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PAYG Instalments

What is a PAYG Instalment

Pay As you Go (PAYG) instalments, are regular prepayments of tax on your business and investments income. If you earn income, over a certain threshold, from an investment or business, you will have to pay PAYG instalments. The amount you pay throughout the year is then offset against what you owe.

When you pay regular instalments throughout the year, your business will most likely not have a large tax bill to pay when it comes to lodging your tax return. This in turn helps you manage a healthy cash flow by budgeting your income tax. 

What is the difference between PAYG Withholding and PAYG Instalments? 

PAYG withholding is when an employer collects taxes directly from an employee or contractor's pay cheque and provides these to the Australian Taxation Office (ATO). By doing this, employers help individuals meet their income tax liabilities without the hassle involved. 

When you apply for your ABN, you can register for PAYG withholding. You can also register using your GovID. 

PAYG Instalments payments 

Before you submit your tax return, you need to file your PAYG instalment income and activity statements. This ensures your tax assessment factors in the PAYG instalments you have already paid throughout the financial year. You should pay any remaining instalments before you file your tax return. 

PAYG Instalment thresholds

The ATO will work out if you need to pay PAYG instalments based on the information you reported in your latest tax return. 

If you are an individual, a sole trader, or a trust, you will automatically enter the PAYG instalments system if all of the points below apply to you: 

  • An instalment income (this is your gross business and investment income, excluding GST and any capital gains) from your latest tax return of $4,000 or more;
  • Tax payable on your latest notice of assessment of $1,000 or more; and
  • An estimated (notional) tax of $500 or more.

If you are a company or a super fund, you will automatically enter the PAYG instalments system if any of the following points apply to your business: 

  • An instalment income from your latest tax return of $2 million or more;
  • An estimated (notional) tax of $500 or more; and
  • If your business is the head of a company of a consolidated group. 

Grow Your Business with QuickBooks

Voluntary & Automatic Payments of PAYG Instalments 

There are two options when it comes to paying PAYG instalments. 

You can either pay them voluntarily, if you are a new business, or if you expect to make a profit from your business or investment income. Alternatively, once you file a tax return and your business or investment income is over the threshold, you will automatically be entered into the ATO’s PAYG instalments system. 

Automatic Payments 

When you file your return, and your income is above the entry threshold, the ATO will reach out to let you know how often you need to pay, when payment should be made, and how your instalments are calculated. You will need to start making payments once you receive a quarterly PAYG instalment notice or activity statement from the ATO. 

Voluntary Payments 

If you have a new business or you have started investing, it's advisable to voluntarily make PAYG instalments. This is particularly important if your business is expected to start making a profit. PAYG instalments will help avoid a large tax bill and will make cash flow easier to manage. 

How do you determine your PAYG instalment income? 

There are online services available to help you estimate what you should pay and whether you should be varying your PAYG. If you vary down, be sure the information is accurate because you might be liable for a penalty if incorrect. 

You can request voluntary entry on the ATO website. You can plan ahead by putting money aside to ensure you can pay your instalments by the due date. 

Payroll Software You Can Trust 

For employers, the key is to invest in a payroll system you can trust like QuickBooks cloud payroll software powered by Employment Hero. A payroll system is an essential tool that enables you to pay your employees and manage employee compensation.

Once set up, QuickBooks Payroll will make the necessary deductions, to ensure you are paying your employees correctly. It’ll also help you manage the finer points so that you don't have to. 

With an STP-compliant payroll software like QuickBooks Payroll, you can make payroll a breeze by automatically reporting to the ATO every time you pay your employees.

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