of the actual tax liability for the year; the entering and the leaving the PAYG instalment system (the "eligibility for the PAYG instalments") — the taxpayer enters the PAYG instalment system if: (a) the "tax on the business and the investment income" in the last assessment exceeds $4,000 (the "entry threshold"), (b) the ATO notifies the taxpayer of the entry into the system; the taxpayer can leave the PAYG instalment system if: (a) the "estimated tax" (the "notional tax") for the current year is below the "exit threshold" (the "$4,000" for the individuals and the "$1,000" for the other entities), (b) the taxpayer withdraws from the system through the "ATO online services".

PAYG Instalment Calculation Methods

  • GDP-adjusted notional tax method: The ATO calculates the instalment amount by taking the "notional tax" (the "tax on the business and the investment income from the last assessed return") and applying the "GDP adjustment factor" (the "10% for the 2024-25 income year"). The taxpayer pays the adjusted amount each quarter regardless of the actual income earned in the quarter.
  • Calculated by the taxpayer: The taxpayer can choose to "calculate the instalment" based on the "estimated tax for the current income year". The taxpayer must lodge the "variation" through the BAS and show the "calculated amount". The taxpayer can also choose the "Option 2 — the calculated by the ATO" on the "instalment notice".
  • Quarterly vs annual PAYG: The taxpayer can apply to pay the PAYG instalment "annually" instead of the "quarterly" if the "notional tax" is under $8,000. The annual PAYG instalment is paid by the "30 November" after the end of the income year. The quarterly PAYG is the default for the taxpayers with the notional tax above $4,000.

For the BAS and the GST reporting, see our GST Guide →.

PAYG Instalments for the Individuals

  • Investment income focus: The individual in the PAYG instalment system typically has the "investment income" (the "rental income, the dividend income, the interest income, the capital gains") or the "business income" (the "sole trader income, the partnership income"). The PAYG instalments ensure the taxpayer pays the tax on the investment income progressively during the year.
  • Varying for the CGT events: The individual who sells the CGT asset (the "shares, the property") during the year can vary the PAYG instalment to account for the "capital gain". The variation should be made in the "quarter of the CGT event". The failure to vary may result in the "large tax bill" at the year end and the "GIC" on the underpayment.
  • PAYG instalments and the retirement: The retiree with the investment income may enter the PAYG instalment system. The retiree can vary the instalments down if the investment income is lower than the previous year. The retiree should also check the "SAPTO eligibility" (the "senior and the pensioners tax offset") which may reduce the overall tax liability.

For the CGT on the investment assets, see our Capital Gains Tax Guide →.